We started with no customers and no money – we were pioneers

BeFrank was the first premium pension institution (PPI) in the Netherlands, is still the largest and wants to keep it that way. What helps is that more and more big companies are signing up.

Nowadays it’s totally unremarkable, but in 2011 it was noteworthy that BeFrank’s founders opted to go online entirely. ‘We wanted to take a big step forward in terms of transparency,’ says Oscar van Zadelhoff, product manager at BeFrank and employee from the very beginning. ‘At that time, communicating with participants online only was really radical. Back then, your introductory letter from the pension fund was a paper bundle that almost didn’t fit through the letterbox. There had to be a way to make this process much more concise and understandable.’

As soon as the European IORP directive made it possible, directors of Delta Lloyd and BinckBank joined forces to set up the Netherlands’ first PPI. BinckBank withdrew after a while. In 2017 followed the acquisition by NN Group, which later merged its own PPI with BeFrank. The PPI now invests assets of some € 6.5 billion for around 300,000 participants from over 1,100 companies. ‘We started with no customers and no money – we were pioneers,’ says Van Zadelhoff. ‘At the start, you do everything from product design to website engineering and customer communications. Over time, greater specialisation develops. Each phase has its own charm, just like with children.’

Greater freedom of choice
The differences with existing parties? The free choice of investment funds for a start, according to Sebastiaan van den Dries, who has now director at BeFrank for a year and a half. ‘Back then, it was more common to limit yourself to what was on the asset manager’s shelf.’ What was also new was that a PPI could offer a 100% refund of the accrued capital to surviving dependants if the participant passed away.

DC circles have also been popping up at general pension funds (APFs) in recent years. What is the primary difference with a PPI like BeFrank? The greater freedom of choice in particular, according to Van den Dries. ‘Within certain limits, participants can structure their investment portfolio as they wish. They do not share a circle. A PPI is more focused on the individual.’

Employers joining BeFrank choose a default investment style for their employees: active, passive or sustainable. The individual participant is allowed to deviate from this and choose their own risk profile. 15 to 20 percent of all participants make a different choice, e.g. for a sustainable portfolio. They do not opt for this in large numbers, incidentally. Van Zadelhoff: ‘Employers do not offer the sustainable style as a default, but they do like the fact that their employees can choose it. You do see that employees, too, find the cost difference with passive funds, for example, still a tricky barrier to overcome.’ The majority of employers and employees prefer the passive investment style.

No variable benefits yet
BeFrank targets larger companies with a minimum of 50 employees. The number of customers has grown considerably in recent years. Van den Dries: ‘In the run-up to the new pensions system, we are seeing more and more large companies closing their corporate pension funds and switching to a DC scheme – like the one at NN Group.’

Since 2016, PPIs have also been allowed to continue investing participants’ pension capital after retirement, thanks to the Wet verbeterde premieregeling (Premium Schemes (Improvements) Act). BeFrank itself does not yet offer variable pension benefits. Participants turn to another provider for the benefits phase. Van den Dries: ‘We wanted to focus first on what we’re good at. But as we are getting bigger, it pays to look more closely at that possibility.’

His goal for BeFrank? ‘To be the biggest and the best in the DC market. We are the biggest, and must continue to do our best to keep it that way and keep developing.’ The advantage of that size is that other investment categories become accessible. Some new options are currently being explored, although Van den Dries is keeping quiet about which ones. However, he is willing to reveal that BeFrank added Dutch mortgages to its portfolio last year. This followed extensive analysis, according to Van Zadelhoff. ‘We look at the issuer, but also at things like a desirable loan-to-value and whether or not there is a national mortgage guarantee (NHG). This addition to our portfolio results in an improvement in the risk-return profile: good returns at controlled risk.’

This article appeared in Investment Officer on 10 November.