Sector Overview Pensions 2024

ANALYSE SECTOR IN BEELD Sector Overview Pensions 2024

In brief With this publication, the AFM shares sector-wide insights into important developments in the pension market. These insights can be valuable for pension providers when making execution choices or designing new pension schemes. Thus, the publication enables pension providers and social partners to compare the characteristics of their own scheme and the options available to participants with sector-wide insights.

Sector Overview Pensions 2024 3 ANALYSE SECTOR IN BEELD Introduction Sector Overview Pensions 2024

In the Sector Overview Pensions 2024, the AFM describes the state of the pension sector and the key characteristics, trends, and developments regarding payout schemes (DB) and premium schemes (DC).

Why this Sector Overview? The AFM uses the data 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. Additionally, in-depth insights from this sector overview are periodically brought to attention via the AFM transition bulletin, and pension providers receive individual feedback based on the data from this publication.

In particular, the AFM uses the data to monitor how the transition to the new pension system is proceeding and what influence this transition has on, among other things, the options within pension schemes, the actual choices participants make, and how frequently different types of pension schemes and pension payouts occur in the market.

What can you expect? The first chapter provides an overview of the pension sector regarding the number and type of pension providers, the number, type, and values of agreements, and the number of participants, both in the accumulation phase and the payout phase. Chapter two (DB schemes) and chapter three (DC schemes) delve deeper into the characteristics of the various pension agreements. Using various graphs, the key observations are clarified and trends in the sector are shown. Each chapter opens with a brief summary and an infographic with key figures.

How was this Sector Overview created? This publication was created based on data provided annually by all Dutch pension funds, insurance companies, and premium pension institutions (the 'pension providers') via the second pillar pension supervision report. The insights in this publication are based on information from the reporting year 2022 (reference date December 31, 2022) and are not traceable to individual pension providers.

In view of the changes in the Dutch pension system, a new reporting format is being used starting from the reporting year 2023. This allows future Sector Overviews to distinguish between old and new contract forms.

Sector Overview Pensions 2024 4 ANALYSE SECTOR IN BEELD Key Points

The transition to the new pension system is not only an impactful change for pension providers, but also for participants and pensioners. For example, participants in the new pension system build up their pension via premium schemes, and the majority of pensioners will receive their pension via a variable payout in the future. Additionally, more choices and responsibilities are placed with the participants. It is therefore important that everyone is well included in what the transition to the new system means for them personally. Here, both the advantages and the more risky aspects must be highlighted, and realistic expectations must be raised.

Based on the data and insights from this sector overview, the AFM has identified five topics that require the attention of pension providers during the transition to the new pension system.

Inform and guide pensioners during the transition to variable pension payouts As a result of the conversion to new pension contracts, the majority of pensioners will eventually receive a variable pension payout. Although the number of variable payouts has increased slightly over the past three years, variable payouts are still relatively rare at present: in 2022, only 4% of payouts from a premium scheme were variable (see Figure 37b).

A variable payout has different characteristics than a fixed payout. For this reason, pensioners who are transitioning from a fixed to a variable payout due to the system change must receive timely, correct, clear, and balanced information about this change. This helps them better understand the associated benefits and risks. In 2024, the AFM issued a number of recommendations for information provision regarding (the adjustment of) variable payouts ('Inform timely about pension adjustments').

With flexible premium schemes, pensioners have the choice between a fixed or a variable payout on the pension date. This choice is complex and irreversible. It has direct consequences for the financial situation after retirement. Therefore, it is important that pensioners in a flexible premium scheme are well guided in making a choice that fits their personal circumstances. Also, in the case of a flexible premium scheme, thought must be given to the default pension payout offered, as in practice very few participants deviate from the default payout chosen for them. In 2022, 0.2% of participants in pension funds deviated from the default variable payout to choose a fixed payout. Conversely, less than 1% deviated from the default fixed payout to choose a variable payout. For insurers and PPIs, this applies to four and six percent of participants, respectively (see Figure 42). Because few participants deviate from the default, it is of great importance that the chosen default payout aligns with the characteristics and needs of the participant population.

Inform participants about preserving operation Almost 1.3 million participants were building up pension in a premium scheme with a stepwise increasing premium in 2022 (see Figure 34). It is expected that during the transition to the new pension system, many of these pension schemes will choose for preserving operation. This means that participants who are employed at the time of the transition retain the stepwise increasing premium. The use of preserving operation can have negative consequences. For example, when participants change jobs, they lose the increasing step and enter a new scheme with a flat step. They may not be able to rely on the compensation scheme of the new employer, for example, if compensation takes place outside the pension scheme. This can have negative consequences for the participant's pension accrual.

The AFM considers it important to inform participants timely when using preserving operation because it can impact their pension. The AFM urges including what the consequences are in case of eventual departure from the company. Even if (for now) nothing changes in the pension scheme, that is relevant information. Additionally, pension providers must provide information annually and upon termination of participation regarding the handling of a stepwise increasing premium and its possible effects. This information must also be made available on the pension provider's website. 1

All information that pension providers provide or make available, including information about preserving operation, must be correct, clear, and balanced. The AFM urges pension providers to inform participants with a scheme where preserving operation has been applied, timely and as concretely as possible, about the possible consequences regarding (the loss of) preserving operation upon departure from the company.

Guide participants in choices regarding investments Almost four million participants with a premium scheme could use investment freedom in the accumulation phase in 2022 (see Figure 48). For one million of these participants, it was only about the possibility of choosing an investment profile. The remaining three million participants also had the choice to select their own investments (opt-out), of which slightly more than 5% made use. With the transition to the new pension system, the number of participants with investment freedom is expected to increase. Social partners and/or employers who switch to a flexible premium scheme can choose to offer this option to their participants.

1 Article 220e PW 2 Article 52 PW. 3 Note: When a pension provider uses different investment profiles in the payout phase, the pension provider must determine a risk profile of the participant and apply a suitable investment profile for the participant (Article 52a PW). 4 Articles 48 and 48a PW

When using investment freedom, there is a duty to advise. 2 This duty of care exists because participants who use investment freedom bear the responsibility for their investments themselves, with the risk that they may make suboptimal choices that could lead to a lower or disappointing pension. 3 For all choices in the pension scheme, there are also information provision obligations, and the choice guidance norm applies based on which the pension provider must enable the participant to make a suitable choice. 4

Reduce the number of unclaimed pensions for the transition to the new system At the end of 2022, there were a total of 405,000 participants who had already reached their pension date but had not yet claimed their pension. In total, this amounts to a value of €2.4 billion, or almost €6,000 per participant (see Figure 33 and Figure 60). Participants who have just reached their pension date are likely to claim their pension soon. If participants who only reached the pension date in 2022 are excluded, a significant number of unclaimed pensions remains: 367,000 with a total value of €1.4 billion, or over €3,800 per participant. Most stem from payout schemes, but in premium schemes, the value per pension 'on the shelf' is more than four times as large as in payout schemes.

The AFM has not conducted research into the reasons for not claiming the pension. For example, it is possible that the pension provider could not reach the participant due to a change in contact details. The AFM urges pension providers to make another effort before the transition to the new system to reduce the number of unclaimed pensions.

Sector Overview Pensions 2024 6 ANALYSE SECTOR IN BEELD

Locating participants with unclaimed pensions is in the interest of participants and increases the quality of the pension administration in the lead-up to the transition. Additionally, good documentation of unclaimed pensions is important so that they do not disappear during the transition and can be easily traced to the respective participant afterwards.

A significant portion of participants in a premium scheme risk being disappointed due to limited pension accrual Participants who do build up a pension but have only limited pension accrual (the so-called 'gray area') run the risk of incorrectly assuming they are building up a pension that will provide for their livelihood after retirement. This is shown in an exploration conducted in 2023 using the data on second-pillar pensions that the AFM requests annually. In this exploration, the pension accrual of active participants with a basic scheme within the current pension system was examined ('Exploration of the gray area within DC schemes'). It appeared that almost seven out of ten participants in a premium scheme have an available premium percentage of only 10% or less. For the majority of active participants in premium schemes, a relatively small part of the fiscal space for premium contributions is utilized.

Following this exploration, the AFM has called on the pension sector to discuss the analyses from her exploration and to investigate how unrealistic expectations among participants regarding their pension can be prevented.

The analysis of the latest data received by the AFM also shows that participants risk being disappointed due to a pension accrual that may not meet expectations. For example, 679,000 participants in 2022 had a topping of the pensionable salary below the legal maximum (see Figure 62), and there were 463,000 participants who, as they get older, utilize an increasingly smaller part of the fiscal space for their pension accrual (see Figure 63).

Sector Overview Pensions 2024 7 ANALYSE SECTOR IN BEELD

1. State of the Pension Sector

€1,443 billion 7.5 million active participants, with 21 million pensions 4.2 million old-age pensions Pensioner receives pension (payout phase). Active participant builds up pension (accumulation phase). Value in the accumulation phase €871 billion ( ) Value in the payout phase €573 billion ( ) Total Dutch pension pot: Three-quarters of this is located in a payout agreement. 95% of this stems from a payout agreement. Insurer Pension Fund PPI 11 154 7 Type of pension providers Pension providers There are a total of 172 pension providers in the Netherlands. The majority (154) are pension funds. The pension pot They manage the pension pot

Sector Overview Pensions 2024 8 ANALYSE SECTOR IN BEELD

The AFM views the state of the pension sector from two phases: (1) the accumulation phase, meaning the period until the pension date during which a (former) participant builds up pension; and (2) the payout phase, meaning the period during which a pensioner receives a pension payout. In these phases, we zoom in on the total pension assets, the participants, and the key differences between pension providers.

At the end of 2022, there were 172 providers of second-pillar pensions in the Netherlands.

In the Dutch second-pillar pension market, there are three types of pension providers that together form the sector: pension funds, insurers, and premium pension institutions (PPIs). Over the past four years, the number of Dutch second-pillar pension providers has decreased from 206 to 172. During this period, 32 pension funds and two insurers ceased their activities.

The majority of Dutch pension assets are managed by pension funds.

In 2022, total pension assets amounted to €1,444 billion, of which €871 billion was in the accumulation phase and €573 billion in the payout phase. Both in the accumulation and payout phases, the largest part of the assets is managed by pension funds.

Payout agreements dominate both the accumulation and payout phases.

The total assets in the accumulation phase are distributed over 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). Almost three-quarters of the pensions in the accumulation phase are in a payout agreement.

In the payout phase, payout agreements also dominate. In 2022, there were over 4 million old-age pensions, of which a whopping 95% stems from a payout agreement.

Slight increase in the size of premium agreements in the accumulation phase.

Although almost all pension funds have payout agreements in their portfolio in the accumulation phase, the size of premium agreements (in terms of numbers and assets) is still limited. Nevertheless, there is a slight upward trend compared to payout agreements. The number of pension providers executing premium agreements in the accumulation phase has increased over the past four years, which translates into growth in both the number of participants building up pension via a premium agreement and in the total value of premium agreements in the accumulation phase.

The size of pension payouts from premium agreements remains small.

The number and value of old-age pensions stemming from a premium agreement stand in sharp contrast to the number following from a payout agreement. The payout agreement is currently still the most common agreement in the payout phase. The share of the value of premium agreements within old-age pensions increased slightly in 2022, but this is partly due to the decrease in the value of payout agreements due to rising market interest rates.

As the transition to the new pension system progresses, this picture will change significantly.

Sector Overview Pensions 2024 9 ANALYSE SECTOR IN BEELD 1.1 Overview of Pension Providers

Figure 1a. The number of second-pillar pension providers, by type of pension provider Number of pension providers Pension sector total Pension fund Insurer PPI 172 154 11 7 90%

Figure 1a shows that most second-pillar pension providers are pension funds. Of the 172 providers active in the Dutch market on the reference date December 31, 2022, 90% are pension funds. Furthermore, there are eleven insurers and seven PPIs active.

Figure 1b. Trend in the number of second-pillar pension providers, by type of pension provider • PPI • Insurer • Pension fund Number of pension providers 206 186 190 171 180 162 172 154 2019 2022 2021 2022 7 11 11 12 13

From Figure 1b, it appears that there is a downward line in the number of pension providers active in the Dutch market. Since 2019 (the first year the AFM requested supervision reports from pension providers), the number of pension providers has decreased from 206 to 172. In 2022, there were thus 34 fewer pension providers than in 2019, of which 32 pension funds and two insurers.

Sector Overview Pensions 2024 10 ANALYSE SECTOR IN BEELD

Figure 2a. The number of pension funds, by type of pension fund 64% Number of pension funds Total pension fund Enterprise pension fund Industry pension fund Occupational pension fund General pension fund 154 98 43 9 4

Figure 2a shows that the largest part of the 154 pension funds in 2022 consists of enterprise pension funds. Almost two out of three pension funds is an enterprise pension fund, followed by 43 industry pension funds, nine occupational pension funds, and four general pension funds.

Figure 2b. Trend in the number of pension funds, by type of pension fund Number of pension funds 186 123 171 112 162 104 154 98 2019 2022 2021 2022 4 5 9 49 46 45 43 • General pension funds • Industry pension fund • Occupational pension funds • Enterprise pension funds

Over the past four years, the number of pension funds in the Dutch market has decreased from 186 to 154. Compared to all types of pension providers, the number of enterprise pension funds has decreased the most strongly compared to 2019. From Figure 2b, it appears that where there were 123 enterprise pension funds in 2019, this number has shrunk to 98 in 2022. This is a decrease of 20% over four years. Relatively, the ratio between the types of pension funds remains almost the same, as besides enterprise pension funds, we also see a decrease in the number of industry pension funds and general pension funds. Since 2019, six industry pension funds and one general pension fund have ceased operations.

Sector Overview Pensions 2024 11 ANALYSE SECTOR IN BEELD 1.2 Type of Agreements

Figure 3a. Offer of different pension agreements, by pension provider (accumulation phase) • Total • Payout agreement Number of pension providers PPI Insurer Pension fund 154 • Premium agreement • Capital agreement 148 52 11 8 9 5 7 7 0

Figure 3a shows which types of pension agreements pension providers 'execute' in the accumulation phase. Under 'execute,' the AFM means 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 offered agreements in Figure 3a adds up to more than the total.

Almost all pension funds have a payout agreement in their portfolio in the accumulation phase, and one in three executes a premium agreement in the accumulation phase.

Figure 3b. Trend in the number of pension funds with a premium agreement in portfolio (accumulation phase) • Premium agreement in portfolio • No premium agreement in portfolio Number of pension funds with premium agreements in portfolio 186 32% 68% 171 31% 69% 162 31% 69% 154 34% 66% 2019 2020 2021 2022

From Figure 3b, it appears that in 2022 a small shift took place in the share of pension funds executing a premium agreement in the accumulation phase. This has increased from 31% (51 pension funds) in 2021 to 34% (52 pension funds) in 2022.

Figure 3a further shows that of the eleven insurers, eight execute a payout agreement and nine execute a premium agreement in the accumulation phase. There are still five insurers with a capital agreement in their portfolio. This type of agreement is no longer actively offered and will therefore disappear from the portfolio of insurers over time. PPIs may only execute premium agreements.

Sector Overview Pensions 2024 12 ANALYSE SECTOR IN BEELD

Figure 3c. Offer of different pension agreements, by pension provider (payout phase) • Total • Payout agreement Number of pension providers PPI Insurer Pension fund 154 • Premium agreement variable • Premium agreement fixed 150 11 8 5 7 1 8 20 10

Figure 3c shows which pension agreements pension providers 'execute' in the payout phase. Because a pension provider can offer more than one scheme in the payout phase, the number