Groundbreaking unfunded pension solution

The Hague, The Netherlands, January 31, 2014

In December, Aegon accepted its second 50 million euro premium for an innovative insurance solution, designed for funding unfunded pension plans and compliance with IAS19 accounting standards. What makes this the first of its kind?

“An unfunded plan is where the employer elects to fund the pension plan out of current earnings, rather than setting aside a certain amount of money on a regular basis and invest the money to grow the fund,” explains Jeroen Bogers, Product Development Manager Aegon Global Pensions, speaking from their new offices in Edinburgh, UK.

First of its kind

“Until now, it has not been possible to fund and manage unfunded pensions centrally. The introduction of Aegon's Central Pension Funding Arrangement, an IAS19-proof central funding vehicle for unfunded pensions means that we can now offer companies a tool to help them manage their unfunded pension risk."

With the introduction of the new international accounting standard IAS19, Aegon’s first multinational customer to implement the solution was concerned about the effect of unfunded pension plans on their corporate balance sheet.

“Funding unfunded pensions enables companies to remove volatility from the balance sheet and better manage pension risk,” says Jeroen Bogers. “As with funded pensions, companies need to decide which position to take on the risk/reward curve as well as establishing an appropriate funding strategy. With no existing solution available, we worked closely with them to design and implement a solution from scratch.” 

Global compliance with IAS19  Regulations

Aegon UK was ideally positioned to create an insurance contract that provides the client with access to an international investment platform. “Aegon's Central Pension Funding Arrangement enables companies to aggregate, fund and offset pension obligations under IAS19. It provides the sponsoring company with central control over its pension assets and protects the pension beneficiaries,” explains Jeroen Bogers. “Through Aegon UK, our first customer has access to an investment platform, where already 100 million euro of the premium will be invested in Kames Capital funds.”

The solution was made possible by combining the specialist resources and expertise from many parts of Aegon, including Aegon UK,  Aegon Global Pensions, Aegon Asset Management, Kames Capital, Corporate Center and Aegon Ireland.

Long-term relationships

“The new funding solution also helps us to cement a direct and long-term relationship with a major multinational client,” says Clare Bousfield, CFO, Aegon UK. “From a business perspective, it is perfectly aligned with our strategy and it successfully leverages our existing investment platform capabilities.”

“Our relationship with the client has also grown to include further business opportunities for a number of different units within Aegon. Due to the innovative nature of the solution we’re unable to divulge any specific details, however we are actively marketing the solution in private conversations with other multinationals across Europe, with the full support of a satisfied client,” concludes Jeroen  Bogers.

Written by: Aegon