From passive implementation to active risk-taking

The transition under the Wtp and rules on socially responsible investment are prompting Dutch pension funds to reconsider their reliance on passive strategies. That is because one of the core objectives of the new Dutch pension system is to provide participants with ‘an earlier prospect of a pension that better preserves purchasing power’. Under the previous system, the regulatory framework placed significant emphasis on funding-ratio management and nominal certainty. The Wtp shifts the focus towards long-term real pension outcomes, while giving pension funds greater scope to align investment risk with the risk preferences and return objectives of different participant cohorts.

With approximately EUR 1.6–1.8 trillion in assets migrating to defined-contribution arrangements by 1 January 2028, the replacement of the Financial Assessment Framework (Financieel Toetsingskader, FTK)'s funding-ratio-driven buffer requirements by cohort-based lifecycle allocation reduces the structural emphasis on liability matching and benchmark-centric implementation. Furthermore, socially responsible investment has become an increasingly important feature of the Dutch pension landscape in recent years. Against that background, several pension funds are exploring whether active management may enhance the likelihood of generating excess returns, achieving sustainability objectives and exercising stewardship in a manner that supports the pension ambition pursued under the new system. Stichting Pensioenfonds Zorg en Welzijn (PFZW)'s reallocation of passive equity mandates towards a concentrated portfolio may be the most visible example.

From a supervisory perspective - De Nederlandsche Bank (DNB) as prudential supervisor and the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) in respect of conduct and disclosure - this shift does not alter the applicable legal framework, but it materially changes where supervisory attention will fall. The governing norm remains the prudent person rule under Article 135 of the Dutch Pensions Act (Pensioenwet, Pw), implementing Article 19 of IORP II: assets must be invested in the interests of members and beneficiaries, with appropriate diversification and proper control of the associated risks. Crucially, the prudent person rule is style-neutral: it neither favours nor penalises active management. What changes is the governance and evidentiary burden the pension fund must discharge.
 

Four areas in which the assessment differs

Cost justification and careful decision-making

Active mandates typically involve higher management and performance fees, which must be reported pursuant to Article 45a Pw and the implementing cost-reporting rules. Under Article 135 Pw, read together with the duty of balanced consideration of interests under Article 105(2) Pw, the board should be able to demonstrate - ex ante, in documented form and capable of ex post review - that the expected benefits of active management reasonably justify the additional costs. Those benefits may consist of excess returns, improved risk characteristics or stewardship outcomes. For passive mandates, this proportionality assessment will generally be relatively straightforward; for active mandates, it is more an ongoing governance obligation and a natural area of supervisory scrutiny.

Outsourcing and mandate governance

The appointment of external active managers will generally constitute outsourcing for purposes of Article 34 Pw as detailed in the Besluit uitvoering Pensioenwet and the Wet verplichte beroepspensioenregeling. The fund must retain demonstrable control over the delegated activity. Active management increases the required countervailing power - tegenwicht - at board level: the capacity to assess skill persistence, style drift, capacity constraints and key-person risk. The rule-based nature of passive mandates generally makes this assessment less judgment-intensive. Active mandates therefore require deeper due diligence, tailored investment guidelines, appropriate information and termination rights, and more intensive ongoing monitoring.

Risk management and cohort-level attribution

Active positions introduce benchmark and concentration risks in addition to the strategic asset allocation. Under the Wtp, those risks must remain consistent with the risk attitude established for the relevant age cohorts following the mandatory risk-preference assessment under Article 52a Pw. Their effects must also be traceable through the allocation of returns to personal pension capital. Sound and controlled business operations under Article 143 Pw and the own-risk assessment under Article 18b of the Besluit financieel toetsingskader pensioenfondsen, implementing Article 28 of IORP II, should therefore address benchmark deviation, performance attribution, concentration effects and any leverage employed. In passive implementation, supervisory attention is more likely to focus on index concentration, index calibration and information barriers and unintended factor exposures.

Demonstrating the contribution of active risk to the pension ambition

As mentioned, one of the principal objectives of the Wtp is to improve the prospect of a pension that maintains purchasing power over time. Within that framework, pension funds assuming active risk should be able to demonstrate how the pursuit of excess returns is expected to contribute to the pension ambition pursued by the scheme and remains consistent with the risk attitude established for the relevant cohorts. Under the prudent person rule and the requirement of balanced decision-making, it is not sufficient merely to assume additional active risk in pursuit of higher returns. The board should be able to substantiate why the chosen strategy is expected to serve the long-term interests of participants and beneficiaries and why the anticipated benefits justify the associated costs, risks and governance burden. As the Wtp places greater emphasis on real pension outcomes and less on nominal certainty, supervisory scrutiny is likely to focus increasingly on whether the investment strategy adopted by the fund is demonstrably aligned with its stated objectives and participant interests.

Three areas in which the requirements are identical

Board accountability under the prudent person rule

Articles 34 and 135 Pw jointly entail that delegation does not transfer responsibility. Whether implementation is active or passive, the board remains fully accountable for the strategic asset allocation, its consistency with the risk attitude and the quality and cost-effectiveness of execution.

Sustainability and stewardship

Disclosure obligations under the Sustainable Finance Disclosure Regulation (SFDR), the integration of ESG risks into risk management and the own-risk assessment, and the engagement-policy transparency requirements apply irrespective of investment style. We note that responsible investment has become an increasingly important feature of the Dutch pension landscape in recent years, a development which the Wtp has not altered. Although the broader societal expectations require pension fund boards to demonstrate how sustainability considerations are integrated into investment decision-making, the obligation to take ESG considerations into account applies irrespective of investment style. A passive fund cannot invoke the index as a complete defence; an active fund receives no dispensation. However, active management may offer additional tools to pursue sustainability objectives and stewardship outcomes.

Operational resilience, liquidity and cost transparency
The Digital Operational Resilience Act (DORA), DNB’s expectations concerning liquidity-risk management - particularly relevant during the Wtp transition given derivative collateral movements - and the applicable cost-reporting requirements apply equally to active and passive strategies.
 

Conclusion

The legal framework readily accommodates active management. However, a shift towards active risk-taking increases the supervisory focus on decision-making, manager selection, contractual governance, ongoing oversight and risk attribution. Pension funds adding active risk without commensurately strengthening those capabilities should anticipate challenge under Articles 34, 135 and 143 Pw. Active management is therefore not merely an investment choice; it is a governance undertaking.

Contact 

If you would like to discuss the implications of active management under the Wtp, or have any questions regarding the topics covered in this article, please feel free to contact one of the advisers listed below.