25 Jun State of play Dutch Pension Agreement
After concluding a provisional Pension Agreement in 2019, the Dutch government and social partners published their plans for revising the Dutch pension system on June 12th. On June 19th it became clear that the efforts made to reach a final Pension Agreement had been unsuccessful. Labour union FNV postponed the vote on this matter by two weeks and labour union VCP did not approve – nor disapprove – of the 12 June plans. One of the main raisons for this appears to be that the proposals for compensating employees who – based upon the proposed new pension rules – would suffer a pension deficit, were deemed insufficient.
When FNV agrees with the Pension Agreement in two weeks time, it will also need to be approved by the Dutch parliament.
Although a final Pension Agreement has not yet been reached, LifeSight believes it is important to already inform you about the proposed new pension rules. If an Agreement is reached, this will have consequences for your LifeSight pension scheme.
Possible consequences for your pension scheme
According to the current plans, the new pension system will come into effect on 1 January 2022. Your pension scheme must be compliant with the new pension rules on 1 January 2026 at the latest. The new pension rules will have an impact on the contribution table in your current pension scheme, the risk-based surviving dependent pensions and the choices at retirement.
Your company will need to make a choice with regard to the current contribution table according to which premiums become higher as your employee gets older. You have the following options:
- The current (rising) contribution table will continue to apply for existing employees. New employees will receive a fixed contribution until their retirement; or
- All of your employees will receive a fixed contribution until their retirement date. This means that – as compared to the current pension scheme – younger existing employees will receive more and that older existing employees will receive less contributions under the new pension scheme. This may result in a lower pension capital at retirement for all existing employees or in other words, a pension deficit. Therefore, choosing this option may lead to requests for compensation by existing employees.
According to the presented plans, the fixed contribution cannot exceed 30 to 33%.
LifeSight already has experience with pension schemes based upon a fixed contribution. We also execute mixed pension schemes. Therefore, we are all set to help you implement your new pension scheme.
Surviving dependent pensions upon pre-retirement death of employee (partner’s and orphan’s pensions)
Surviving dependent pensions will be standardized
According to the current plans the risk-based surviving dependent pensions will be standardized. The calculation method for these pensions will change.
Upon pre-retirement death of the employee, the partner will receive a maximum partner’s pension of 50% of his salary.
Therefore, the amount of the partner’s pension will no longer depend upon the number of years the employee worked for the employer.
The partner’s pension is a life-long pension and cannot exceed 50% of the employee’s salary at the moment of death.
The orphan’s pension will also be standardized and will amount to a maximum of 20% for half-orphans and a maximum of 40% for full orphans. The pension will – in all cases – be paid out until the (half) orphan reaches the age of 25. In the current situation the end date can differ from pension scheme to pension scheme.
Employee leaves the company – dependent survivor pension remains insured (temporarily)
The plan is that dependent survivor pensions will remain insured for a couple of months after an employee leaves your company. It is not yet clear how long. However, the pensions will remain insured for as long as your former employee receives an unemployment benefit from the state.
Your former employees will also have the opportunity to – e.g. when their unemployment benefit ends or they become self-employed – use part of their pension capital to maintain their risk-based partner’s pension.
Lump sum at retirement
At retirement employees will get the option to request a maximum of 10% of their accrued pension capital to be paid out as a lump sum at once. This will give them additional financial leeway once they retire, e.g. to redeem their mortgage.
With this message, we hope to have provided you with useful insight regarding the state of play of the Dutch Pension Agreement and its potential consequences for you, your employees and your pension scheme. We advise you to contact your advisor and develop a plan as soon as the Pension Agreement becomes final. We would like you to know that LifeSight will ensure it is ready for this challenge once it presents itself. Together with you and your advisor we will make sure that the transition to your new pension scheme will be a smooth one. Of course, we will keep you informed on future developments.