TRANSITIENIEUWS – Aandachtspunten bij de risicohouding en het contract

DNB has published news for pension providers regarding the risk attitude and contracts during the WTP Transition. Based on a data survey that was conducted last October on this subject to pension administrators (please see eventID#23501), the note contains points of attention on how the risk attitude should be determined and tested and how the balance should be proven under the rules of the supervisor.
Pension funds can use these points when defining their risk profile and structuring their contracts. One notable aspect for risk management is the chronological sequence in determining and assessing risk attitudes. The law emphasizes that each subsequent phase in the process should depend on the earlier phases, not the other way around.
In a general sense, the determination and assessment of risk attitudes involve four stages:
1. Risk Preference Examination (RPO)
2. Weighing information from RPO sources, participant characteristics, and scientific insights to establish risk attitudes
3. Formulating investment policies or allocation rules based on the determined risk attitudes through Asset Liability Management (ALM) analysis
4. Annual assessment of risk exposure against risk attitudes
DNB references a published Factsheet on risk attitudes of pension administrators and a Q&A on the minimum requirements for justifying risk attitudes. Regarding contract implementation, one focus is on meeting all requirements from the rules regarding calculation methods used to determine the solidarity reserve and the risk-sharing reserve of the pension administrators.
These requirements include:
1. Establishing quantitative benchmarks to assess alignment with reserve objectives.
2. Setting quantitative benchmarks for the balanced structuring of the reserve.
3. Conducting a quantitative scenario analysis or stochastic ALM analysis to elucidate the effects of reserve structuring using the benchmarks mentioned above.
4. Justifying, based on the outcomes of the quantitative scenario analysis or stochastic ALM analysis, that the reserve’s structuring aligns with objectives and is balanced.
DNB’s investigations revealed that these requirements were not always fully met. In some cases, a quantitative measure was chosen to clarify the generational effects of the reserve, but there were no quantitative criteria attached. These criteria are necessary to assess whether the reserve’s structuring is balanced. Additionally, many cases lacked a description of when benefits and costs materialize for participants, or the description was incomplete.
In addition, DNB mentions two specific points discussed in the Pension Transition Platform’s second meeting: the translation of risk preferences into risk attitudes and the effective and balanced implementation of the solidarity reserve. Further details on the follow-up to these discussions can be found in the meeting report.