Premium pension institutions manage pension assets worth EUR 512 million
Premium pension institutions (PPIs) are relatively new financial institutions in the Netherlands. Of the eleven PPIs that are currently in operation, the first started in mid-2011. PPIs are active in the supplementary pensions market. They are the third type of pension provider in the second pillar, alongside pension funds and insurers.
PPIs offer defined contribution (DC) schemes in the pension accrual stage, with retiring members having to contract a pension with a life insurer. Unlike pension funds and life insurers, PPIs are not permitted to incur underwriting risk, which is why they cannot offer occupational disability pensions or partner’s pensions. Hence PPIs collaborate with life insurers, which are permitted to administer products carrying underwriting risk. Most PPIs have been incorporated by a life insurer, asset manager, pension provider, bank or investment fund, or by a combination of these.
PPIs manage the pension assets of employees during the accrual stage of the latter’s working life. The scale of these managed assets has been increasing (Chart 1).
Chart 1 -Assets managed by PPIs (in EUR million)
At the end of March 2014, PPIs managed assets worth some EUR 0.5 billion. By comparison, pension funds managed EUR 4.8 billion and life insurers managed EUR 9.1 billion in this market, according to the most recent figures (year-end 2012).
The allocation of the assets managed by PPIs across the investment categories real estate, shares, fixed-income securities and other investments is broadly comparable to the allocation by pension funds administering DC schemes (Table 1).
Table 1 - Breakdown of managed assets by investment category
Members accruing a pension at a PPI are offered a standard asset mix matching their age bracket. This type of investment has a life cycle, in which the proportion of fixed-income securities in the total investment portfolio generally increases as members approach retirement. Some PPIs allow members to diverge from the life cycle asset mix offered, which is referred to as ‘opting out’. At the moment, some 5% of the managed assets are administered for members who have ‘opted out’.
The managed assets growth is driven primarily by incoming commitments and premium contributions (Table 2).
Table 2 - Statement of changes in managed assets(in EUR million)
PPIs have taken over EUR 253 million worth of commitments from pension funds and life insurers since the beginning of 2012. These pension assets were transferred by employers who opted to have their pension schemes administered by a PPI rather than by a life insurer or pension fund. After the transfer, the employers in question pay regular premiums. The table above shows that this component has been growing apace. PPIs received EUR 207 million in premiums in the identified period, EUR 67 million of which in the latest quarter (2014 Q1). A third factor driving the managed assets growth is positive investment results (+ EUR 30 million).