Pension Reform

by Alexander Beard, on Aug 14, 2019 12:16:12 PM

Last June the government and the major trade unions have agreed on reforms of the Dutch pension system. Reforms that were negotiated for the last nine (!) years.

Social affairs minister Wouter Koolmees has said the plan for the transition to a new pensions system should be completed by the end of 2020 and that the cabinet aims to complete the legal framework for system reform by the start of 2022.

State pension
The AOW (state pension) age will increase less quickly than in current legislation. For people with hard physical work an early retirement option will be introduced.

The state retirement age remains at 66 years and 4 months in 2020 and 2021 and then increases in two steps to age 67 in 2024. After that, the state retirement age rises by two months for every three-months increase in life expectancy.

Corporate pension plans
A majority of the pension plans are still with company pension funds or industry wide pension funds.

DB plans
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.  

DC plans
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.

Other changes

Lump sum withdrawal
It will become possible to withdraw 10% of the individual pension capital on retirement date.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Bram Bogaard
C.E.O. - AB International Benefits B.V.