AFM investigation into choice guidance calls for action

After a preliminary announcement last year, the AFM reported at the end of April that the investigation into choice guidance had started: how have pension funds and insurers structured choice guidance? In this turbulent period in the middle of the pension transition, the pension sector is also expected to keep an eye on other important legal standards.

New legal standard since 1 July 2023

The standard in force since 1 July 2023 regulates that (former) participants, partners and pension beneficiaries receive adequate guidance on choices within the pension scheme. In the announcement, the AFM indicates that it starts by thinking about how to enable participants to make appropriate choices.

AFM investigation questions

A number of issues are being looked at by the AFM:

• Pension funds’ insights into participants’ characteristics, skills and needs when making pension choices.
• How the insights are factored into the design.
• What trade-offs were made in the choices.
• Decision-making.

The AFM has started a number of interviews and has now also sent information requests to a number of pension funds.

Guidance on choices

In the Guidance on Choice Guidance (1 July 2023), the AFM describes three phases:

1. Setting up
2. Implementing
3. Continuous improvement

The AFM’s ongoing investigation focuses only on the set-up. Actual implementation is not yet part of the investigation. The regulator has already announced that this will be on the agenda in 2025.

Advice for pension funds

Given the scope of this AFM investigation, we recommend pension funds to check the following:

1. Have the characteristics, skills and needs of participants been identified and recorded?
2. Based on this inventory, what choices have been made for choice guidance and have the considerations been recorded?
3. Has it been described how to deal with participants who do not take action or who take limited action?
4. Have the choices made in determining defaults been recorded?
5. Whether the choices the participant goes through are reconstructible and recorded?

Expectations of the AFM

We expect the AFM to be critical of pension funds that follow their pension provider’s set-up without its own analysis or consideration. We recommend pension funds that use pension provider services to check whether the design of choice guidance matches the needs of participants and the expectations of the pension fund. 

The main findings from the survey will be shared with the industry by the regulator through a report. The best practices from this can be used to further improve the design of choice guidance.

No direct enforcement measures

We do not expect the AFM to use this study to take enforcement action. The legal standard has only been in force for a short time and the section of the law speaks in very general terms about “ensures the design of the choice environment”. In the next investigation into the implementation of choice guidance, the AFM will assume that the industry complies with the legal requirements.

Recommendations for the pension sector

We recommend the pension sector to thoroughly review its choice guidance in addition to the pension transition challenges and start doing so in a timely manner.

We at Projective Group have extensive experience in ‘duty of care’ processes and the translation of guidance documents from the AFM. If you need help in setting up choice guidance or would like to have your current set-up reviewed, please contact us.