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Marco Robben
By Marco Robben
4 years ago | comments

PPI challenges Dutch pension providers

Blog post | Management test PPI challenges Dutch pension providers

What is a PPI?

Since 2011, in addition to the already existing pension insurance companies and pension funds, a new form of pension administration is possible in The Netherlands: the PPI. The three main features of a PPI are:

  • A PPI may only provide collective defined contribution schemes (DC);
  • A PPI may offer pension schemes outside the Netherlands;
  • A PPI may carry no risks.

In theory, anyone could launch a PPI in the form of an NV, BV or foundation. A license by the Dutch Central Bank however is required that demands professionalism of the organization, professional governance and the sufficient solvency and viability of the PPI.

What does a PPI offer?

A PPI may only carry DC schemes. That means a collective pension scheme where each participant accrues an individual pension capital. Once a participant reaches retirement age, he/she has to purchase a lifelong annuity from a pension insurer.

A PPI cannot guarantee or provide risk coverage by itself because it is prohibited by law: a PPI may not carry any biometric risks (death, disability, annuity) nor market risks (capital guarantee, guaranteed interest rates). In practice, PPIs do provide guarantees and risk coverage to their customers (employers) to which they pass the risks and guarantees toa third party: a life insurance company or an asset manager.

What is the effect of the PPI in the Dutch pension market?

There are differences among PPIs, but in general PPI stands for:

  • Freedom of choice for employer and employee
  • A wide range of commercial providers;
  • Low costs for the client;
  • Availability of up-to-date (online) communication tools for employer and participant;
  • Pension plans outside the Netherlands are possible.

Since the start of the first PPIs early 2012, the following effects are visible in the Dutch pension market:

  1. Traditional pension insurers lower their prices to compete with the price of PPIs
  2. Arrival of so-called “unbundled” providers that allow the client (employer, employee) to choose and switch between competing asset managers and risk insurers within a single pension contract.

Thus, the PPI has been causing price pressure in the market for insured pension plans and for more transparency and freedom of choice in asset managers and risk insurers.

What are the trends?

There is an ongoing trend in which the number of DB schemes decreases and the number of DC schemes increases. At the same time, the number of PPIs grow, and there is a severe price competition among PPIs and between PPIs and Pension Insurers.

It is expected that the total Dutch market for DC schemes in the coming years is not large enough to be profitable for all providers. Some PPIs will disappear and some life insurers will stop offering group pension products.

Within the PPI market the following two trends are visible:

  • White label PPIs that allow the employer to have a corporate identity in the communication to the participants;
  • market entry of large foreign financial institutions such as asset managers and risk insurers that see an opportunity in the current developments to offer their products and services on the Dutch pension market.

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