André Hollenkamp - board member and chairman ING CDC Pensioenfonds
We will always be dependent on financial markets, particularly interest rates, but we try to prepare for the future as well as we can. That sometimes means taking unpleasant measures.
An interview with André Hollenkamp, who has been a board member and chairman of the CDC pension funds of ING and NN Group on behalf of the Bank Group Works Council since these funds were incorporated. How does André look back at more than six years of administration for the CDC pension plans and what challenges are the pension funds facing now?
How are the pension funds developing?
Well, in the first place, the pension funds have seen their assets grow. We started at nil and are now managing assets worth 2.9 billion euros for the two funds combined. The regulators have gained influence and we are required to comply with stricter regulations. Low interest rates have been putting our funding ratio under pressure in recent years. We need to keep more cash in order to meet our current and future pension commitments. We are always striking a balance between the short and long term, and keep extending our areas of attention and deep-diving into them. Plenty of challenges!
What were your milestones?
In recent years, the new pension plans for ING and NN Group were always on our agenda. The plans were established by the social partners and we are the administrators. We started in 2014, with agreements made for a five-year period. The new pension plan for ING took effect on 1 January 2019 and that for NN Group on 1 July 2019, for periods of five years and 2.5 years respectively.
Looking back, improving diversity within the board has been an achievement. We made a point of creating a better balance, also in terms of background and competencies. And the board has rejuvenated.
To trigger young people's interest in pension and possibly a role in one of the pension funds, the establishment of the Pension Fund Academy in 2017 was a milestone. The Academy was a joint initiative of the employers ING and NN Group, Pensioenfonds ING and the CDC pension funds.
In late 2019, it was decided that pension accrual would be cut back in 2020. Why was this measure taken?
Low interest rates caused the cost of pension accrual (future commitments) to rise sharply and the funding ratio to drop. The CDC pension funds are the administrators of the pension plans, which are agreed upon by the social partners. The social partners also decide how much contribution will be paid into the pension plans. Every year, the pension funds assess whether the fixed contributions will be sufficient to fund the pension accrual targeted for the year ahead. If the contributions are sufficient, pension accrual for that year will be effected in full, but if they are insufficient, the pension funds will need to cut back the accrual rate for that year. That’s what happened for 2020. Pension accrued in the past is not affected, though. If interest rates rise at some point in the future, the cost of pensions will go down and we could consider realising the targeted pension accrual. However, there will always be a risk of further accrual cutbacks as long as interest rates stay low.
The decision to cut back meant participants build up less pension in 2020. Are participants allowed to make additional deposits into the pension plan?
No, that isn’t possible under the terms of our pension plans. Your pension comprises your Dutch state pension (AOW) plus your employers’ pension plans. If you expect that will not be enough for your retirement, you'll have to take different measures. A financial expert can show you how to increase your retirement income. The Pension Planner will give you insight into your financial situation and scope, for now and the future.
Despite making good returns on investments, pension accrual needs to be cut back in 2020. That doesn’t seem to make sense. Could you explain?
At the end of every year, the pension fund assesses whether the contributions are sufficient to cover the pension accrual targeted for the year ahead, taking into account current interest rates. Given that interest rates dropped sharply in 2019, the pension fund implemented a cutback for 2020. In other words, the accrual cutback is entirely unrelated to the return made on investments.
Low interest rates also have an impact on indexation. How?
Every year, the pension funds try to increase pension entitlements, to ensure that pensions retain their purchasing power. The reference for indexation is the overall consumer price index for households in the Netherlands, published by Statistics Netherlands (CBS). Indexation is subject to regulatory requirements – a pension fund is only allowed to increase pensions if the funding ratio meets a certain threshold. The funding ratio has come down so much that we are barely allowed to increase pensions, if at all.
So that’s not good news...
Unfortunately, this is not how we’d like to see things. Participants build up less pension in 2020, and pension accrued in 2019 will not be increased. We will always be dependent on financial markets, particularly interest rates. The pension fund board has a long-term horizon, which also means taking unpleasant measures.
firmly believe in collectivism of pensions, particularly when it comes to spreading risk in investments and surviving dependants pension.
What challenges will the pension fund be facing in 2020 and the years after that?
Low interest rates will continue to have an impact. At the same time, we are monitoring developments at government level in terms of new, stricter regulations and the new pension system for the Netherlands. We are keeping close tabs on these developments, but we don't have an active role in the debate. As a pension fund board member, I am one of the administrators of the pension fund. Personally, I firmly believe in collectivism of pensions, particularly when it comes to spreading risk in investments and surviving dependants pension.
The Pension Planner gives you insight into your financial situation and scope, for now and the future.
Why do people need to take action regarding their pension?
Your financial future is your own responsibility. What will your financial situation be like when you no longer work? Lots of factors have an impact on that. To help our participants, we developed a user-friendly Pension Planner that gives you insight into your pension and your current and future income and expenditures. And advises you on how you could bridge a gap.
Guys, make sure you create a buffer so you won’t panic if you have a setback.
For young employees, retirement is far away, isn’t it?
It's never too soon to start building up a pension. The ‘interest-on-interest phenomenon’ is a very powerful tool for building up a capital. Small steps have large implications for the long term. I teach my children to invest their money. They're only just starting their careers, but I tell them, “Guys, make sure you create a buffer so you won’t panic if you have a setback.”
What do you do when you're not at work?
I spend time with my kids, my partner and on my hobbies: golf and sailing. Last year I joined a golf club. I find being outdoors and playing golf very relaxing. I’m also the type of person who continually wants to learn and develop.
Anything else you'd like to share?
More than 50% of our participants have visited our Pension Planner at least once. This tool works well and that’s reflected by the participants satisfaction survey. That’s very rewarding to see. For the 50% who haven’t logged in yet: I challenge you to!