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Jul 12, 2023

Information about new legislation in the Netherlands

The following information is provided by Nationale-Nederlanden, our Network Member in the Netherlands.

The Netherlands is overhauling its pension legislation to create a more sustainable system in an aging society where fewer people are remaining with the same employer throughout their working lives. The current pension system no longer matches the changing labor market and changing needs. The outcome of the new pension system should be a more sustainable, generationally fair pension system with more predictable costs for employers.

What will change?
  • All future pension accruals will be based on defined contribution (DC) plans.
  • New pension plans will require a flat-rate DC contribution, regardless of the age of the participant. Existing DC plans must be updated by the end of the transition period.
  • There are two options for existing DC plans: 1) a flat rate pension plan with possible compensation by the employer if participants are disadvantaged under the new plan, and 2) respect the existing right of current participants (‘grandfathering’) and offer new participants a flat rate pension plan.
  • Pension contributions will be capped at 30% of the pension base, with an additional 3% allowed for compensation until January 1,2037. The additional 3% only applies when there is compensation in pension and not when there is compensation in salary.
  • The dependents’ pension for both existing and new participants is based on the new regime.
  • The definition of a partner will be uniform.
  • Surviving dependents' pensions will follow standard rules, with up to 70% of retirement benefits convertible into a partner pension after retirement and risk-based partner and orphan pensions for deaths before retirement.
  • The amount of the survivor's pension in the event of death during employment no longer depends on the number of years of service but becomes a percentage of the pensionable salary. For partner's pension, this is a maximum of 50%, and for orphans' pension, a maximum of 20%. The orphan's pension is paid out until the age of 25.
  • Introduction of a lump sum payment of a maximum of 10% of the to-be-purchased old-age pension.
  • The age of entry will be 18 for all pension plans, i.e., both existing and new plans.
When?

The Future of Pensions Act will become effective as of July 1, 2023. There will be a transition period until January 1, 2028 so employers and pension providers can implement the changes. The lump sum possibility has been postponed, but the law is expected to come into force on July 1, 2024.

Implications of the pension reform
  • All active pension plans require revision in the near future.
  • Participants will need to make individual decisions going forward.
  • Some participants, particularly those aged 40-55, may be at a disadvantage due to changes in the plan and may require compensation.
  • Employers will need to draw up transition plans to ensure a smooth transition, including compensation options and calculations. These plans will need to be agreed upon with employee representatives.
  • Pension providers will need to create communication plans to implement the new pension plan.
  • Participants are expected to need more guidance, so brokers are exploring expanding their participant communication activities.
Pension funds vs. insurers
  • The upcoming pension reform is expected to affect pension funds more than insurers, especially those pension funds that only have DB plans.
  • Insurers will have to change plans to a flat rate contribution and adjust the dependents’ pension. Pension funds that only offer DB plans are faced with a situation that is entirely new to them. For example, it will affect their administration and communication, and they will need to assess the risk appetite of their participants.
  • Communication with participants is emphasized as crucial by the Dutch Authority for the Financial Markets (AFM). All pension providers are expected to take an active role in this regard and must strive to engage participants in their pensions. For pension funds with DB plans, however, this is new as they do not currently communicate about investments, lifecycles, and participant choices.
  • Pension funds must convert collective accrued rights to the new pension plan and translate them into individual rights. Social partners that agree on conversion would need to submit a request to the pension fund. If certain stakeholders would be disproportionately disadvantaged by the conversion, the pension fund could decide not to convert, subject to consultation with the social partners.
  • The shift to DC is expected to lead to more consolidation of pension funds to achieve greater operational efficiency and economies of scale.
  • Instead of purchasing a fixed, guaranteed pension benefit, the social partners can choose to designate the purchase of a variable pension benefit as the default option in their pension plan.

Best regards,

Morten Unneberg
Chief Executive Officer
Insurope SC/CV
Insurope Services, Inc.