Corporate Dutch Pension Plan News

The New Dutch Pension System

At the end of 2021, the draft bill for the Future of Pensions Act was published. It provides for a very substantial reform of especially the Dutch Occupational Pension System and consequently the pension scheme for your employees. (Besides this it also includes a reduction of the increase of the State Old Age Retirement Age and more pension build up options for entrepreneurs.)

Certain main aspects of the old system will remain in place:

  • A system based on i.e. mandatory pension funds;
  • A system in which there is a collective risk sharing between generations;
  • A system which does no tintend to decrease the build up of occupational pension claims and thus does not intend to decrease the current tax benefits.

Thus one could say that while the collective system remains intact (for now), there will be a large switch to i.e. investment based pension claims in order to make the new system affordable and dependable.

It is as of yet unclear when this Act will be passed. In the meantime, you as an employer have a pension scheme for your employees that you may want to change in 2022. Thus you will be better placed to anticipate the reforms of the Dutch pension system.

Main Aspects Of The New Pensions Act

A) Only Defined Contribution Pension Plans

The current Pensions Act has three types of pension agreements:

  • Defined Benefit (DB) agreements which provide totally guaranteed pension claims;
  • Capital agreements which provide a guaranteed capital but not a guaranteed pension pay-out;
  • Defined Contribution (DC) agreements which are totally investment based without any guarantee.

In the new pensions system, pension accrual is only possible on the basis of a Defined Contribution (DC) agreement meaning totally investment based. The consequence of this is that once the new Act becomes law, the parties can only agree on a pension scheme for the retirement pension in the form of a Defined Contribution (DC) agreement.

According to the Future of Pensions Act, all pension schemes concluded after 1 January 2022 must adopt an age independent flat rate pension contribution. The Act provides for a maximum age independent contribution of rounded 30%-33% of the pensionable wages.

Any Defined Contribution schemes concluded before this date contain an age dependent contribution and this can remain unchanged. These kind of Defined Contribution schemes are characterised by low pension contributions for relatively young employees and high contributions for relatively old employees. (Adjusting them to flat rate plans is not required as this would include a too high compensation for the elderly.)

B) Next of kin pension before retirement age

The Future of Pensions Act provides for a thorough reform of the partner’s pension. The most important element of this is the partner’s pension paid to the widow or widower if an employee dies before the relevant pension commencement date.

On this point, the new Act provides for a partner’s pension on a risk basis. This means that if the employee dies before the pension commencement date, in principle a partner’s pension is only paid out if the employee was still in your employment when he or she died.

The relevant new aspect is that the coverage is not any more linked and limited to the amount of years the employee will work until retirement age. Furthermore the coverage is not any more linked to the pensionable wages but to the actual annual gross wages which are higher.

C) Existing claims infused into the new system

Once the new Act has entered into force, from 2022 to 2026 a transitional phase towards the new pension system will apply.

Important here is whether the pensions accrued up to the moment the bill becomes law are converted into a Defined Contribution agreement. In pension terms, this conversion is referred to in Dutch as ‘invaren’.

Thus there will not be the situation of an old plan and the new plan but rather that the old claims are infused into the new plan. Participants who will have negative effects will be compensated.

D) Switch to new Plan

With regard to the above, employers are required to draw up a transition plan, which must in any case provide for choosing a Defined Contribution agreement, the way in which existing pension entitlements will be managed with ‘invaren’ as the starting point and agreements on obligatory and adequate compensation for employees.

How To Adjust Your Pension Plan In 2022?

  • It is recommended taking stock of the options, sticking points and costs that you, as the employer, will be confronted with as a consequence of the Future of Pensions Act. This will enable you to anticipate the upcoming legislation by revising your pension plan in 2022.
  • If you switch to a Defined Contribution scheme before 1 January 2022, according to the transitional scheme you do not need to make significant changes to this before the Future of Pensions Act enters into force. However, in that case you do need to arrange a separate pension scheme for employees you take on after 2026.
  • You are obliged to compensate your employees if you change the pension scheme for your employees as a consequence of the Future of Pensions Act entering into force. This is not obligatory if you change your pension scheme before the Act enters into force. However, such a change does require the agreement of the works council and your employees.
  • Are you required as an employer to participate in the basic pension scheme of a sectoral pension fund? In that case, usually you can change the supplementary pension scheme you have arranged with that pension fund or with another pension provider.

Most contracts between employers and pension providers for administering a pension scheme, what is known as the administration agreement, have a notice period of six months. If, for example, an administration agreement you have concluded is to end on 1 January 2022, you must give notice of termination before 1 July 2021 if you want to switch to a different pension provider and/or you want to make major changes to your pension scheme.