Quality of pension funds' financial crisis plans below par

Date 31 October 2012

The quality of pension funds' financial crisis plans varies. Many could do with improvement. This is the conclusion of a joint examination by the Netherlands Authority for the Financial Markets (AFM) and De Nederlandsche Bank (DNB) into the quality of pension funds' plans. The quality assessment looked at both the availability and the content of mandatory elements.

Given the developments in the financial sector, the need for and benefits of a well-designed plan are as high as ever.
Half the examined plans were found to be satisfactory or good. The other half, however, emerged as unsatisfactory or poor. Especially the following aspects of the finnacial crisis plans are in need of improvement:

  • clear prioritization of remedial measures
  • clear and explicit timing of pension curtailments
  • anticipation of contingencies in decision making processes
  • clarity on what, when and how the pension fund is to communicate to its members
  • implementation of the requirement to ensure balanced consideration of interests.

A financial crisis plan contains measures and procedures that come into effect during an crisis. It provides clarity to the fund's Board and members as to what should be done in a crisis situation. In 2011, DNB encased its policy in a Policy Rule on Financial Crisis Plans of Pension Funds because many funds turned out to be ill-prepared for a profound crisis. Funds had until 1 May 2012 to draw up a financial crisis plan. Nearly all funds now have plans.
The chart below presents the quality of the examined financial crisis plans.

Quality of pension funds' financial crisis

The AFM and DNB have informed all pension funds required to have a financial crisis plan (over 300) on the outcome of the sector-wide examination, enclosing a template for such a plan with good and bad examples and a list of points for attention.
The AFM and DNB expect pension fund boards to take a critical look at their financial crisis plan and revise it where necessary. The AFM and DNB intend to repeat their assessment of the crisis plan for adherence to the applicable requirements.