Compliance with the Code of the Dutch Pension Funds

On 1 July 2014 the Code of the Dutch Pension Funds came into force. It consists of 83 standards relating to the governance of pension funds that have their registered office in the Netherlands. In fiscal year 2014 pension funds have reported on their compliance with the Code of the Dutch Pension Funds for the first time. SEO Amsterdam Economics was commissioned by the Monitoring Committee for the Code of the Dutch Pension Funds to monitor the degree of compliance in 2014. Compliance is considered to be the case if a pension funds applies the standards or deviates from them with proper explanation. If a fund does not apply a standard and does not explain why, this is considered to be non-compliance.

The average compliance with the Code of the Dutch Pension Funds in the year 2014 was 94 percent. This is the sum of applying standards (comply …) and deviating from them supported by an explanation (… or explain). Therefore, especially since this is the first year after the Code’s entry into force, average compliance can be deemed high. Pension funds seem to have taken note of the Code.

Two notes should be made in this regard. First of all, in terms of compliance there are large differences between the various themes within the Code: the themes of diversity and accountability by the board of directors show the lowest compliance. Additionally, funds also deviate (with explanation) relatively often when it comes to these themes. In these cases there is compliance with the standard but there is no application of it.

Secondly, the inherent consequence of the ‘comply or explain’ principle is that many standards that do not include any reporting or recording requirement – referred to in this study as standards of conduct – will not to be discussed in the annual report. If the pension fund does not explicitly report deviation from a standard (of conduct), its application and therefore compliance must be assumed. In other words, there are many cases of implicit application: on average 94 percent of the standards are applied, 88 percentage points of which concern implicit application. There are relatively few funds that are transparent – in their annual report – about the conduct that is prescribed by the Code. Application of standards that do require reporting in the annual report (referred to in this study as reporting standards) is lower, i.e. 73 percent.