This whitepaper discusses changes in the Dutch pension system landscape and options for employers. The playing field for pensions has changed significantly due to factors like increased longevity, economic pressures, individualization, and stricter regulations. This has resulted in lower accrual rates and indexation potential. The document analyzes different pension scheme and administration options and how they distribute risks between employers and employees. It provides a matrix to help employers evaluate options based on interests of stakeholders like participants, works councils, and the employer.

1. Risk. Reinsurance. Human Resources.
Aon Hewitt
Pension solutions in 2016:
Whitepaper
January 2016

2. Aon Hewitt Pension solutions in 2015: back to basics 32 Name of study or publication
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 A new playing field. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Increased life expectancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
Economic downturn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
Individualisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
New, stricter regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
Changes to the playing field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 Pension schemes: who bears which risk. . . . . . . . . . . . . . . . . . . . . . . 6
The employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DB schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DCschemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4 Forms of administration: increasing number of options. . . . . . . . . . . 7.
PPI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
IORP and multi-IORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
APF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5 Factoring in all interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6 Getting started!. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Contact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table of Contents
For many years, the Dutch pension system has been renowned as one of the best pension systems in the world.
However, our system has undergone significant change. Under legislation effective from 1 January 2015, pension
accrual has dramatically decreased with far stricter requirements to pension funds.
The pace at which our pension legislation has changed is high to such an extent that employers and pension funds can
often only implement the bare necessities in order to comply with statutory obligations and requirements. However,
exactly now, when the dust is settling, it is vital to not put the pension file in a drawer, but dig a spade deeper and
review the fundamental reasons for having a pension plan.
Ask yourself the following questions:
• Which mid-term strategic goals does my company have?
• Does the current employment benefits package contribute to achieving those goals? Does the current pension
system still match the employee benefits package I wish to offer my employees?
• How much freedom of choice do my employees or pension participants have and what are the risks they run?
• Which form of administration is most appropriate for our business strategy?
This whitepaper shows how Aon Hewitt assesses the changing playing field with respect to pensions. You can also
read which pension schemes are the best solution for you as an employer and which pension solutions offer the best
options to your employees. This will help you make well-founded choices and arrive at a suitable scheme for you and
your employees.
1 Introduction

3. Aon Hewitt Pension solutions in 2015: back to basics 4 Aon Hewitt Pension solutions in 2015: back to basics 5
Economic downturn
The economic climate in the Netherlands has added additionel pressure to the pension system. Companies and their
employees are feeling the squeeze due to low market interest rates reducing the returns on the invested pension
assets. This makes pension accrual under a Defined Benefit agreement (DB scheme) more expensive. Even for Defined
Contribution pension schemes (DC schemes), the low market interest rates are felt, as this affects the pension that can
be purchased upon retirement. The question is whether we will manage to grant indexation on our pension benefits
in the coming 5 to 10 years.
Individualisation
In social terms, strong individualisation and less solidarity is now asserting itself. We want to be independent and
require increasing freedom of choice - also relating to our old age provisions. Employees expect their employer to
adjust their pension scheme to their risk preference. Accordingly, risk appetite surveys are quickly growing in popularity.
Stricter regulations
To counter the effect of the aging population and economic downturns, the Pension Funding Framework (nPFF)
became effective on 1 January 2015. It includes stricter rules relating to funding ratios and more explicit alignment of
relating to the investment policy with both employers and pension participants risk appetites. For example, how do
they deal with interest rate risk? In addition pension insurers are confronted with stricter supervision requirements
issued by European authorities.
Meanwhile, the requirements imposed on pension fund board members are also becoming increasingly strict. This
makes it hard to find new pension fund board members, whilst there is more demand for such persons.
Changes to the playing field
The changes in the pensions playing field can be set out in a diagram as follows:
2 A new playing field
The legislation and regulations around pension accrual traditionally corresponded closely to the economic and demo-
graphic situation in our country. In these fields in particular, there were many changes in the past few years. With the
PFF (Pension Funding Framework), the government has already substantially amended legislation and regulations in
order to ensure the sustainability of our pension system. The SER (the Dutch Social and Economic Council) is currently
studying new variations of our pension system that may be a better match to our economic performance and demo-
graphics. The findings of the SER will form the basis for future changes to the pension system in the
Netherlands.
Increased life expectancy
In the past few decades, the main problem was the continued increase in our life expectancy. This causes a substantial
increase in our pension liabilities; after all, an aging population proportionally requires a higher pension capital. The
expectation is that life expantancies will continu to increase in the coming years. This means we should assume that
we will have to accrue more pension in the years to come, for example by working longer.
Life expectancy at birth (in years)
Source: Forecast Table AG2014
Decreasing
• Employees’ acceptance of risk transfer
• Interest rate
• Value of shares
Increasing
• Pressure from regulators:
- AFM (Financial Markets Authority)
- DNB (the Dutch Central Bank)
• Stakeholder expectations:
- Employees
- Works Councils
- Pensioners
84
82
80
78
76
74
72
70
68
66
1950 1960 1970 1980 1990 2000 2010
men women

4. Aon Hewitt Pension solutions in 2015: back to basics 6 Aon Hewitt Pension solutions in 2015: back to basics 7
4 Forms of administration:
increasing number of options
Choosing a particular pension design is not the only point of attention for you as an employer. Selecting the right
vehicle for the chosen design is also of crucial importance. The options and choices are increasing. Have you been
satisfied with your company pension fund for years and would you like to continue? Or are you also considering other
options, such as membership in a sector-wide pension fund or direct insurance with an insurer?
In addition to these traditional vehicles, it has recently become possible to also choose a PPI, IORP or multi-IORP.
Another option, i.e. establishing an APF (General Pension Fund), is added since januari 2016. What are these new
pension vehicles exactly? In which situation should you choose which option? And for whom?
PPI
A Premium Pension Institution (PPI) is a relatively new vehicle for investing pension premiums. Anyone can establish a
PPI - including employer and employee organisations, banks, asset managers and advisors, subject to licensing. PPIs
are only allowed to administer pure DC schemes, excluding any risk benefits. PPIs are often cheaper in terms of admi-
nistration fees than pension insurers; however, the investment risk is fully transferred to the employee and a PPI is not
able to offer guaranteed pension amounts. PPIs are a logical alternative to direct insurance and their popularity is on
the increase.
IORP and multi-IORP
An IORP is a cross-border pensionfund with centralised governance, financing and investment management. It is an
attractive option for pension funds that feel that asset management and indexation potential in their current form of
administration has room for improvement. Multi-national organisations with pension plans in a number of European
countries may be interested in estabishing an IORP. Smaller employers may be interested in joing a luti-IORP (an IORP
for multiple unrelated employers). In either case, and IORP (or multi-IORP) offers advantages for employers and plan
members. For example, a defined benefit scheme can be administered with lower costs and risks.
APF
In December 2015 a law was introduced that made the creation of a so-called General Pension Fund (APF) possible.
The Senate approved this bill on December 22, 2015 and the law went into effect on 1 January 2016. From that date
on, pension administrators can apply for a license. The APF is especially suited for small funds and employers with an
insured scheme. Suited for small funds, because it enables them to combine their management and administration.
Suited for employers with an insured scheme, because with the current low interest rate, guarantees have become
way too expensive to insurers. They then benefit from economies of scale, but retain control over the scheme.
3 Pension schemes: who bears
which risk?
The distribution of risks between employers and employees is a major issue in pensions. How are risks distributed in
your pension scheme? How should they be distributed according to your employees? What are the options under the
new pension regulations in the current playing field? Depending on the desired distribution, you may choose
between various pension schemes.
The employer
The employer generally pays most of the premium in the Netherlands. Depending on the pension system, the content
of the pension scheme and a fluctuating interest rate may lead to major fluctuations in contributions. In general, the
highest short-term risk is therefore for the employer.
The employee
For the employee, the main risk is the long-term risk relating to the amount of the pension eventually to be provided.
In this context, it is detrimental that the accrued pension premiums have been granted no or very low indexation -
and it is not expected that this will be possible in the next few years either. After all, lower pensions lead to lower post-
retirement purchasing power. This applies equally to pensioners and employees still accruing a pension.
DB scheme
With a DB scheme, your employees’ annual pension accrual is fixed, but the premium may vary during the year. This is
mainly a risk to you as an employer, since you pay most of the premium. Approximately 80 to 85% of Dutch employees
are currently accruing pension in a DB scheme. DB schemes are very popular among sector-wide pension funds in
particular. To keep a grip on the premium, a CDC scheme could be an attractive alternative.
DC scheme
In a DC scheme, the monthly premium for the employees is fixed, and you, as the employer, need to include only the
premiums paid in your annual financial statements. The uncertainty lies mainly in the eventual pension capital
accrued, which depends on the returns achieved. In fact, this means that the investment risk is fully transferred to the
employee. DC schemes are popular with employers who take out a new pension scheme. Approximately 90% opts for
a DC scheme.

5. Aon Hewitt Pension solutions in 2015: back to basics 8 Aon Hewitt Pension solutions in 2015: back to basics 9
6 Getting started!
Now is the time to fundamentally review your pension scheme and the new playing field and take a critical look at the
future. Going beyond compliance with new statutory requirements - that is the opportunity. After all, the plan design,
the financing method, indexation potential and the risk appetite of all stakeholders as well as the pension vehicle are
closely interrelated.
Only by factoring in the interests of all stakeholders will you arrive at the best possible pension plan for your
employees which is both sustainable and aligned with your company’s business objectives.
5 Factoring in all interests
Knowledge of the available options and their benefits and disadvantages is not all that is required. The real challenge
is to balance all interests when choosing a scheme. Which interests will you give the highest weighting? How do you
see your employer practices in relation to this key secondary employee benefit? Making an inventory and weighting of
all interests will allow you to find the best long-term future-proof pension solution for you and your employees.
The matrix below can serve as a starting point for making a well-founded choice. The matrix indicates how the options
compare for both the pension participants, the extent of participation by the Works Councils and unions and for you
as an employer. Please note that this is no more than a general outline. We recommend couducting a feasibility study
for your specific situation to arrive at best solution.
Company
pension fund
Insured scheme Sector-wide
pension fund
(Multi) IORP APF
Participants
indexation
Limited Moderate Limited Higher Limited
Investment/mix risk Moderate Low Moderate Moderate Moderate
Pension liabilities Moderate High High Moderate High
Other costs Moderate Moderate Low Moderate Moderate
Volatility High Low Low Moderate Moderate
Control Moderate Low Low High Moderate
Time required for governance Hard Light Light Moderate Moderate

6. Aon Hewitt Pension solutions in 2015: back to basics 10 Aon Hewitt Pension solutions in 2015: back to basics 11
Contact
Frank Driessen (Chief Commercial Officer) has been working for Aon Hewitt since 2001. He joined the
Board of Directors of Aon Hewitt Netherlands in 2012. In his role as Chief Commercial Officer, Frank is
responsible for advisory services and the quality of Aon Hewitt’s service provision to customers. He
also fulfils the role of Chief Actuary.
Frank has extensive experience at Board and Director level within sector-wide and company pension
funds and international and domestic companies. He deals with strategic reorientation of pension
schemes, mergers and acquisitions and negotiation processes within insurers and reinsurers, among
other things. Customers characterize Frank as a pro-active and solution-driven consultant. Frank
studied Econometrics at Tilburg University and Actuarial Science at Amsterdam University. He is a
member of the Actuarial Association and Actuaris AG.
Frank (F.H.P.) Driessen, AAG
M 06 12 99 18 85
E frank.driessen@aonhewitt.com
www.aonhewitt.com

7. About Aon Hewitt
Aon Hewitt is a global market leader in solutions
for Human Resources Management. The company
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increase the return on the main asset of organisa-
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over 30,000 professionals in 90 countries.
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Risk. Reinsurance. Human Resources.