The upcoming Dutch pension reform will impact all pension schemes, and employers should be informing themselves on the proposed changes and how this will effect their pension plans.
What is to happen?
The Dutch government and social partners on a drastic reform of the Dutch pension system. At the latest per 1 January 2026, pension accrual in a defined benefit scheme is no longer possible.
Defined contribution (DC) schemes with a flat rate contribution up to a tax maximum of 30% of the pensionable base will be the only possibility after 2026.
The reforms will have its effect on how the pension premiums are calculated. The premium for corporate pensions will no longer be based on uniform contribution rates. In the current system older employees require higher contributions than young employees for the same level of pension accrual. At industrywide pension funds, where an uniform contribution rate is mandatory, too much is paid for a younger employee and too little for an older employee.
In the new pension system there will be an age-independent contributions and the annual pension accrual will vary per age. For all contracts, the maximum contribution rate will be based on a pension ambition of 75% of the average salary in 40 years (accrual old age pension 1.875% per year).
The younger workforce (under 40 years) will profit most from this change. People in the 40s and 50s, however, will face a bigger challenge. The pension contributions they have made in the past have benefited the older generation and they are likely to be faced with less pension than expected because of the shift away from average earnings. In further negations it will be determined how the older employees will be compensated.
Because of this new premium structure the age related contribution rates for DC will disappear. A same percentage for everyone will replace the current contribution rates. This percentage will be maximized to 30%. A temporary maximum of 33% will be in place for transition.
Existing DC plans based on age related contributions will be allowed to remain as they are for existing employees.
New employees however will need to receive a pension plan based on a flat rate per 01-01-2022
For employers it will be important to think about the best solution for their existing plans. Change the whole plan to a flat rate (with possible reimbursement to older employees if the average premium is lower than their current premium) or use the possibility to have 2 plans in place.
The current method of calculating the partner’s pension will change. The employer will be able to insure a maximum of 50% of the wage as insured partner’s pension.
The insured amount will no longer depend on the years of service with the employer.
Expectations are that most employers will insure the maximum.
The bill is expected to be sent to Parliament after the summer in 2021, after a market consultation based on a draft bill, that is currently open to the market. It is anticipated new legislation would be implemented on 1 January 2022. A transitional period applies until 1 January 2026 for pension funds.
We will pro-actively start to inform our clients during 2021 about the upcoming changes. If there are any questions in the meantime, or are you not a client yet but are looking for a specialist pension consultant? Please contact us!