Prevent Disappointments: Develop Future-Proof Third-Pillar Pension Products

ANALYSIS REPORT
Prevent Disappointments: Develop
Future-Proof
Third-Pillar Pension Products
In Short - Research by the Dutch Authority for the Financial Markets (AFM) into third-pillar pension products reveals positive developments, but also clear areas for improvement. It is crucial that the final pension payout corresponds to what customers may expect. With this publication, the AFM provides providers of 3rd pillar products with tools for the analyses and considerations within their product development.
NOVEMBER | 2025

© AFM 2025 | Prevent Disappointments: Develop Future-Proof Third-Pillar Pension Products 2 For workers who are not building up sufficient pension, third-pillar pension products (3P products) can offer a solution. This requires, however, that these products are of good quality. Research by the Dutch Authority for the Financial Markets (AFM) into these products reveals positive developments, but also clear areas for improvement. It is crucial that the final pension payout corresponds to what customers may expect. Because the amount of that payout depends largely on the accumulation phase, and customers still have scope for action during this phase, providers also have a responsibility during the accumulation phase to clearly explain how the product works, what the customer can and cannot expect, and to offer high-quality products. With this publication, we provide providers of 3P products with tools for the analyses and considerations within their product development. What is going well? We see that providers are increasingly paying attention to careful product development. For example, the definition of the target group is described in greater detail, and consideration is given to the application of risk reduction. There are also good insight tools available for customers, and ample attention is paid to the necessary knowledge and experience. At the same time, we also note that improvement is needed in a number of areas. The AFM identifies six topics below where this applies.

1. Savings products are not the best choice for everyone
   The target group for savings products, bond funds, and similar products is often defined too broadly. Due to the influence of inflation on the purchasing power of pension wealth, such products may not be suitable, for example, for customers with a long horizon who expect an increase in the purchasing power of their contributions from their pension wealth. Bond funds are, of course, suitable for risk reduction as the horizon becomes shorter (see point 2 below). Furthermore, the AFM does not see how, for example, savings products are appropriate at the end of the accumulation phase for customers who do not understand or accept interest rate risk well. The AFM therefore expects providers to consider the following (non-exhaustive) aspects in the product analyses and considerations of 3P products, for example, and to determine what this means for the target group and distribution:

• The expected accumulation and real payout under different circumstances;
• The horizon until the pension date;
• The (un)willingness of the customer to hedge against inflation with the product;
• The interest rate risk (see further below under point 2);
• The (un)willingness of the customer to bear investment risk;
• The pension objective: for example, setting aside the purchasing power of today for sufficient purchasing power in the future.

2. Risk reduction is an essential part of 3P offerings
   As the customer's horizon becomes shorter, it is essential to reduce risk to make the payout as stable as possible. This will generally mean that as the end date of the product approaches, an increasingly larger portion of investments in stocks is converted into bonds. This reduces investment risk and covers interest rate risk. Due to the inverse relationship between interest rates and the value of bonds, the amount of the payout to be purchased is stabilized. Experience teaches that customers generally do not understand the relationships described above well. This does not mean, however, that reducing risks fits within the broader pension objective of the customer in most cases. Moreover, most customers will not be able to independently reduce the risk of their portfolio. Therefore, the AFM finds it important that companies carefully consider how risk reduction is incorporated into the distribution strategy of 3P products.
3. Transparency regarding real payout and manner of presentation to the customer
   It is important that customers' expectations regarding pension accumulation and payout are realistic. The AFM expects providers to include the display of real amounts in different scenarios—both for the wealth to be accumulated and for the expected periodic payout—in their product development and to make well-founded choices regarding this. This helps customers make better-informed decisions.
   This manner of displaying (expected) pension payouts aligns with pensions in the second pillar, where communicating in real amounts and comparing with the customer's current salary is the norm. Precisely because there is a chance that participants do not interpret nominal amounts well, and there is a risk that the participant considers themselves rich if nominal amounts are projected into the future, it is logical to approach the third pillar in a comparable manner. The AFM also expects providers to carefully weigh at what times and in what manner information on accumulation and payout is shown to customers. Think, for example, of an insight tool that customers can fill in before and during the conclusion of the product, in which the customer can vary with contributions, frequency of contributions, horizon, and the different products offered (for example, offensive and neutral investments). Such tools can also provide insight into different market conditions, allowing the customer to see what that does to the expected real accumulation and payout. Also showing the current accumulation and the expected real pension payout during the term, for example in the 'my environment' section, can help the customer maintain grip on their pension. Finally, the AFM expects providers to think about the influencing effect of the online environment and how this can be used in the customer's interest. Think, for example, of the choice to use or not use default settings when displaying the pension payout for different terms.
4. Third pillar via the employer: opportunities and risks
   Some providers distribute 3P products via employers. This offers opportunities for pension accumulation. The AFM emphasizes that the employee (as the contracting party) is the target group of the 3P product. Providers must also take sufficient safeguards when distributing via the employer, so that employees are well aware of their pension position and scope for action. There is a risk that employees assume their pension is well arranged because it runs through the employer, while the accumulation is in reality strongly dependent, among other things, on their own contributions.
5. Fiscal shell
   Knowledge for the customer of the relevant fiscal rules is important. Think of annual space, reserve space, tax deduction, taxability of the periodic payout, and withdrawal restrictions. The AFM expects providers to include this in their product development.
6. Evaluation of target group and distribution
   Finally, it is important that providers regularly evaluate their products. The AFM expects providers to determine whether the correct target group has been reached and that distribution does not (structurally) take place outside this target group.
   What does this mean for providers?
   The AFM expects providers to include these aspects in their analyses and considerations within product development and evaluations. The goal is to prevent foreseeable disappointments and ensure that products contribute to a good pension.

© AFM 2025 | Prevent Disappointments: Develop Future-Proof Third-Pillar Pension Products 4 Follow-up research by AFM The AFM continuously pays attention to product development, including that of 3P products. This means that the AFM may start a follow-up investigation, in which it expects to see the elements mentioned in this message reflected in the analyses and considerations within the product development of providers.