On July 1st, 2023, the new Pensions Act came into force: the Future Pensions Act (Wet Toekomst Pensioenen). By January 1st, 2028, all pension plans must be adapted to the new legislation, with changes to the three pillars that constitute the pension system. It represents the biggest and most far-reaching adjustment in the pension system ever. This adjustment leads to many changes in the way pensions are administered and managed and has a great impact.
The new pension system offers two contract options: the Solidarity Premium Scheme and the Flexible Premium Scheme. The Flexible Premium Scheme largely retains the current system for members, pension funds, and administrators. There are many changes in the Solidarity Premium Scheme, with a focus on risk sharing between members and more elements of risk sharing compared to the Flexible Premium Scheme.
Many factors come into play in making the choice between the contracts. After that, the design of the new system for funds really begins. It is the biggest transition in recent decades. Implementing these new regulations requires insight, careful planning, and, above all, the right technology.
Seamless integration of the crucial aspects of the new pension system requires a robust, state-of-the-art software solution. To meet this need, Alloq is developing the new Performance Allocation module. The module provides the user with all the tools needed to calculate and allocate returns across age cohorts and the solidarity reserve. This allocation can be done based on the given mandates, according to the risk attitude of the pension funds and participant population and is compliant with legal requirements. Alloq offers the user full insight into the calculations and movements of the allocation through its drill-down and backtrace features. In addition, the 4-eye-check feature guarantees allocation integrity and plausibility checks.
Together with a group of actuaries, Alloq has created an innovative, and above all, applicable solution for the implementation of the new pension system, making it easy for portfolio managers to switch over. The grip on portfolio management remains guaranteed and transparent during each step. And by means of a number of (customizable) dashboards, a clear overview of the most important KPIs can be given for each client.
Want to know more about the module and what it can do for you? Request a demo here.
The Solidarity Premium Scheme contains several elements of risk sharing between the participants. These elements determine how the returns on collective investments are distributed, namely among the different age cohorts and among the solidarity reserve.
For pension funds and pension providers, the distribution of returns across age cohorts has several challenges. First of all, the allocation keys to be used for the distribution of returns must be determined. These allocation keys must fit the risk attitude of the population and the risk attitude of the pension fund. There are also numerous legal requirements attached to the distribution of returns, such as the requirement to be able to justify the choices made at all times.
The calculations of splitting the total return into protection return and excess return and developing a solidarity reserve require new, complex calculation methods. The calculation process is, on the one hand, partly prescribed by legislation, on the other hand, enough flexibility must be built in for the different wishes of pension funds and social partners around risk attitude. For instance, the distribution could be based not only on age but also, for instance, on how much pension a participant has already accrued.
