Dick Kamp: Put participants at the heart of future pension design
This column was originally written in Dutch. This is an English translation.
By Dick Kamp, Director of Pension, Investment & Risk at Milliman Pension
In a previous column, I outlined a scenario for pension funds in 2040 and emphasized the importance of a more targeted and participant-inclusive product development process. In this column, I explore how the value proposition of pension funds can be further developed, both in terms of process and content.
For decades, it was a foregone conclusion in the world of Dutch pensions: social partners negotiated the content of pension schemes, pension funds implemented them, and regulators and tax authorities monitored the legal limits. The participants—the employees for whom it was all intended—stood at a distance, as silent recipients of what others had devised for them.
Collectivity and solidarity were central to the FTK. Cooperation between social partners, the Pension Federation, DNB, AFM, the Ministry of Social Affairs and Employment, and knowledge networks such as Netspar was not always visible, but it was there. The question, however, was to what extent the voice of the individual participant or employer was involved in this.
Under the FTK, the value proposition of the pension (fund) was primarily defined in terms of coverage ratios, investment returns, and administrative costs. These are important but abstract concepts for the average participant. Providing insight and communication about these matters is always a challenge.
Initial adjustments to the product development process are already visible
Under pressure from the financial crisis in 2008, persistently low interest rates, and an aging population, it became clear that the aforementioned value proposition needed to be adjusted. At the same time, there is a growing awareness that the world of work has fundamentally changed, with more self-employed people, flex workers, and job changes.
This context has given rise to a new dynamic. Pension funds began experimenting with customer surveys and user panels. The AFM insisted on more understandable communication.[1] Netspar published studies on behavioral economics and pension perception.[2] And slowly but surely, the perspective shifted from institutional thinking to a focus on the needs of the end user.
After many years of debate, the Future Pensions Act marks a turning point in this development. Not only is the financial foundation of the system changing, but so is the relationship with participants. Greater transparency, more freedom of choice, and a more direct link between contributions and pension outcomes should make the pension system more understandable and personal. This is the goal, but it has not yet been fully achieved.
The challenge is to combine consciously chosen solidarity, cost efficiency, and professional asset management with more room for personal preferences and circumstances. This requires further development work.
What is the logical next step?
Tomorrow's value proposition will not only be about the end result – a good pension – but also about the journey towards it: comprehensibility, involvement, and trust. In this transformation, the role of the participant shifts from passive recipient to active stakeholder, and that of pension funds from administrator to active service provider. Participants and employers are involved in the process.
It is an evolution that fits into a broader social pattern in which institutions are more accountable to the people they serve. For the pension sector, this means a fundamental reorientation of what value is and for whom it is created. It is a challenge that goes beyond regulation and returns and touches on the core of what a good pension means in the 21st century.
There is therefore both a substantive and an organizational component. In a consolidating sector, there are more opportunities to actively work on further developing the value proposition. These opportunities consist partly of greater financial and intellectual possibilities and partly, very importantly, of greater opportunities to take the lead. The key players in the sector (pension funds and pension providers) can take even more control of the development process. This will enable a faster, more efficient value proposition that is better attuned to evolving needs. Don't forget that the Future Pensions Act had a lead time of around 15 years.
The substantive side will help to make pension schemes even more personal. This can be achieved by allowing participants more choices. But also by allowing temporary alternative uses of pension assets before retirement and aligning these in terms of structure with investment instruments. For example, a loan to yourself, with or without collateral (mortgage), to meet financial needs during the accumulation phase (sabbatical, buying a house, retraining period).
Great ideas, but what now?
In my opinion, the pension sector is at an important crossroads where vision can be transformed into action. How could this be achieved? Start small, but think big: form innovation teams in which participants, employers, pension experts, and behavioral scientists experiment with new propositions together. I have the following example in mind.
Create concrete room for experimentation:
- Together with DNB, AFM, and SZW, set up a sector-wide “pension sandbox”: a defined framework in which pension funds are allowed to deviate from detailed regulations for two years, as long as the preconditions—participant protection and financial soundness—remain in place.
- Appoint one multidisciplinary innovation team per pilot (participants, employers, fund management, IT, compliance, behavioral scientists). Give the team a clear mandate, a budget, and a fixed time frame (e.g., 9–12 months) to deliver a minimum viable product (MVP).
- Select three very specific use cases that directly address recognizable needs of participants:
- Interim “sabbatical leave”: temporarily withdraw up to 10% of personal pension assets for study or leave.
- ‘Home equity’ mortgage: a loan to yourself, financed from your pension pot, with clear rules for repayment.
- Flexible premium button: the option to reduce or increase the premium within a predefined range for a maximum of two years.
- Measure success using pre-agreed KPIs: participant satisfaction (NPS), adoption rate, administrative costs per participant, and effect on expected pension results. Publish progress every quarter, including what is not working.
- After the pilot phase, decide whether to scale up, modify, or terminate a concept based on the data and an evaluation with regulators.
By setting up a structured sandbox with concrete pilots, we move innovation from a ‘nice and practical idea’ to a demonstrable learning and improvement process. Step by step, this creates an ecosystem in which the participant's voice is not only heard, but also directly influences decision-making and product design.
The future of pensions is not something that will just happen to us – it is something we can shape together, starting today. Who's with us?
This is the forty-second column in a series on risk management. The series aims to encourage readers to view risk management as an integral part of running a pension fund.
[1] Report “Effectmeting Pensioen3daagse” (2019) and the “Nulmeting Wet Pensioencommunicatie” (2018)
[2] “Freedom of choice in pensions: Our brain doesn't want to choose, but it does want to have chosen” (Nijboer and Bockweg, 2017) and “Customization in pension communication” (Brüggen and Post, 2018)
