When you think about the Future of Pensions Act, you are thinking about your pension for later. But it goes beyond that. The surviving dependants’ pension will also change. What do you need to start thinking about now?
What does the new surviving dependants’ pension mean for your organisation?
The surviving dependants’ pension is changing, which is something to look forward to – for both employer and employees. Under the Future of Pensions Act (Wet toekomst pensioenen, or Wtp), surviving dependants’ pensions will become simpler, clearer and more consistent. That is good news, since the rules around the partner’s and orphan’s pension are quite complex. Employees sometimes do not know what financial state their partner and children will be left in if they pass away. In future, the surviving dependants’ pension will be a percentage of the pensionable salary, up to a maximum of 50%. The orphan’s pension will be up to up 20% of the salary. As the employer, you will soon decide how much you will contribute up to that maximum under a new scheme.
The new surviving dependants’ pension is made up of three parts:
– Partner’s pension: a percentage of the salary as a partner’s pension for the partner. The partner’s pension stops when the partner passes away.
– Orphan’s pension: children will receive a percentage of the salary up to a certain age.
– Temporary surviving dependants’ cover: an additional benefit for the partner until he or she receives the State Pension.
How is it becoming less complex?
For employees, the new surviving dependants’ pension will soon be less complex. For example, how long a person has worked for the employer will not affect the amount of the surviving dependants’ pension. The effect of moving to another employer is also clear. The amount of the surviving dependants’ pension may differ, but the definition of who is eligible for the benefit is the same under all schemes. A welcome change, since who exactly constitutes a partner and is entitled to benefits currently depends on the scheme that the employer has in place. Under an increasing number of schemes, you are a partner if you live at the same address for more than six months. Sometimes you are only a partner if you have a cohabitation contract drawn up by a civil-law notary. This results in misunderstandings. The plans may still change, but the tone of a simpler and better surviving dependants’ pension seems set.
What do you want to offer your employees?
As an employer, the plans will soon offer you several options for leaving your employees’ dependants well provided for. By offering them a sound surviving dependants plan. And by helping them arrange the right supplementary provisions. Organisations make their own choices in this regard. How does your organisation seek to be a good employer? Do you emphasise low cost in the pension scheme? Or do you a want to offer a good provision for the partner and children if an employee passes away before their retirement date? Obviously those questions go far beyond the pension alone. Good to know: as an employer, you are not obliged to offer your employees a surviving dependants’ pension, even under the Wtp.
What possibilities will you offer your employees?
The new surviving dependants’ pension offers greater flexibility. Some pension administrators allow employees to make their own choices based on their personal situation. As the employer you insure part of the benefit for the employee, and they then decide on the further provision. After all, no two employees are the same. If employees’ personal situation changes, some pension administrators allow them to adjust the amount of the surviving dependants’ pension to be insured. Up to a maximum of 50% of the pensionable salary. For example, if your employee’s dependants are less dependent on their income. This might involve a situation where the children have flown the nest and can provide for themselves. Or if the partner starts earning more. If the partner stops paid work or the employee moves in with the partner is also a good time to look at this issue.
How should you share the changes with your employees?
Explore now what the new plans mean financially for your organisation. And what options you have within the available budget. It’s handy if you can quickly see the outline consequences on your pension administrator’s employer portal. Both for the organisation and for the employees. This is also valuable information that you can use in discussions with the Works Council, for example. Your advisor can help you work out the various options, tailored to the unique characteristics of your business. For example, if employees within your organisation are not eligible for state dependants’ benefit (Anw). An Anw survivor benefit shortfall insurance then provides a monthly benefit until the partner’s State Pension Age. It may also be attractive to offer an additional (one-off) benefit to employees.
What can you expect from your pension administrator?
Between 2023 and 2027, your organisation must switch from the current pension scheme to the new system. Including a move to the new surviving dependants’ scheme. The law is currently expected to come into effect on 1 January 2023. As an employer, you are naturally aware of your duty of care. You want to share changes to the pension scheme with your employees properly and in a timely manner. Don’t forget to include the changes to the surviving dependants’ pension in this. Your advisor and pension administrator can help you with this.
Tip: Did you know that when a pension scheme under the new system is introduced within your organisation, the new surviving dependants’ pension will take effect for all employees at the same time? This means there is no transitional arrangement as with the retirement pension.
Map out the consequences for your employees
Start preparing now to inform employees about the important features of the new scheme in due course. For example, the new scheme for surviving dependants is on a risk basis. The surviving dependants’ pension is insured as long as the employee is employed. If your employee ceases their employment, cover will stop. The law contains several proposals to protect them against this risk. It is important that the employee decides in good time – with the help of the advisor – how this applies in their personal situation. Also bear in mind that the surviving dependants’ pension changes with salary development and working hours. If the employee starts working more, the surviving dependants’ pension also increases. But if they work less, it goes down.
Your pension administrator and advisor can help you to make things clear, both now and later. Smart online tools mean that the options for employees are clear. BeFrank is developing a handy online planner that will show your employees what financial state their dependants will be left in if they pass away. Extra top-up insurance is simple, and the planner shows the effect immediately. This helps your employee, and makes life easier for you as the employer. Such conversations about the surviving dependants’ pension also help boost pension awareness within your organisation. After all, pension is not just an issue for later; employees and their dependents may also have to deal with it now.
BeFrank offers customers access to the convenient BeFrank Selection Tool through the employer portal. You can see at a glance what the impact of the new pensions system will be on your organisation’s pension scheme. And you can also see the impact that this has on your employees’ (surviving dependants’) pensions.
Benefits of new surviving dependants’ pension
– Surviving dependants’ pension will soon be a percentage of the pensionable salary;
– Consistent definition of partner and other surviving dependants;
– The period of employment no longer determines the level of the surviving dependants’ pension;
– Lots of flexibility for employees, e.g. to take out additional insurance within the tax allowance.
This article appeared on MTsprout.nl on 21 September.