The Dutch pension system is going to change. While not all the plans are known down to the last detail yet, it is clear that as an employer you will need to take action soon. We’ve listed the most important consequences and options for you below.
Politicians in The Hague have debated pension system reforms for years. Only in June 2019 did the government and social partners reach an outline agreement. However, there are still many details to be worked out. The new pension rules are expected to take effect on 1 January 2022.
Jan Hein Rhebergen, Director of BeFrank: ‘The old system has long been out of step with the way our labour market is structured today. There are few people who work for the same boss for 40 years. That is why it’s good that the pension system is finally being reformed.’
What’s going to change?
Quite a lot actually, although not every change is equally relevant to you as an employer. Here are five aspects that stand out.
1. In the new system, each employee will soon contribute a fixed percentage of pension contribution, which is currently still age-related. This percentage, however, is not yet known.
2. The new pension system is based on ‘available pension contribution’. The principle is not how much pension has been accrued, but how much pension contribution has been deposited for the employee. It also no longer guarantees a pension outcome. Incidentally, this is how BeFrank has been working for more than 10 years, and with great success.
3. Employees have the option of withdrawing 10 percent of the amount saved all at once upon their retirement date. They can use that money for home improvements or travel, for example.
4. Now there are several types of surviving dependants’ pension, but soon there will be only one type of partner’s pension.
5. The State Pension Age is increasing at a slower pace and will remain at 67 in 2026.
Consequences for you as an employer
What does the new pension system mean for me? That’s what many employers are now wondering. If you have placed your pensions with a PPI such as BeFrank, the pensions already accrued will not automatically move to the new plan.
Rhebergen outlines three scenarios for these employers: ‘There is a group of smaller companies that may have just started out and have not yet set up anything in terms of pensions. For them, it’s pretty simple. Should they decide to set something up later, all their people will be covered by the new plan from 2022,’ says Rhebergen.
It gets a little more complicated when you want to transfer past agreements to ‘the new pension world’. ‘The same flat-rate premium then applies to everyone. Even now, young employees pay less in premiums and their older colleagues pay a little more. Many over-40s will lose out in this new arrangement, and employers are expected to compensate. We’ve noticed that companies find this issue very complicated. Exactly how much money is involved? And how do you actually calculate such an amount? Few companies will be eager to pay out large sums to fill this pension gap in these uncertain times.’
The transitional arrangement as an interim solution
To address this problem, a transitional arrangement was devised. Employees who are currently in a premium plan with increasing premiums may remain in it. Thus, the mandatory flat-rate premium will soon apply only to new participants. ‘However, as an employer you are then stuck with two pension plans. Different obligations apply to one employee than to his or her newer colleague. This also creates differences in terms of employment. And it is not conducive to professional mobility.’ Incidentally, it is not 100 percent certain yet whether the transitional arrangement is here to stay. In The Hague, officials are still hatching other concepts. So, to be continued.
Ok, but what now? As an employer, should you already be taking concrete steps that will prepare you for the new pension reality? And what to do with employee questions? They may experience a certain degree of uncertainty about the defined contribution that has been agreed upon in the new pension system. This means that pension outcome is no longer guaranteed. ‘But please know that at BeFrank we have successfully implemented this concept for more than 10 years,’ says Rhebergen.
If you are with a pension fund, many changes will be applied automatically. That may sound nice, but there is also a drawback according to Rhebergen. ‘Surely as a business owner you would prefer to decide what you arrange for your employees.’ Unfortunately, not everyone has that option; many companies are required to be in an industry pension fund.
An important date: 1 January 2026
It is also good to add that your pension scheme must be changed by 1 January 2026 at the latest. ‘Not all agreements are in place yet, but we expect clarity from the legislature soon. We do advise companies to stay connected to their pension fund, PPI or pension insurer. This will allow you to inform employees of the changes in a timely manner. In fact, employers are required by law to do so,’ says Rhebergen.
‘In any case, it is certain that major changes are coming, and you don’t want to run the risk of starting to make the right preparations too late. Our experts are already getting questions about it. Looking at your options now certainly can’t hurt, especially if your pension contract expires this year. A financial advisor can help you make important choices regarding the new pension plan.’
This article appeared on MTsprout.nl on 14 April 2021.