Edwin Velzel: 'No Need for Gloom About the Implementation of the New Pension System'

Let us start with the simplest, most basic question: how are you now?
‘Yes, fine. Excellent, actually. I can thankfully look back at my illness as somewhat ‘old news’. I was diagnosed with esophageal cancer in 2018. I had to undergo surgery and with some inevitable complications I was out of the running for five months. Other than that, I have continued to work as usual. Occasionally I had to take a break for a medical examination or treatment. I am doing relatively well now. At the same time: once you had cancer, you are never totally sure if you are rid of it. That is just the way it is. But recently I was declared in remission again and that is encouraging.’

When you got the bad news, did you consider quitting as CEO altogether?
‘No, never. Someone asked me that directly at the time too: why do you not quit? But no, then I would really have felt as though I was handing in the car keys, checking out, that I stopped living. I immediately said, ‘All right, I am seriously ill, but I am assuming that I will come back.’ Work for me is also fulfillment. And besides, if there is one thing I learnt over the past period it is that lying on the couch does not make you better. Work is an important medicine.’

Is it a different Edwin Velzel who came back?
‘You always hear that a serious illness is a life-changing event. But I am not aware that I changed very much. It is not as though my worldview has been turned upside down. The thought of your own mortality is probably a little more present with me than with someone else. At the same time, you get used to that thought. You cannot walk around in crisis mode every day: the human mind is not like that. Perhaps I have become a little more impatient, although I must admit that I have always been relatively impatient.
It may also be that after such an event you think about the future more consciously. I hope to have quite a few more years, but at the same time I do not assume that I will make it to 80. How am I going to make the rest of my life meaningful? That is a question which presents itself a little more emphatically. When I learned I was sick, I had three priorities. One: heal, two: make sure I enjoy life and do useful things, and three: make sure I leave my environment well, both at home with my family and here at work.’

Let us zoom in on the work-related challenges. The biggest challenge facing PGGM, and all other pension administrators and funds is the transition to the new pension contract. How is that going?
‘We are well on track in that respect. Our IT is in order to support the new pension contract on time. Not many large administrators can say the same. That means we are technically ready to implement the new system. And we are going to do just that. I say that not without pride.
That we are on schedule is a credit, but also a bit of a stroke of luck. When I came here, in 2017, we still had IT backlogs. In 2018, we even considered abandoning the digitization path we were on. But at some point, you reach a point of no return. Then you are a Channel swimmer who must decide halfway between France and England: turn around or continue? We decided to swim on. In retrospect, that was a good decision. By 2019, the entire IT transition was complete and since then we had a platform that will allow us to handle the transition to the new pension system. So, I can truly say with confidence that we will get the new pension scheme implemented by January 1, 2026.’

The pension industry has already said it may not manage 2027, and you assume 2026?
‘Yes, I have no doubt about that. In all honesty, I am getting a little fed up with all the talk in the industry about it not being possible. I put it quite bluntly. PGGM wants to voice a dissenting opinion on this. We are of course fortunate that we do not have that many affiliated funds. There are administrators who deal with dozens of affiliated funds. Then the challenge may be a bit bigger.
We assume that together with Pensioenfonds Zorg en Welzijn (PFZW), of which we are the administrator, we will do the transition in 2026. And I also hope that a number of other large funds will go along. That would really be a good signal, a vote of confidence in the transition. I actually also think it is our duty.’

If the challenge is not in IT, where is it?
‘The biggest challenge is in the new pension contract, in the transition as such. We have 200 people working every day, just to transfer PFZW participants to the new contract properly. So, we do not have questions on what we must be doing in the coming years. We are also busy preparing our pension systems for pension administrator MN - another huge task.’

There is a great deal of noise about the new pension system, a good deal of opposition. Are you yourself positive about the new system?
‘I am convinced that the new pension system will benefit most participants. We will soon lose a few absurd things. A good example: last year we lost tens of billions on our investments, because of inflation and rising interest rates, among other things. Under the current system, the strange phenomenon then applies that the pension coverage ratio rises precisely because market interest rates are the predictor of future returns. So, we started indexing in a year when we lost tens of billions. A few years ago, the opposite happened. In 2019, we achieved a gigantic return: 19 percent. But we could not index because interest rates were falling. We will soon be rid of that phenomenon, fortunately.
We will have a fairer and simpler system that could potentially lead to a better pension for most people. Soon all participants will be able to see clearly what their pension benefit is. Incidentally, that is also a risk. If the benefit is 100,000 euros this year, it could be 110,000 euros next year, but just as easily 90,000. I am interested how participants will react to that. We, as a sector, will have to explain extensively. We already do considerable participant research, and it shows that some of our participants are surprised, for example, that we invest. They did not know that. While that is our core business. So that is quite compelling. That is why we said: participant confidence is our most important issue in the coming years.’

Speaking of investments: in your six years at the helm of PGGM, the theme of sustainability has become more important. What course will you pursue?
‘We have traditionally been a ‘passive plus’ investor. In other words, we always invested broadly in indices, from which we at most took the sharp edges off. So, we do not invest, for example, in tobacco, controversial weapons or coal. That way we invest in about 4,000 companies worldwide. But because we do index investing, we never consciously chose those companies. We are now changing course and want to become more proactive. In addition to risk and return, in future we will also select on impact - 3D investing is what we call it. Eventually that will mean going down from 4,000 to maybe 600 to 800 companies that we consciously choose to have shares in. That is an operation that will take years, because make no mistake: we manage a few hundred billion euros, and we must accommodate it all.
Together with PFZW, we choose a number of themes that we consider important: energy transition and care and welfare in the Netherlands in any case, and we may add other focus areas such as clean water and biodiversity. We want to use our investments to influence those themes in the coming years.’

Pension fund ABP has resolutely decided to stop investing in fossil fuels. You did not.
‘I understand what they did at ABP, but it is a different philosophy, we make different choices. There is a difference between buying impact and making impact. We mainly want to make impact. In other words, we also support companies that want to make the transition. We have asked all companies involved in fossil energy to demonstrate that they comply with the Paris climate agreement. If they cannot, we are out. I think we parted ways with around 200 companies that way now.’ 

You are administrator of the large pension fund PFZW. How is the relationship with them? In the past there were quite often diffirences, now I heard you say ‘together with PFZW...’ several times.
‘In recent years we have invested considerably in the mutual relationship. And that has paid off well. That is, besides our IT-investment,  the area I am most proud of. We invested in our  partnership with PFZW very emphatically. Among other things, it led to us recently presenting a joint strategy document. When I arrived here, I sometimes thought: are we actually in the same race? But that has turned for the better. I dare say that the relationship of trust has risen to a higher level. I have read Stephen M.R. Covey’s book The Speed of Trust and speed of trust really exists in our relationship with PFZW.
A good example is that in the old days we took extensive time for the annual contract process. We have since decided to express trust over longer periods of time. People who were extensively busy with contract discussions in previous years can now do more useful work. We are no longer distracted by all kinds of bickering among ourselves. We do not play games with each other.’

To what extent is that to your personal credit?
‘I prefer to really call problems by their names and not present a pretty story. No nonsense. The culture at PGGM was a bit about phrasing things nicely, even when they were not that nice. It is better to face problems head on and acknowledge them.’

No nonsense, direct, impatient, facing problems head on, so that is Edwin Velzel’s leadership style?
‘Yes, I think so, my style is indeed quite direct. But what I think is important about leadership is that people in the team show ownership and can reflect on themselves. I like working with people who can do that. If there is a problem, you should not have long stories or explain why you cannot do anything about it, no, you must solve it. If there is also some self-reflection involved, that is good. If you have these two skills, then you are allowed to make mistakes. Furthermore, I like teams that are evenly matched. I try to gather people around me who are better than me in their fields. That is an excellent work environment.’

How was your style received here?
‘At first, it took some getting used to. I think sometimes people found me awkward, although some of the people liked it. But by now it is our normal way of doing things. A good example is our IT process, which I just mentioned. It kept bumping along. At a certain point I was done with it. Then tough decisions needed to be made.
Another example: customers that were costing us more than we were earning. That way we would eventually run out of funds. Of course, that is not acceptable. I named that. Since then, we have made great strides in cost allocation. It is now much clearer where the costs are and where the revenues are.’

What does your own pension look like?
‘I find that a difficult question. It is like asking the carpenter how he built his own house. I am afraid I have a bit of a mosaic pension. I got divorced once. That is never very beneficial for a pension. In addition, I was self-employed for several years. I built up assets then, but not necessarily pensions. In short, I honestly do not know exactly what my pension will look like . But I come from a simple background and was raised modestly, so I think I will get by with whatever pension I have.’

This interview was published in Management Scope 05 2023.