Choice Guidance

Starts with the

Participant

Insights from exploratory research into the structuring of

choice guidance by pension scheme administrators

FEBRUARY 2025

ANALYSIS | REPORT

2 © AFM 2025 | Choice Guidance Starts with the Participant

Key Message

Choice guidance is a new standard under the Pension Act, which is important because choices regarding pensions are often complex and their consequences may only arise after a longer period. Pension scheme administrators must enable their participants, former participants, former partners, and pension beneficiaries (hereinafter: participants) to make a suitable choice. In 2023, the AFM provided guidance on this standard via a guideline. In 2024, the AFM conducted an exploratory study into the structuring of choice guidance. In this report, we share findings and good examples from this study. In the coming years, the AFM will conduct various studies into compliance with the choice guidance standard.

What does the AFM expect from pension scheme administrators?

The responsibility for adequate choice guidance lies with the pension scheme administrator, even if this has been outsourced to a pension administration organization (PAO). The AFM expects you, as a pension scheme administrator, to take the insights from this report into account when structuring and improving your choice guidance. The following points form a red thread through the insights in this report.

Participant as the Starting Point

It is important that you delve into the needs, characteristics, and skills of your participants, and that you identify the different groups of participants. For this, you can conduct participant research and make use of the information you already have. Be sharp about which conclusions you can and cannot draw from a study. You must incorporate these insights into the structuring of your choice guidance, so that participants are demonstrably enabled to make a suitable choice.

The AFM observed in its study that pension scheme administrators currently often conduct research into existing communication tools and choice guidance. Although this is good, we recommend gaining insight first into the needs, characteristics, and skills of your participant population and sub-populations. This insight may reveal that participants need something different than the current choice guidance provides.

Concrete and Measurable Objectives

Formulate concrete, objective, and measurable objectives focused on the behavior and knowledge of the participants. Do this for the different choices or choice moments in your choice guidance, for example: ‘X% of participants know six months before pensionable age which choices they can make’. The more concrete and measurable the objective, the better you can determine afterwards whether the objective has been achieved and whether the choice guidance works as intended. Be ambitious when formulating objectives. If you do not achieve an objective immediately, you can use this as a starting point for improving your choice guidance.

Justify the Structure and Document It

Demonstrate how you enable your participants to make a suitable choice. You must adequately justify and document the structuring of the choice guidance. In addition to insights into the participant population, you also take other elements into account when structuring choice guidance, such as the costs and benefits of the choice guidance for your participants. You document your considerations in policy, as well as roles and responsibilities, the monitoring of choice guidance, and evaluation moments. This helps you evaluate your choice guidance and, where necessary, improve it and provide accountability.

3 © AFM 2025 | Choice Guidance Starts with the Participant

Table of Contents

Key Message 2
Structuring Adequate Choice Guidance 6
Participant as the Starting Point 6
Insight into Needs, Characteristics, and Skills 6 Ambition for Choice Guidance 9 Concrete and Measurable Objectives 10 Choice Guidance Policy 11 Elaboration 1: Steering in the Choice Process 12 Consciously Using Steering Influence of the Choice Environment 12 The Order of Choices and Choice Options 12 Elaboration 2: Consequences of Choices 15 Consequences in the Short and Long Term 15 Consequences in Combination of Choices 16 Choices During the Transition 16 Elaboration 3: Channels for Choice Guidance 18 Channel Choice 18 Innovation 19 Participants with Limited Digital Skills 20 Elaboration 4: Passive Participants 22 Activating Participants 22 Insight into Passive Participants 22 Strategies to Activate Passive Participants 23 Default Option 23

4 © AFM 2025 | Choice Guidance Starts with the Participant

Introduction

Pension is complex for many participants. They can make different pension choices. A non-suitable choice can lead to financial disappointment. Therefore, the choice guidance standard was included in the Pension Act (Pw) and the Mandatory Occupational Pension Scheme Act (Wvb) effective July 1, 2023, which obliges pension scheme administrators to enable their participants to make a suitable choice.

The AFM understands that pension scheme administrators face many tasks during the pension transition. This does not change the fact that participants already have the right to adequate choice guidance. We conclude that there are still considerable steps to be taken in the structuring and justification thereof. The AFM calls on pension scheme administrators to study this report and incorporate its content when evaluating and improving choice guidance, and when structuring choice guidance for, for example, the potentially impactful choice regarding taking a lump sum.

Exploratory Study

The AFM conducted an exploratory study in 2024 into the structuring of choice guidance. The study focused on the process that pension scheme administrators went through to arrive at adequate choice guidance.

The AFM held discussions with six pension scheme administrators and three pension administration organizations (PAOs). We requested information from nine pension scheme administrators regarding the structuring of their choice guidance. The selection of these pension scheme administrators represents the sector.1

In the study, the AFM looked, among other things, at:

• the insights pension scheme administrators have regarding the relevant needs, characteristics, and skills of their participants when making pension choices;
• the manner in which these insights were incorporated into the structuring of choice guidance;
• the considerations pension scheme administrators made when structuring choice guidance, and;
• the decision-making regarding the structuring of choice guidance.

Furthermore, the AFM looked at experiences of foreign regulators with comparable legal standards, insights from the AFM supervisory report,2 and the outcomes of the consumer monitor.3

Upon completion of this exploratory study, the AFM will continue to conduct research into choice guidance in the coming years. No more exploratory studies like this one, but compliance studies in which we will test the actual choice guidance at pension scheme administrators.

1. This took into account, among other things, the type of pension scheme administrator, the size of the participant population, the PAO executing the choice guidance (if applicable), and participant characteristics.
2. Supervisory report second pillar pension.
3. Consumer research.

5 © AFM 2025 | Choice Guidance Starts with the Participant

Relationship with the Choice Guidance Guideline

The AFM published the choice guidance guideline in July 2023.4 In this guideline, we elaborated on the choice guidance standard and included a process to arrive at adequate choice guidance. This process consists of three steps: structuring choice guidance, executing the actual choice guidance, and continuously improving choice guidance. This report contains the findings from the exploratory study into the first step: structuring choice guidance.5

For an explanation of the legal standard and an exposition of the three mentioned steps, we refer to the choice guidance guideline.

Reading Guide

This report first addresses insights from our study that contribute to a good structuring of choice guidance for your participants. The first chapter focuses on gaining insight into participants, formulating a clear ambition, and setting concrete, measurable objectives. We also discuss good documentation. Thereafter, this report addresses four elaborations: steering in the choice process, consequences of choices, channels for choice guidance, and passive participants. The AFM chose these because they are important examples of components of choice guidance and we make our message from the first chapter concrete with them.

This report contains recommendations and good examples that the AFM encountered in the exploratory study. Additionally, at the end of various chapters, there is a concrete example of incorporating participant insights into the structuring of choice guidance. The examples are not intended to be adopted one-to-one, but serve as inspiration. Choice guidance must, after all, align with your participants.

4. Choice Guidance Guideline
5. In this study, we did not yet investigate the actual choice guidance.

[Diagram Description: The process consists of three steps: 1. Structuring, 2. Executing, 3. Continuously Improving. The diagram shows that 'Participant as Starting Point' leads to 'Structuring Choice Guidance', which leads to 'Concrete Measurable Objectives', which leads to 'Choice Guidance Policy'.]

6 © AFM 2025 | Choice Guidance Starts with the Participant

Structuring Adequate Choice Guidance

For adequate choice guidance, it is necessary to gain insight into what your participants need to be able to make a suitable choice. For this reason, you delve into the needs, characteristics, and skills of your (groups of) participants. Based on this, formulate a clear ambition for your choice guidance and concrete, measurable objectives. A clear policy framework aids good decision-making.

The image below outlines how the process can roughly look. This process is central in this chapter. In the following chapters, we make the findings from this chapter concrete.

Participant as the Starting Point

To arrive at adequate choice guidance, pension scheme administrators must have sufficient knowledge about their participants and incorporate these insights into the structuring of choice guidance. The AFM's exploratory study shows that some pension scheme administrators have a clear picture of the needs, characteristics, and skills of their participants. They provide a concrete description of who the participants are, what differences exist between participants, and what different participants need to make a suitable choice. At other pension scheme administrators, these insights are limited and assumptions are sometimes made. The latter can bring risks. Think, for example, of an occupational pension fund of a financial institution that assumes all participants are financially unskilled or financially interested. This will not necessarily apply to all participant groups, such as employees of support departments, former partners, or survivors. We see in our exploration that at most administrators, these participant groups are insufficiently visible.

Insight into Needs, Characteristics, and Skills

When a pension scheme administrator still has insufficient visibility into the needs, characteristics, and skills of its participants, it is important to gather this information. Below we list examples of potentially relevant insights.

Needs

• Quantity and level of detail of information
• Personal contact or online
• Having self-control or being relieved of tasks
• Whether or not wanting confirmation that they are making a good choice

Characteristics

• Age
• Life stage
• Life events
• Income
• Duration of active participation in the scheme
• Financial position
• Household composition

Skills

• Language skills
• Numerical skills
• Financial literacy
• Digital skills

Three sources are central for obtaining these insights:

1. data on participants that pension scheme administrators possess;
2. participant research, and
3. information from additional sources.

Data on Participants

Pension scheme administrators possess much relevant data about their participants, such as age, accrued rights, relevant life events, information from the basic registration, and the risk profile. This data can be analyzed and used in the structuring of choice guidance. Think, for example, of the average accrual duration at the pension scheme administrator. If this is thirty years, the consequences of the choices participants make are greater than if the average accrual duration is one year.

Pension scheme administrators also often possess data on participant behavior. This can provide insight into needs or skills. Does a participant frequently call for additional help? Does a participant drop out in the online environment when faced with much text or numbers? Pension scheme administrators can look at, among other things, complaints, contact moments, and click behavior of participants.

Participant Research

Pension scheme administrators regularly conduct participant research.6 From our study, it appears that some pension scheme administrators primarily use participant research to test existing communication and choice guidance tools. Think, for example, of research into the comprehensibility of a letter about pension choices. The AFM welcomes this. However, we recommend gaining insight first into the participant population and structuring and testing choice guidance based on that. This may reveal that participants need something different than the existing choice guidance.

The AFM also observed that at some pension scheme administrators, the focus of participant research lies on satisfaction and less on needs (such as what participants need to arrive at a choice) and skills (such as language skills, digital skills, and financial literacy).

Satisfaction research can help enable participants to make a suitable choice, but it is certainly not sufficient.

Good Example:
The pension scheme administrator takes into account participants with no or limited digital skills when conducting participant research. The pension scheme administrator sends the questionnaire both digitally and by post. The pension scheme administrator analyzes the answers of (potentially) non-digital-skilled participants who respond by post and compares these with the digital answers.

6. For inspiration, see for example: How can behavior be researched? Overview of 18 research methodologies for more effective policy, BIN NL (2019).

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We recommend taking the following points of attention into account when researching participant insights:

• Formulate a clear and concrete research question in advance. For example: “Does the order in which choices are presented to participants influence the percentage of participants who choose for a high-low benefit?” Consider in advance what the implications of different research outcomes are.
• Every research method has advantages and disadvantages. Combining multiple research methods can lead to a more reliable picture of participants. Combine, for example, a broad inventory through questionnaires and available data with one-on-one conversations for more depth.
• In participant research, make as much use as possible of validated methods for inquiry. There is, for example, already much research done into financial literacy, numerical skills, time and risk preferences, and engagement with pensions.
• Carefully consider the size and (expected) representativeness of the research in advance. A high response rate does not automatically mean good representativeness, and conversely, a low response rate does not automatically mean the results are unusable. To promote the representativeness of the outcomes, you can contact more persons from sub-populations from which a lower response is expected.
• Communication channels can influence the representativeness of the research. Take into account, for example, that putting research online already leads to a selection. To include other participants, the research can also be done offline (for example via telephone or post) and on location.
• Be cautious with self-reported wishes of participants. What people think they need is not always what helps them most. Insight into the wishes of participants is therefore not sufficient to gain visibility into the needs of participants. Thorough research into needs helps to understand which form of guidance works best when making suitable choices. Think, for example, of the extent to which participants are better helped with a personal or digital approach, more or less (detailed) information, visual or textual information.

General Behavioral Insights

Insights from other sources can also help in obtaining participant insights. For example, insights from PAOs or other pension scheme administrators. Weigh here, however, that this information is not necessarily applicable one-to-one to your specific participant population.

Pension scheme administrators can also incorporate general behavioral insights when structuring choice guidance. Much is known from behavioral scientific research about the way people make (financial) choices.7 People are, for example, more focused on the present than on the future, have difficulty estimating the future, and are influenced by the design of information and choice options (the ‘choice environment’). These tendencies are largely universal. Financial expertise and intelligence do not make people immune to biases. Almost all participants are likely to benefit from a simplification of language, smartly designed layering, and a carefully chosen default option.

7. See for example: Consumer Behavior: Understand, Steer, and Measure, AFM (2021).

8 © AFM 2025 | Choice Guidance Starts with the Participant

Ambition for Choice Guidance

You can translate participant insights into an ambition for your choice guidance. An overarching, clear ambition regarding choice guidance helps to give direction to policy around choice guidance. In this ambition, the mission and vision of your organization can be translated into where you, as a pension scheme administrator, want to grow with choice guidance. In addition to insights into the participant population, other important aspects can be included in determining the ambition, such as the manner in which you weigh costs and benefits for your participants in this context and the choice possibilities within the scheme.

You can include in your ambition, among other things, when you deem it necessary to request additional information from the participant and whether you incorporate the broader financial picture of your participants into the choice guidance. The study shows that some pension scheme administrators obtain additional information to help the participant make their pension choices. Other pension scheme administrators choose to refer the participant to advisors if they want to view the pension choices in their broader financial picture. In the latter case, it is of course also necessary that the choice guidance enables the participant to make a suitable choice, even if the participant decides not to go to an advisor. You can also include in your ambition whether you advise your participants on the choices within the scheme and what the desired guidance is per choice.

Information on Participants in Choice Guidance

Pension scheme administrators use information on participants not only when structuring choice guidance, but also during the choice guidance itself. Some pension scheme administrators request data from their participants for choice guidance, and additionally, new data sources are becoming available. Think here of the API offered by the Pension Register Foundation (SPR). With this, with the consent of the participant, information about AOW and pension accrual at other pension scheme administrators can be included in choice guidance. Some of the pension scheme administrators we spoke to plan to use the API when the busyness around the pension transition has subsided. The Pension Federation wants to contribute to sharing data for choice guidance with the so-called ‘Agreement System Pension Services’. They write about this on their website:

“Pension data of participants is increasingly spread across different parties in the pension sector. Participants expect to be served fully digitally with a total picture of their own pension situation. To serve participants as well as possible with relevant digital services (the pension services), it is crucial that we collaborate even more in the sector on the sharing of pension data.”

The expected arrival of the Financial Information Data Access regulation (FIDA) can offer additional opportunities to exchange financial customer data between different financial institutions. This will also bring obligations for pension scheme administrators. Security and reliability of the data are important prerequisites here.

A concern raised to the AFM regarding the use of data on participants is that consumers have the right to be forgotten under the GDPR. However, this right is not absolute. When there is an obligation to retain data, for example to demonstrate compliance with the law (in this case the choice guidance standard), the pension scheme administrator may not delete the data. In the context of choice guidance, the pension scheme administrator is obligated to retain what the choice guidance was and on the basis of which data this choice guidance came about (State Gazette 2024, 182, p. 9).

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Advice on Choices is Permitted

The AFM notes that there is uncertainty about pension funds giving advice. The appendix to the choice guidance guideline explains by the AFM what advice you may give. Briefly summarized:

• You may make a concrete recommendation to your participants regarding a choice possibility or combination of choices that are possible within your pension scheme or within pension legislation (advice on choices).
• As a pension fund, you may not advise in the sense of the Financial Supervision Act (Wft): a personal...