The state pension is going up. What does that mean for your pension?

BeFrank
24 Nov 2022

You may already have heard the news: as from the new year, the state pension (AOW)  will increase substantially. The maximum pensionable salary will also increase. For you, as an employer, it is important to know what this means for the organisation and your employees. Should you take action? Or shouldn’t you? We have listed both the changes and the options below.

Higher state pension reduces pension base
The government has committed itself to increase the minimum wage by 10.15 percent in 2023. The state pension will also increase by that percentage. Good news for pensioners. But the sharp increase in the state pension may affect workers who are still accruing a pension. From 2023, they will accrue less pension in the employer’s pension scheme. This is a direct consequence of linking the so-called contribution-exempt amount in many pension schemes to the state pension level.

The contribution-exempt amount is the part of the salary over which a pension scheme participant does not accrue a pension in the pension scheme. The state pension covers this part of old-age provision. If the state pension increases, the pension base falls and pension accrual automatically falls with it. The survivor’s pension also decreases. A salary increase dampens the effect of a higher contribution-exempt amount.

Good to know: that these changes mainly affect workers with relatively low wages. In their case, the contribution-exempt amount is relatively large compared to their wages.

Example:
An example shows the effect of a higher state pension on the pension indication. Suppose employee Lex has a pensionable salary of €30,000. From January 2023, his expected pension, which he accrues in a pension scheme through his employer, falls by over 10% due to the state pension increase. Sarah accrues pension over a salary of €50,000. Her expected pension falls 5%, much less than Lex’s. The expected pension is falling for both Lex and Sarah. Together with a higher state pension, the total income after retirement can still remain about the same. The effect of purchasing power is not included in this.

Maximum pensionable salary substantially higher
If your company employs many employees with high salaries above €100,000, you will also face the increase in the maximum pensionable salary next year. From 1 January, the maximum pensionable salary will be increased to around €129,000 (€114,866: 2022). Both the higher maximum pensionable salary and the increase in the contribution-exempt amount affect the company’s pension budget. Pension costs may be higher or lower.

Time to take action?
A pension is an important employment condition that has been established with the consent of the Works Council and under the supervision of an advisor. As an employer, you don’t have to do anything now that the state pension and the maximum pensionable salary are going up. However, it may be useful to talk to your advisor. There are options to adjust the pension scheme. Within your pension scheme, you can think of adjusting the percentage on which the level of the pension contribution is based. Or adding a 13th-month payment to the pensionable salary. As an employer, you can also reduce the contribution-exempt amount. A salary increase is also a way to accommodate your employees.

Are you considering adjusting something? Consult your pension advisor first. In some cases, the consent of the Works Council is also required. Good to take this into account.