Tjb hulshoff i pension solutions kcm presentations 23 april 2015-v20150421th

A standard, yet very different PPIKempen Capital Management seminar ‘Hollands Glorie’

De toekomst van ons pensioenstelsel: In search of the Holy Grail

April 23, 2015

24/04/2015

Private and Confidential

3

And now for something completely

different...

• DC has the future• ...as despite common myths..• ...the underlying trend is unassailable

• PPI is the best vehicle• ...supported by massive growth...• ...and now breaking barriers....• ...acting in the interest of participants

• Further improvement is on the way• ...yet myths are tenacious...• ... and participant interests should outweigh

providers’ interest.

4


different...





5

1605

1st “pension”

State elderly

pension

1956

No more early

age retirement

2011 g

1st fund

1970 -1990

Early retirement

65 -> 67 72DB to DC

1845

Final pay avg. pay

2000 -2008

2004 2011 2011 g

PPI growth

2014

www.ingim.com6

We look into the

future and we

see....

7

7

The current system is merely scratched

8

...as despite common myths...

1. DC leads to unpredictable pension2. DC does not contain collectivity and solidarity3. DB has higher returns, because of

intergenerational solidarity4. DC requires participant choices, and thus leads to

errors5. DC is more expensive for it is often executed by

for-profit parties

9

...the underlying trend is unassailable.

2040

0

1

2

3

4

5

6

7

8

9

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Number of workers per 65+

Bron: i-PensionSolutions, United Nations

10

0

2

4

6

8

10

12

14

201

5-0

4-1

62

013-

12-

02

17-

7-2

012

3-3

-201

11

9-1

0-2

009

4-6

-200

81

9-1

-20

076

-9-2

005

22-

4-2

004

9-1

2-2

002

25-

7-2

001

10-

3-2

000

27-

10-

199

81

2-6

-19

972

9-1

-19

961

4-9

-19

943

0-4

-19

931

7-1

2-1

991

2-8

-199

02

0-3

-19

894

-11

-19

872

0-6

-19

865

-2-1

985

22-

9-1

983

10-

5-1

982

24-

12-

198

01

0-8

-19

79

10 Year Dutch bond yield

... the underlying trend is unassailable


0

3

6

9

12

15

18

21

Co

st

Cost of € 1 annuity

>33x the price

Bron: i-PensionSolutions

11

...the underlying trend is unassailable.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1999 2005 2010 2014

Number of participants in DC (Netherlands)

0

5

10

15

20

25

1999 2005 2010 2014

AU

M (

€b

ln)

AUM in DC (Netherlands)

12


different...





13

Rigid expense management

14

PPI is the best vehicle (cost)

Source: LCP [2014] Source: LCP [2014]

Source: Towers Watson [2011 (!)]

15

PPI is the best vehicle

• Proven concept• Lowest cost• Inherently innovative• Participant focused• VAT exempt• Ringfencing • Regulated in The Netherlands

• Suitable for:• DC scheme• Net pension • CDC scheme• Run-off portfolio• Separated account• Europe• (self employed, currently excluded by law)

16

...supported by massive growth

• Significant growth in AUM and premium• Large corporations looking into PPI • (political) perception has changed

€ 113 € 132 € 145 € 171

€ 241€ 291

€ 380

€ 512

€ 658

€ 935

€ 1,241

0

200

400

600

800

1,000

1,200

1,400

2012K2 2012K3 2012K4 2013K1 2013K2 2013K3 2013K4 2014K1 2014K2 2014K3 2014K4

AU

M (

€m

ln)

PPI market

Bron: DNB

17

...and now breaking barriers


The first open architecture Premium Pension Institution

18


• i-PensionSolutions • open platform • serves the interest of participants

• Open platform facilitates:• customers to create and maintain tailor made solutions• asset managers and insurance companies to offer core

business products to their client base, integrated within a total pension offering

• development of (optional) guarantees• next generation DC products to be built

6

19

Strategic choices:

• IPS is set up as a foundation. Its sole purpose is to serve and protect the interests of the pension scheme participants and is a not-for-profit organization

• Only best-in-class partners, • stringent due diligence and compliance

• Operational excellence

• Distribution through partners

• SwissRe offers re-insurance, Credit Suisse capital market guarantees

• Initial start in The Netherlands, European ambition

• Optional guarantees (capital market and insurance)

Core values:

• Protect the interests of the participants

• Transparency

• Integrity

• Independent

• High standards for access to platform

• Strong compliance framework

• Clear governance

• Cost efficient

• Committed for the long term (and strongly capitalized)


20

Synergy from

cooperation

21

Committed, yet open

22

Best of all worlds

• i-PensionSolutions offers Pension Savings Product• Employer selects asset manager and investment strategy• Employer can select Insurance Company and Insurance Cover

• Pension Administration and integrated communication is executed by i-PensionSolutions

• The employer signs two agreements: • [A] Pension Execution to cover Asset Accumulation (as described before)

and,• [B] Insurance Policy Agreement (Pension Insurance Product) to cover

Biometric Risk insurance with an insurance company

AssetManager

Administrator

Stichting International Pension Solutions (regulated pension entity)

AdministrationAsset

Management

[Employer] (Former) EmployeesPension Agreement

PensionExecution

Agreement

Claim on vested rights

Custodian

Management BoardSupervisory

CouncilExternal Advisors

Order Execution/

Custody

Investment PolicyAdvise on:

Legal, Tax, Actuarial

Investment, Risk Mngt

Investment Committee

Asset Liability Committee

Insurance company

Insurance

Insurane Policy

Agreement

http://www.kasbank.nl/

http://www.kasbank.nl/

23

... acting in the interest of participants

Independent governance and dedicated products

Standard Tailor made

Plain vanilla

Advanced

- Allocation based

on time to maturity.

General set-up

- Allocation based

on time to maturity

- Client specific

- Allocation depending

on (a.o) funding &

standard guarantee

Fully client specific,

both guarantee and

investment scheme

Level of tailoring

Le

ve

l o

f so

ph

istica

tio

n

SME, Corporates]Large corporates, multinationals,

other collectives,

CorporatesMultinationals, large other

collectives

24


different...





25

...yet myths are tenacious

• Lifecycle invests in equity for young people because of ‘investment horizon’

• A longer ‘investment horizon’ leads to higher return• Flywheel of disbursements• With pension funds, retirees retain investment

exposure• Longevity risk can be mitigated in a collective

26

What will ‘doorbeleggen’ bring us?

27

Prerequisite for ‘doorbeleggen’• Prevent money death• Individual economic ownership• Executable• Tailoring to individual• Flexible

Risk attittude Risk capacityRisk

position

28

... and participant interests should outweigh providers’ interest.

Source: i-PensionSolutions: “Doorbeleggen en verbeteringen in Defined Contribution” 2015. denationalepensioendialoog.nl/item/596

Risk willingness

Risk capacity

High

HighLow

Low

Annuity

Cash / Lump sum

ALDA | Partial annuity

Continue lifecycle



denationalepensioendialoog.nl/item/596

www.ingim.com29

Within the next 5 years, my pension will be

with a PPI

A new road towards modern and innovative pension solutions in Europe

Appendix: Various slides

32

Unfunded plan on

Balance Sheet

Partial buy-out /

LDI solution

Insurance Solutions

Transfer risk to insurance vehicle

Low

Required Initial funding (necessary liquidity for single premium)

HighLow

Ris

k R

ed

ucti

on

High

Cash injection into pension plan/

traditional asset allocation

Change plan benefits

(DB DC)

Traditional full buyout

(Insured annuities)

Close fund to new

entrants and accruals

(hard freeze)

Close fund to

new entrants

Asset Management Solutions

Manage Risk-Return

Cash Injection/

LDI solution

Change in employee benefits

Transfer risk to employees

Insurance SolutionsAsset Management SolutionsPlan Design Solutions

Diagram 1: Illustrative Example of Pension Risk Management Solutions

Current

Cu

rre

nt

... the underlying trend is unassailable

33

A longer ‘investment horizon’ leads to higher return


• Longest, reliable data goes back to 1871

• Only nine complete, independent series of 15 year return

• Statistically infeasible to make valid forward looking statements

0

100

200

300

400

500

600

700

800

0 1 2 3 4 5 6 7 8 9

10

11

12

13

14

15 jaars rendementsperiodes

1871

1886

1901

1916

1931

1946

1961

1976

1991

2006

Bron: Robert Shiller, i-PensionSolutions

34

Growth and Inflation are drivers of interest rate

-5

-4

-3

-2

-1

0

1

2

3

4

5

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Real GDP growth (Euro)

Source: IMF World Economic Outlook April 2015

0

0.5

1

1.5

2

2.5

3

3.5

4

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Inflation ( Euro)

Source: IMF World Economic Outlook April 2015

35

Interest rate is rightfully low. But perhaps too low?

• The "Yuppie/Nerd Ratio" compares the number of 25-to 34-year-olds ("Yuppies") to the number of 45-to 54-year-olds ("Nerds").

• This ratio is said to do a good job of tracking the demographic pressures on long term interest rates.

• Nerds buy bonds for retirement, Yuppies borrow to buy houses, cars, cribs, etc.

0

1

2

3

4

5

6

7

8

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049

10

yea

r rate

Yu

pp

ie N

erd

Rati

o

Yuppie Nerd Ratio (Netherlands)

Yuppie / Nerd (LHS)

10year rate (RHS)

Regressed value

Source: Datastream, Census Bureau, ING Investment Management

36

Risk of underfunding weighs heavily on sponsors (or whomever bears the risk)


0

2

4

6

8

10

12

14

16

18

20

85

87

88

90

91

93

94

96

97

99

100

102

103

105

106

108

109

111

112

114

115

117

118

120

121

123

124

126

Fun

din

g ra

tio

po

ints

Funding ratio

Estimated value 1 year guarantee of additional funding

Bron: i-PensionSolutions

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Tjb hulshoff i pension solutions kcm presentations 23 april 2015-v20150421th

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