Group transfer of accrued benefits: an underappreciated option.

A kind of aversion seems to have arisen recently against group transfers of accrued benefits to a new pension provider. What are employers’ considerations when making this decision? And more importantly, what is best for participants?

By: Berry van Sonsbeek, Product Market Manager Zwitserleven

In the Netherlands, many employers are free in their choice of pension provider, provided they consult their employees. This is of great value. When an employer decides to switch to a new pension provider, it makes sense to transfer everything to this new pension provider. Individual participants have a legal right to object to this. They have every right not to cooperate in the transfer and leave the past with the old pension provider. I will not go into that specifically here.

Advantages

The starting point should be a group transfer of accrued benefits, I am convinced of that. For employers because they do not want double costs. And for participants because their costs too are usually lower if past and future stay together. There is another important motive: in communications, information and choice guidance, having all pensions administered by one pension provider offers major benefits.

So why then do people seem to get cold feet when a group transfer of accrued benefits is initiated and set in motion? I have heard multiple reasons to explain this, the main ones of which I would like to challenge here.

Calculation model

Uniform calculation methods (‘URM’ in Dutch) may indicate that someone’s former pension provider offers higher projected pensions than the new pension provider. But how sacred and how uniform are these methods really? The uniform calculation methods are a complex model that uses calculations of frequently as many as 2,000 economic scenarios over a period of several decades. With all due respect, such a model offers participants false security.

We know that the parameters are adjusted every few years, as are the underlying life cycles used by pension providers. For the rest, unfortunately, the uniform calculation methods applied by the various pension providers do not result in the uniformity envisaged by the legislature. If the old and new pension providers calculate pension amounts differently, confusion arises in the market. Reason enough to highlight the relativeness of uniform calculation methods in these considerations once more.

Complex process

Many employers are deterred by the complex process that a group transfer of accrued benefits is. By having to coordinate it all with participants and by all the communication it involves. We can well imagine. Fortunately, this is all in a day’s work for pension providers. They advise and guide their clients in that process. They also involve their clients’ advisers in the process and professionally manage the associated risks.

Risks

I therefore believe that a group transfer of accrued benefits is an underappreciated option. Indeed, I believe that deciding against a group transfer of accrued benefits will carry serious risks for participants. For example the risk of making a decision without having all the information required (after all, the old part is with a previous pension provider). Or the risk that little to no maintenance is performed on the pension product left behind. This could pose a serious claim risk for employers.

Focus on participants

In short, consider a group transfer of accrued benefits as much as possible when switching to a new pension provider. Of course weigh all the pros and cons, but focus most of all on the participants’ interests!