The promises of Open Finance in the Dutch pension industry

As of 2023 a major shift will commence for the Netherlands’ pension system as it changes from defined benefit to defined contribution schemes.

Politicians in The Hague are still discussing some of the details fiercely. The transition will require many changes for all organisations in the pensions chain. They will spend tens of millions of euros on IT and operational changes, affecting every part of their structures. This time of change should bring the extra flexibility and attention necessary to allow further change in the industry.

The purpose of the new pension scheme is to improve the participant’s centricity. Open Finance - a system that allows financial providers to access customers’ data held by other organisations - offers great potential for achieving this.

Benefits of Open Finance include enabling a more holistic, integrated view of an individual’s finances in one place - bringing together their pension benefits and other elements such as savings, investments, real estate and mortgages. This integrated view gives users full insight into their financial futures, and allows them to see the gap between their dreams and financial reality. It also gives pension funds and administrators a vital opportunity to bond and engage with users in an increasingly competitive market.

In the Netherlands, the personalised pension overview has laid the first foundation. This shows an overview of accrued pensions, what members can expect in future, and how potential scenarios may affect their forecasts. Further examples are at banks and fintechs powered by the second Payment Services Directive (PSD2). These show financial information ordered in expenses but struggle to show individuals’ full financial capabilities in a long-term perspective.

Open Finance - the next leap forward

Brazil is a, perhaps unexpected, example of what Open Finance can achieve.

The first phase of the country’s Open Banking initiative featured standardising data to be shared between banks and other providers.

The second stage involved sharing customer data between institutions and financial technology providers (fintechs).

The third phase offers customers access to payment services outside the institution’s environment.

The final stage is the expansion towards Open Finance, which allows data sharing on pensions, investments, insurance, and other services.

The Netherlands could implement facets of Open Finance from Brazil, including an integrated platform with data on mortgages, savings, pensions, insurance, and credit. Real estate might be a useful addition in that it creates an even more extensive overview of a participant’s financial situation.

Pensions are essential for a complete overview of an individual’s financial situation. But before implementing such an open system, regulations must be in place.

This is where PSD3 comes in. It is expected that PSD3 will have a broader scope than PSD2, and will be able to support Open Finance initiatives and protect participants and organisations.

PSD covers many barriers towards banks, but the industry must recognise and solve many other privacy, technical and legal barriers to ensure the effective implementation of Open Finance.

PSD3 should address privacy matters, but this may not immediately dissolve all participants’ fears. Reducing these fears and helping participants recognise the system's benefits is imperative for successful implementation, according to the Central Bank of the Netherlands.

Boosting connection with scheme members

Pension funds are very keen to increase interaction with their participants. By offering individuals integrated insights into their financial situation, Open Finance improves this connection. It may encourage participants to add deposits to their pensions to reach a retirement goal; show whether they are on track; or help them think about and plan other scenarios such as early retirement or releasing funds to children.

Members should feel more included as they can view and manage their retirement savings in a way that suits them. These promises relate to user-centricity - the purpose of the new Dutch pension scheme.

Open Finance can also enable new business models because it requires new structures that increase financial inclusion and support organisational competitiveness.

This article is part of Delta Capita’s series on the new Dutch pensions system. Previous articles in this series can be found linked below.

By Wouter Pijl, Head of Pensions and Digital & Performance; Jelly van der Veer, Consultant; and Rutger Meulman, Junior Consultant at Delta Capita.