The Netherlands Authority for the Financial Markets (AFM) has urged pension providers to improve their pension choice guidance, warning that participants are not always made aware of all available options or receive insufficient information about the consequences of their choices.

In a study of the guidance offered by eight pension providers at the start of retirement, the AFM found that, despite providers being committed to providing the best possible guidance to retiring members, their guidance was sometimes inadequate, resulting in serious consequences for members.

The AFM explained that participants in pension schemes can make several choices just before they retire and emphasised that pension providers must properly guide their participants in making these choices.

It called this guidance “essential” because retirement choices are complex and, once made, cannot be reversed.

Given this, the AFM stressed the importance of choice guidance being carried out correctly on the first attempt, and expects providers to study the insights from this report and, where necessary, apply them to improve their choice guidance.

The study highlighted that providers should inform participants about all the choices available through their preferred channel of communication and should ensure the information provides clarity on the consequences these choices have for the pension, for participants to determine what is in their best interests.

Additionally, the AFM said providers should make the financial impact of the choice on the pension clear.

It warned that before their choices are finalised, participants must understand how much higher or lower their pension will be because of a particular choice or combination of choices.

The AFM noted that as providers are determined to provide their members with adequate guidance, this inspires confidence in how the sector will address the findings of the investigation.

Commenting on the study, the Dutch Federation of Pension Funds (Pensioenfederatie) chair, Ger Jaarsma, said guidance on pension choices is a very important issue for pension funds, as participants must be able to trust that pension funds will provide them with clear and appropriate support when making choices that will have a long-term impact on their pension income.

Jaarsma added that Pensioenfederatie, together with its members, has been working on effective decision-making guidance and is currently reviewing the content of the AFM report.

“We take the points raised in the AFM investigation seriously and will work together to further improve decision-making guidance,” Jaarsma said.

He highlighted that its decision-making guidance working group is providing guidance for the sector and that it is also conducting an event on pension decision-making guidance in collaboration with Netspar and the Dutch Association of Insurers.

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