Sector Overview Pensions 2023

The State of the Pension Sector

Majority of DC Participants Choose Fixed Payouts

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Contents

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Contents

Introduction to Sector Overview 2023 3 Highlights 5 01 State of the Pension Sector 7 1.1 Overview of Pension Providers 10 1.2 Types of Agreements 12 1.3 Accumulation Phase: Value 14 1.4 Accumulation Phase: Participants 17 1.5 Payout Phase: Value 20 1.6 Payout Phase: Participants 23 02 Characteristics of the Scheme: DB 25 2.1 Types of DB Schemes 28 2.2 Choices within DB Schemes 30 2.3 Partner Pension 33 2.4 Disability 35 2.5 Pensions at the End of the Term 36 03 Characteristics of the Scheme: DC 38 3.1 Types of DC Schemes 42 3.2 Choices within DC Schemes 47 3.3 Partner Pension 54 3.4 Disability 56 3.5 Pensions at the End of the Term 57 3.6 Premium Contributions in DC Schemes 60

Introduction to Sector Overview 2023 3 want and are able to bear. Nor are participants always well-guided in the choice between a variable or a fixed payout. Insights from this sector overview show that the majority of participants deviate hardly from the default and make little use of choices within the scheme. The question is whether participants do not need the choice options offered to them, or if there are other reasons for the low usage. Possibly, thresholds in the choice environment play a role. Or perhaps making one or more of these choices is complex for participants. In any case, it is important that pension providers guide participants in making these choices. And that participants are enabled to make a choice that fits their preferences and financial goals or wishes. Compared to previous Sector Overviews, the AFM has adjusted the structure of the Sector Overview 2023. The first chapter gives an overview of the pension sector, after which chapter two (DB schemes) and chapter three (DC schemes) discuss the various characteristics of the pension agreements. Each chapter begins with a summary and an infographic. Using various graphs, the most important observations are explained. In addition, this sector overview shows trends over the past three reporting years. This Sector Overview was created based on data provided by all Dutch pension funds, pension insurers, and premium pension institutions (the 'pension providers'). The insights in this Sector Overview are based on information from the reporting year 2021 (reference date December 31, 2021). In addition to the publication of the sector overview, the AFM sends an individual report in which a number of data points regarding choices are fed back to the pension providers who provided data for the sector overview. In this way, they can see how their data relates to that of the sector as a whole. Introduction to Sector Overview 2023 In the Sector Overview Pensions 2023, the AFM describes the state of the pension sector and the most important characteristics, trends, and developments regarding payout schemes (DB) and premium schemes (DC). The insights from this third sector overview can be valuable for pension providers when making execution choices or designing new pension schemes. Thus, the report enables pension providers and social partners to compare the characteristics of their own scheme and the choice options for participants in the scheme with sector-wide insights. The transition to the new pension system is a impactful change that affects not only pension providers, but also participants and pensioners in the Netherlands. In the new pension system, participants will build up pension via premium agreements, and the majority of payouts will be variable. Additionally, more choices and responsibilities are placed with the participants. The current payout agreements are converted into premium agreements during the transition. The premium agreement is new not only for many participants, but also for many pension providers. Only one in five participants had built up their pension via premium agreements by the end of 2021. And more than two-thirds of pension providers did not yet execute premium agreements at the end of 2021. During the transition, social partners and pension providers will have to make important choices regarding the design of premium agreements, about which they often have little or no experience. Think, for example, of investment freedom and offering variable payouts. Currently, the majority of participants in a premium agreement (90%) still choose a fixed payout. The transition to variable payouts has advantages but also brings challenges. Previous AFM research shows, for example, that not all pension providers take sufficient account of the characteristics and needs of participants in the development of variable payouts, such as the risks they

4 The AFM uses the data from the supervisory reporting to monitor the most important trends and developments in the pension sector and to maintain risk-based supervision. Based on the data, we quantify risks and prioritize themes for our supervision. Thus, the AFM has recently started an exploration into the gray area within DC schemes. We also periodically share insights from this sector overview via the AFM transition bulletin. With this publication, the AFM shares the information from and about the pension providers with the pension sector, so that they can take note of the sector-wide insights. This publication is not traceable to individual pension providers. Introduction to Sector Overview 2023

Highlights 5 Highlights State of the Pension Sector (Chapter 1) Over the past three years, the number of Dutch second-pillar pension providers has decreased from 206 to 180. The pension providers that ceased operations in the past three years are primarily pension funds. The 180 pension providers active at the end of 2021 consist of 162 pension funds, eleven insurers, and seven PPIs. These pension providers executed approximately 27 million pension schemes in 2021 and manage a total of €1.773 billion in assets. Of this, €1.152 billion is in the accumulation phase and €621 billion in the payout phase, of which €534 billion is for active old-age pensions, €82 billion for partner pensions, and €4 billion for disability pensions. Pension funds are responsible for the largest part of this asset, with 88% of the pensions in the accumulation phase and 88% of the active payouts held by pension funds. The size of premium agreements (in numbers and assets) in the accumulation and payout phases is still limited compared to payout agreements. In 2021, there were more than seven million active participants building up pension in the Netherlands, of whom 80% do so via a payout agreement. Also, the vast majority of the accumulated pension assets are in payout agreements. Only seven percent of the total value of pensions in the accumulation phase was built up via a premium or capital agreement (€74 billion). This means that in 2021, more than 93% of all value in the accumulation phase was built up within a payout agreement (€1.074 billion). In 2021, there were more than 4 million active old-age pensions, of which 95% follow from a payout agreement. The value of active old-age pensions from a payout agreement is €520 billion, compared to €14 billion in value from premium agreements. This means that only 3% of the value from all active old-age pensions comes from a premium agreement. Characteristics of the Scheme: DB (Chapter 2) Of the 5.6 million participants actively building up pension via a payout agreement, almost 80% do so via a final salary scheme, and almost 20% build up pension via a CDC scheme. A small group of less than 1% still builds up pension via a career average scheme. One in five participants who reached the pension date in 2021 from a payout agreement and had the possibility to vary the pension payout amount, made use of this. Around 19% made use of the high-low structure, and almost no one (about 1%) chose for a low-high structure. Of the exchange options, converting the partner pension into a higher old-age pension or vice versa, about 30% of participants made use of this. Exchange of partner pension for higher old-age pension occurs more often than the exchange of old-age pension for partner pension. Participants may also have the possibility to take their pension early and/or defer it. 38% of participants who retired in 2021 and had the choice for early retirement, made use of this. For almost all active participants in a payout agreement, partner pension is built up (95%) and the pension accrual is continued in the event of disability (97%). Among active and former participants with a partner pension, only a small group of 7% has a specific partner pension. With a specific partner pension, the partner must be known to the pension provider at the time of the participant's death for the allocation of the partner pension.

Highlights 6 At the end of 2021, almost €2.367 billion in pension value from a payout agreement had not yet been claimed by 357,000 participants, which means that the average value of an unclaimed pension from a payout agreement is approximately €6,630. Almost all still unclaimed pensions are managed by pension funds. Characteristics of the Scheme: DC (Chapter 3) Of the 1.5 million participants actively building up pension via a premium agreement, almost two-thirds have a stepped premium contribution. For the remaining participants, the premium contributed annually for them is a fixed percentage of the pension base. For these participants, the premium does not increase with their age. Currently, the fixed payout is in most cases the default payout, and very few participants deviate from this default sorting choice. The question is to what extent participants have consciously chosen this and whether the default choice aligns with the characteristics and preferences of the participant. By far the majority of participants, more than 9 out of 10, sort for a fixed payout. This is also reflected in the number of active payouts from premium agreements, less than 4% of the active payouts from a premium agreement is a variable payout (6.8 thousand). Almost one in three participants who reached the pension date in 2021 from a premium agreement and had the possibility to vary the pension payout amount, made use of this. Around 29% made use of the high-low structure, and almost no one chose for a low-high structure. Of the exchange options, converting the partner pension into a higher old-age pension or vice versa, 6% of participants made use of this. Here, almost everyone exchanged their partner pension for a higher old-age pension. Participants in a premium agreement may also have the possibility to take their pension early and/or defer it. 5% of participants who retired in 2021 and had the choice for early retirement, made use of this. More than two out of three participants (68%) in a premium agreement have investment freedom. These participants have the possibility to choose between one or more investment mixes defined by the pension provider in the form of lifecycles (profile investing) or to choose the investments themselves (opt-out investing). Participants who have investment freedom make little use of this. For three out of four participants, no risk profile has been established, which means they invest according to the default lifecycle of the pension provider and thus do not make use of profile investing. 7% choose for opt-out investing. 80% of active participants in a premium agreement build up partner pension, and for 88%, the pension accrual is continued in the event of disability. These percentages are lower than for participants with payout agreements. Among active participants with a partner pension in the premium agreement, 13% have a specific partner pension. This percentage is almost twice as high as for participants with a payout agreement. With a specific partner pension, the partner must be known to the pension provider at the time of the participant's death for the allocation of the partner pension. There are 536,000 participants with a premium agreement with a specific partner pension for whom the partner is not registered. If these participants do not register their partner in time, it may be that there is no right to partner pension when the participant dies. At the end of 2021, almost €264 million in pension value from a premium agreement had not yet been claimed by eleven thousand participants, which means that the average value of an unclaimed pension is approximately €24 thousand. Almost all still unclaimed pensions are managed by insurers.

01 State of the Pension Sector 7 01 State of the Pension Sector € 1.773 billion value in the Dutch pension pot 162 pension funds 11 insurers 7 PPIs € 1.152 billion Value in accumulation phase € 621 billion Value in payout phase 7.1 million active participants 4.2 million old-age pensions 180 pension providers in the Netherlands

01 State of the Pension Sector 8 The AFM looks at the state of the pension sector from two phases: (1) the accumulation phase, that is, the period until the pension date during which an (former) participant builds up pension; and (2) the payout phase, that is, the period during which a pensioner receives a pension payout. In these phases, we zoom in on the total pension assets and the participants, and we highlight the most important differences between pension providers. In chapter two (DB schemes) and chapter three (DC schemes), we discuss the most important characteristics and developments therein per type of agreement. At the end of 2021, there were 180 providers of second-pillar pension in the Netherlands In the Dutch market for second-pillar pension, there are three types of pension providers that together form the sector: pension funds, insurers, and premium pension institutions (PPIs). Over the past three years, the number of Dutch second-pillar pension providers has decreased from 206 to 180. The pension providers that ceased second-pillar pension activities in the past three years are primarily pension funds (24 in total, of which nineteen enterprise pension funds, one general pension fund, and four industry pension funds) and two insurers. The 180 pension providers active at the end of 2021 consist of 162 pension funds, eleven insurers, and seven PPIs. This downward trend is expected to continue. Payout agreements dominate in the accumulation phase 93 percent of the accumulated pension assets are still in payout agreements. This means that during the transition, a large part of the pension assets in the accumulation phase must be converted into a premium agreement. In addition, more than two-thirds of pension funds will execute premium agreements and variable payouts in the new system for the first time, about which they have no experience. In 2021, 111 of the 162 active pension funds (still) did not execute premium agreements. The share of pension funds executing premium agreements has remained constant over the past three years. 65% of total pension assets are in the accumulation phase; 35% in the payout phase Dutch pension providers managed a total of €1.773 billion in assets on December 31, 2021, of which €1.152 billion (65%) is in the accumulation phase. Pension funds are responsible for the largest part of the assets in the accumulation phase, with 88% of the €1.152 billion in the accumulation phase held by them. This total asset in the accumulation phase is distributed over almost 21 million pensions being built up by active and former participants (one person can build up multiple pensions, both with one provider, and with different providers). In 2021, there were more than seven million participants actively building up pension, and of this group, four out of five participants (80%) build up their pension via a payout agreement. The size of premium agreements (in numbers and assets) in the accumulation phase is still limited compared to payout agreements. The total value of pension payouts from payout agreements is 37 times larger than pension payouts from premium agreements The number and value of old-age pensions resulting from a premium agreement stand in sharp contrast to the number resulting from a payout agreement. In numbers: 189 thousand (4.5%) from a premium agreement versus four million payouts from a payout agreement. The value of active old-age pensions from a premium agreement is €14 billion, compared to €520 billion in value from payout agreements. This shows that the payout agreement is still the most common agreement at this moment. Although the total value of active old-age pensions from premium agreements is small, it has been steadily increasing in recent years. This increase is in line with the total increase in active old-age pensions, so that the share of the value of premium agreements within old-age pensions has remained almost constant over the last three years.

01 State of the Pension Sector 9 The total value of payouts from second-pillar pensions (payouts from old-age pensions, partner pensions, and disability pensions) was approximately €621 billion in 2021. As in the accumulation phase, pension funds manage 88% of all pension assets from active pension payouts in the Netherlands. This asset is distributed over 5.3 million pensioners, of whom more than two out of three receive a payout from a pension fund. Of all pensioners, 4.2 million (almost 80%) receive an old-age pension. Here, it applies that not every pensioner is a unique person. As is known, it happens in practice that a pensioner has built up pension with multiple employers in the past. As a result, he receives a payout from multiple pension providers, and thus the pensioner is reported to us multiple times.

01 State of the Pension Sector 10 1.1 Overview of Pension Providers Total Pension Sector Pension Fund Insurer PPI 180 162 Number of Pension Providers 90% 11 7 Figure 1a. The number of second-pillar pension providers, by type of pension provider For this Sector Overview, the AFM has asked all pension providers established in the Netherlands for the third time to fill in the supervisory reporting. Figure 1a shows that most providers of second-pillar pensions are pension funds. Of the 180 providers active on the Dutch market as of the reference date December 31, 2021, 90% are a pension fund. Furthermore, there are eleven insurers and seven PPIs active. n Pension Fund n Insurer n PPI 2019 2020 2021 0 50 100 125 150 175 Number of Pension Providers 225 25 75 206 13 7 186 190 12 171 180 11 162 7 7 200 Figure 1b. Trend in the number of second-pillar pension providers, by type of pension provider From Figure 1b, it appears that there is a downward line in the number of pension providers active on the Dutch market. Since 2019 (the first year in which the AFM asked pension providers for supervisory reporting), the number of pension providers has decreased from 206 to 180. In 2021, there are thus 26 fewer pension providers than in 2019, of which 24 pension funds and two insurers.

01 State of the Pension Sector 11 Total Pension Fund Enterprise Pension Fund Industry Pension Fund Profession Pension Fund General Pension Fund 162 Number of Pension Funds 45 9 104 64% 4 Figure 2a. The number of pension funds, by type of pension fund Figure 2a shows that the largest part of the 162 pension funds in 2021 consists of enterprise pension funds. Almost two out of three pension funds is an enterprise pension fund, followed by 45 industry pension funds, nine profession pension funds, and four general pension funds. However, the number of enterprise pension funds has also decreased most strongly compared to 2019. n Enterprise Pension Funds n Profession Pension Funds n Industry Pension Fund n General Pension Funds 2019 2020 2021 0 50 100 125 150 175 Number of Pension Funds 200 25 75 186 49 5 9 123 171 46 9 112 162 45 9 104 Figure 2b. Trend in the number of pension funds, by type of pension fund In the past three years, the number of pension funds on the Dutch market has decreased from 186 to 162. Compared to all types of pension providers, the number of enterprise pension funds has decreased most strongly compared to 2019. From Figure 2b, it appears that where there were still 123 enterprise pension funds in 2019, this number has shrunk to 104 in 2021. This is a decrease of 15% over three years. Besides enterprise pension funds, we also see a decrease in the number of industry pension funds and general pension funds. In the past three years, four industry pension funds and one general pension fund have ceased operations.

01 State of the Pension Sector 12 1.2 Types of Agreements n Total n Payout Agreement n Premium Agreement n Capital Agreement Number of Pension Providers PPI Insurer Pension Fund 162 51 156 0 11 9 8 5 7 7 0 0 Figure 3a. Offer of different pension agreements, by pension provider (accumulation phase) Figure 3a shows which pension agreements pension providers 'execute' in the accumulation phase. The AFM understands 'execute' to mean that the pension provider has a type of agreement in its portfolio, regardless of whether it is (still) actively offered. Because a pension provider can offer more than one scheme, the number of agreements offered in Figure 3a adds up to more than the total. Almost all pension funds have a payout agreement in the portfolio in the accumulation phase, and less than one in three executes a premium agreement in the accumulation phase. n No premium agreement in portfolio n Premium agreement in portfolio 2019 2020 2021 0 50 100 125 150 175 Number of Pension Funds with Premium Agreements in Portfolio 200 25 75 186 32% 68% 171 31% 69% 162 31% 69% Figure 3b. Trend in the number of pension funds with a premium agreement in portfolio (accumulation phase) From Figure 3b, it appears that there has been no major shift in the share of pension funds executing a premium agreement in the accumulation phase over the past three years. Figure 3a further shows that of the eleven ins...