Reliable management of your pension capital

Your pension contribution and pension benefit have to be in safe hands. You should have no concerns. An effective and reliable pension fund organisation is essential for this. In this article you can read about how the pension fund ensures that your pension capital is safely managed. If you would like to read more about how the pension fund is organised then see the pages under ‘About the pension fund’.

Integral Risk Management (IRM)

A considerable part of managing a pension fund involves the management of risks. How do we ensure that we take risks in the most responsible way possible? After all, without risks there is no return, and so there is no indexation. With the help of Integral Risk Management (IRM) the fund analyses and assesses the identified financial and non-financial risks, and it defines the management measures for minimising these risks. If, despite this, the risks still materialise, then the fund takes immediate action. The management measures form part of the daily management processes and of the procedure of the affiliated external service providers.

Financial risks are all risks the pension fund runs with regard to investing and managing your pension contributions and the pension capital accrued using that. That pension capital ultimately forms the basis for your pension benefit.

Non-financial risks are risks that arise from mismanagement, for example errors that are not identified in a timely manner. These risks can result in losses for members and others that are involved in the pension fund. Examples of these are:

• Operational / Outsourcing risk. Errors made by parties undertaking work for the pension fund. The Board does not have its own specific organisation; all work is outsourced to third parties. That is why it is so important we know precisely what these third parties do for us and how they do it, and whether the performance of that work is correct and surrounded by the required safety measures. A great deal of attention has been paid to these control aspects in recent years by the regulators, amongst others. By using the ISAE (International Standard on Assurance Engagements), the external service providers certify the way in which they monitor and control their own risks. By using this detailed reporting, the Pension Fund Board is able to ensure that external parties maintain at least the same stringent risk control measures as the fund.

• IT risk and data protection. Because of the increasing level of cybercrime the Board has taken measures to prevent the fund from becoming a victim of cybercrime. There was attention paid to this in any case, however we have been forced to be even more alert because of what is happening around us. We also ensure the organisations to which we have outsourced work control this properly as well. Dutch legislation ensures your personal details are protected and this will also be the case soon with European legislation. This is regulated in the General Data Protection Regulation. Only you decide what personal details we record, but in any event those details we need for proper implementation of the Pension Regulations. In 2016, BSG appointed a Privacy Officer who reports to the pension fund and to the authorities potential data leaks and leaked privacy-sensitive details.

• Integrity risk. These are the risks associated with the conduct of individual officers of the fund or of affiliated external parties. Examples of these are insider trading and fraud. These risks are analysed using SIRA (Systematic Integrity Risk Analysis) and minimised via management measures.

• Legal risk. Risk due to incomplete or incorrect contracts for example.

• Reputation risk. The pension fund’s reputation can be seriously damaged if the fund can be called to account about failing performance, or for risks that have materialised or are even escalating. The same applies when adverse events occur that can affect the fund members directly or indirectly but for which the fund is not directly to blame.

Statutory framework

The Board and the committees oversee the operation of the pension fund and the management of risks.

The Fund follows the Code of the Dutch Pension Funds, which checks whether a fund meets the minimum requirements for sound governance and risk management. The Board is also monitored in various ways:

The Accountability Body ensures sound decision-making by the Board and a reliable execution of pension fund tasks. This means that potential risks of gaps in performance are identified early and can be corrected in a timely manner if necessary.

Each year, the Visitation Committee undertakes an assessment of the fund’s performance as a whole. Potential underemphasised risks are discussed with the Board by the Visitation Committee. Where necessary, the Board implements additional measures in order to further minimise these risks.

The Compliance Officer ensures the pension fund meets the current compliance legislation applicable to the fund. For example, the Compliance Officer is responsible for supervising compliance with the provisions of the Code of Conduct that is applicable for the Board members.

The financial figures are audited annually for correctness by an independent auditor and a certifying actuary.

In addition, the activities of every pension fund are regularly assessed by De Nederlandsche Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). By proactively meeting the conditions and the assessment criteria set by these bodies, the fund avoids the risk of being held liable for omissions.

Where is risk management documented?

Integral Risk Management is prescribed in Dutch law, especially in Articles 33  (Guarantee of sound management) and 143 of the Pensions Act (Control and integrity of business operations).

More rules regarding managed and ethical business operations are included in Articles 18 up to and including 22 of the ‘Financial Assessment Framework Decree’. These rules relate to the control of business processes and operational risks, integrity and soundness of the pension fund and the obligation to undertake a continuity analysis.

With regard to the control of outsourcing risks, rules are included in Article 34 of the Pensions Act and in Articles 12 up to and including 14 of the Pensions Act (Implementation) Decree.

 

Key Features

The EU's revised Institutions for Occupational Retirement Provision Directive (IORP) regulates, among other things, that as of 2019, pension funds must provide for three controlling key functions in their organization: actuarial, risk management and internal audit. All key functions must be able to be performed independently. Suitability requirements also apply to the individuals who perform the functions. The board explored various options in 2018 and ultimately decided to have the three key functions filled by board members. The revised guideline also focuses on the interpretation of risk management and in 2019 will lead, among other things, to an expansion of the information provided to participants via the Uniform Pension Statement (UPO).