On 9th August 2012, the young British dressage rider Charlotte Dujardin rode her Dutch horse Valegro to victory and the individual Gold Medal at the London Olympics with a score of 90.089%. This Anglo-Dutch partnership has been recognised as one of the greatest of all times remaining unbeaten together since 2012.
Since well before the Glorious Revolution of 1688 the history of both the UK and the Netherlands has run side-by-side, often competing, sometimes collaborating but always learning from each other. About pensions and governance for example.
15 Mar 2016
Pat Sharman, Managing Director KAS BANK UK Branch
When it comes to pensions we often see comparison drawn between the systems of the two countries. However, in order to benefit from each other we have to first understand the fundamental differences between the two countries. In headline numbers alone there is a clear difference of scale between the UK and the Netherlands.
Workplace Pension Provision UK vs Netherlands
In the DB market the UK is clearly undeveloped in comparison to the Netherlands. Regulatory led consolidation of Dutch schemes in the wake of the financial crisis of 2008 has resulted in schemes merging together to achieve greater efficiencies. Scheme governance has been increasingly professionalised in order to maintain the long term sustainability of these open DB schemes.
In contrast, outside of the Local Government Pension Schemes, the majority of UK DB schemes are closed or closing to further accruals and new members. Consolidation is much debated but only 5% of schemes are now in a fiduciary management type of structure. This leaves a significant proportion of DB schemes in the “small to medium” category, where services levels by providers can vary dramatically unless they are
serviced by specialists who focus on their needs rather than those of the very largest schemes.
In the DC pensions market, the UK is clearly forging ahead of the Netherlands. Since Auto-Enrolment was introduced compulsory provision of workplaces pensions has focussed on providing DC coverage to employees. As a result the market is growing rapidly and while active membership of DC schemes has already taken over that of DB in last year, it is predicted that assets held in DC schemes will exceed those of DB by 2020 at the latest. On the continent debate still rages about the future of pensions provision and it is clear the UK has much to share on the topic of DC provision. All of this is even before discussing the
outcomes of “Freedom and Choice” in the UK and the ever-changing nature of retirement.
Matching service to client needs
If we look specifically at the small to medium sized DB schemes in the UK, as a custodian we can see that the provision of custody and associated services is different to that of the Netherlands. In the UK leading providers of custody services tend to be universal banks, whose focus is on a global business across their diverse business structure. These banks want to grow their business in sectors that buy globally across all business streams. UK pension funds, aside from the very largest, don’t tend to fit this profile. What then does this mean for these pension funds?
• Pension funds are not the key target group for these banks
• Innovation is not focussed on tools for pension funds
• Client service is not centred on specialist knowledge of pension funds
• There is a lack of local knowledge and a personal approach
In a consolidated and developed market such as the Netherlands, with complex regulatory reporting to the DNB for pension funds, custodians have had to become specialists. It is interesting to note that as a specialist, local, pure-player in the custody space KAS BANK now works for over 35% of Dutch pension schemes. Until now, UK pension funds have not had access to a proper partner that can work with them and their advisers with a knowledgeable view to their long term goals.
So what next?
It is clear that for the UK, the Netherlands can offer opportunities for collaboration and knowledge sharing in order to bring over best practice examples that will benefit DB pension funds here. In reverse, the UK can share our experiences of a maturing DC market.
Innovation prompted by regulatory reporting is a good starting point for the UK, in particular Cost Transparency. However, we can only benefit from this if we apply this Dutch knowledge with an understanding of the UK pensions market and our differences. A key area of difference that we must acknowledge if we are to utilise Dutch developments is the role of the consultant here in the UK. Advisers to pension schemes play a central role in our industry. We must ensure that we work in partnership across the industry in order to affect change where necessary and tailor Dutch knowledge to UK needs.
We can also learn from the specialisation of the Netherlands; here in the UK we have a dedicated pension’s team, separate to those that specialise in working with our other clients, whose task it is to understand pension funds here and provide them with the level of service and understanding that a Dutch pension fund should expect. Much like Dujardin and Valegro building up to 2012, our hope is that our Anglo-Dutch partnership brings UK Pension Funds their gold medal.