Pension Reform

by Alexander Beard Group, on Aug 26, 2020 11:19:32 AM

Last July the government and the major trade unions have agreed on reforms of the Dutch pension system. The new system, which emerged from nearly 10 years of negotiations, replaces the fixed-rate pension with one tied to stock market prices, meaning pensioners will not know how much they stand to receive until they retire.

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.

Retirement age
The retirement age for corporate pension plans currently is set at 68 years. This means the state pension age and retirement age are not the same. In the new legislation the retirement age will also increase not as fast as under current legislation.

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 to approximately 30% - 33%.

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

Other changes

Partner’s pension
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.

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

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