New Pensions Act: amendment of the scheme for Dutch employers and the consequences for the HR practice
Headlines in this article
Just before the turn of the year 2022, the House of Representatives, after a very extensive discussion, approved the bill 'New Pensions Act' (NPA). Although the Senate has yet to approve this bill, the change in the Dutch pension system has come a very big step closer.
The aim is that the bill will actually enter into force on 1 July 2023 after approval by the Senate.
If that happens, it will lead to a radical change in the pension scheme of all Dutch employers. This change to the pension scheme will then have to be introduced by 1 January 2027 at the latest. In the (maximum) three and a half years that will be offered for the implementation of this legislation in the new pension scheme, employers will have to make choices on a large number of important points.
These choices will often have to be made together with the representatives of the employees (think of trade unions and/or works council). All these choices have a financial impact for both the employer and the employees. The advice is therefore to start in time with the calculation of the impact of the various choices (or have them calculated) so that the final choices can be made in time.
In the coming year we will inform you in a frequent series of articles about the most important changes of the NPA for the HR practice.
In this first article, we give an overview of the new pension system in general terms. The upcoming articles will focus on the topics that are important for the HR practice in connection with the new pension system.
Think of topics that relate to the new pension system itself – for example, the two new types of pension schemes, the changes for the partner's and orphan's pension, the changed minimum retirement age (18 years), the disappearance of the fixed retirement age and the consequences for the end of the employment contract, the possible transitional arrangements and the (possible) compensations to be offered – but also the timeframe for the change, the new agreements to be made with the pension administrator, the responsibilities of the employer or the pension administrator in the amendment process, the possibilities to amend the pension schemes unilaterally or with consent of the employees and the rights of the works council/employee representative body.
If the NPA becomes law, the Dutch pension system will generally look like this:
- The Dutch pension system will only have '(defined) contribution schemes'. Employers will soon have to make a choice between a so-called 'solidarity premium agreement' or 'flexible premium agreement'. Defined benefit schemes (career average schemes and final pay schemes) are no longer possible.
- There will no longer be fixed pension entitlements and benefits. Each employee will be entitled to an individual 'pension capital'. Depending on the type of contribution scheme chosen, there may still be collective reserves to keep the nominal pensions the same or increase them in the event of, for example, disappointing investment results or falling interest rates.
- Pension benefits will take place through a periodic withdrawal from the individual pension capital (unless a fixed benefit in a flexible contribution scheme is chosen). The benefits are therefore 'breathing along' or going up/down with the investment results and the calculation interest/projection yield. There are therefore no more 'indexations' (permanent increases) of pension benefits or accrued pension entitlements.
- The pension contribution to be chosen becomes age-independent and therefore in principle the same for all participants to the same pension scheme. A contribution graduated by age is no longer possible, except for the existing group of employees to a defined contribution scheme with a premium graduated according to age.
- The maximum pension contribution will be 30% of the pension calculation base (until 2037, an additional 3% will be available as compensation premium, so a total of 33%). If the chosen contribution is lower than the maximum pension contribution, additional payments by the employee are still possible.
- Compared to the current pension system, new 'younger' employees will receive more pension contributions than 'older' employees. Certain groups of employees will be disadvantaged and must be compensated for this. How this is to be done is not stipulated in the law.
- The partner's pension will be more uniform. The partner's pension in the event of death before the retirement date will always be insured on a risk basis and the partner's pension in the event of death after the retirement date will always be on an accrual basis. The partner's pension insured on a risk basis is not dependent on length of service and amounts to a maximum of 50% of the (full/unmaximised) salary. The 'partner definition' will be the same in all pension schemes.
- The minimum age for participation in the pension scheme will be reduced from 21 to 18 years.
If you have any questions about this article or one of our other articles about the NPA or if you have topic suggestions for upcoming articles from us about the NPA, please let us know.