With the pension agreement and the bill on the future of pensions act, the Netherlands is switching to a different pension system. According to the current planning, the new pension system will have to be implemented by 1 January 2027 at the latest. This means that your pension scheme must be changed. On this page you will find information on the most important changes.
Things are changing for pension funds, insurers, and premium pension institutions (PPIs). In future, the amount of the contribution will be the starting point for every pension scheme. This is called a defined contribution scheme. This means that no promises will be made about the amount of the future pension benefits. The contribution and the return therefore become even more important factors for the pension outcome of your employees. Fortunately, LifeSight’s offering is already based on a defined contribution system. Therefore, one of the biggest changes in the bill will not affect LifeSight’s pension schemes. We already have extensive experience in the implementation and communication of defined contribution schemes, and we can continue with this set-up.
There are also changes in the bill that do affect our pension schemes and therefore LifeSight’s pension schemes must also be adjusted in parts.
You probably have questions about what the pension agreement means for your pension scheme and for your employees. We are working hard on the development of our services and adjustments to our products so that we can offer you a pension scheme that complies with the new system in time. However, we can already give you a general idea of the changes and how LifeSight will deal with them.
Are you already a LifeSight customer?
Then it makes sense to adjust your pension scheme as of the renewal date. Please note that the consent of your employees or employee representatives is required for the adjustment of the pension scheme.
We will keep you and your pension advisor informed in the coming period about what the changes mean for your pension scheme. It is important to know that now the outlines are known, but in the coming period the legislation must be further elaborated. This will happen in the course of 2022. Therefore, we can now only inform you about the broad outlines of the changes.
Do you have another administrator for your pension scheme?
Do you not yet have a defined contribution scheme or is your contract with your current pension administrator expiring? We would be pleased to talk to you and your pension advisor and inform you about our solutions. Please contact your pension advisor or Edwin van den Oever or Bart Snijder.
The most important changes
A scheme with a fixed contribution rate
When: by 1 January 2027 at the latest
Action needed: your pension scheme must be changed between 1 January 2023 and 1 January 2027
- Every employer offers a pension scheme based on defined contribution.
- Currently, in a defined contribution scheme, the premium increases with the age of the employee. The intention is that the same contribution percentage will apply to every employee.
- According to the current proposals, the contribution percentage will be a maximum of 30% of the pension base. Pension base is the salary minus a deduction for state pension (AOW).
- Every five years it will be determined whether the maximum percentage should be adjusted, for instance because the interest rate has changed.
You currently have a defined contribution scheme
If you currently have a defined contribution scheme, you have the following choices:
- Mixed scheme: you adjust as little as possible
- Existing employees keep the rising contribution.
- New employees receive an age-independent contribution, i.e. the same contribution.
- No compensation arrangement necessary as nothing changes for existing employees.
- After adjustment, there are 2 schemes within the organisation.
- When employees change jobs, they may end up in another type of scheme, i.e. from an increasing contribution to an unchanging contribution. This requires attention, to prevent them from having wrong expectations about their pension accrual.
- Uniform scheme: the same scheme for everyone
- All employees receive an age-independent contribution.
- Compensation scheme needed for employees who are worse off than they were before.
- Compensation can be provided in the form of extra pension or salary. The new pension framework offers additional fiscal space for this of up to 3% of the pension base calculated over your total workforce.
- Lower labor mobility (due to loss of possible compensation scheme).
You currently have an average pay or final pay scheme (Defined Benefit)
You currently have a Defined Benefit scheme with another administrator than LifeSight. As of 2027 it is no longer possible to accrue pension in a defined benefit scheme. From 2027, only defined contribution schemes will be possible.
- If your pension scheme is extended until 2027, you will have to change to a defined contribution scheme with a constant contribution level. LifeSight can accommodate this change for you.
- By switching to a defined contribution scheme before 2027, you can make use of the respecting effect as described above. This can be advantageous because in that case there is no obligation to pay compensation for missed pension accrual. You can then agree a scheme with an age-dependent graduated scale for all employees in service on 31 December 2026. For new participants from 2027 onwards, it applies that they accrue pension at an equal percentage.
In all cases, it is important that you obtain good advice from a pension advisor. LifeSight ensures that your pension advisor has all the information needed to serve you well.
The insurances for the partner and orphan’s pension
When: by 1 January 2027 at the latest
Action needed: your scheme must be changed between 1 January 2023 and 1 January 2027
The partner and orphan’s pension is an important part of the pension scheme. There are many different schemes in the Netherlands, so for many people it is unclear what the scheme looks like and what they will receive. The level of surviving relatives’ pensions is now dependent on the period of employment. Sometimes the coverage remains partly in place after leaving employment. However, sometimes the coverage ends completely when an employee leaves employment. Often, an employee is not aware of this.
- The partner’s pension is always calculated as a percentage over the salary in the new situation.
- Type of coverage (before retirement date) becomes obligatory on a risk basis.
- The maximum percentage is 50% for partner and 20% for orphan’s pension (40% for full orphans).
- It remains possible to insure ANW-shortfall.
- The partner’s pension cover remains in place for 3 months after leaving employment (at the latest until a new job is found) or during the entire unemployment (WW) period. The employee may choose to continue the coverage for 3 years at his/her own expense.
Early Retirement Scheme (RVU) and leave saving
When: 1 January 2021
Action needed: no direct impact on the pension scheme
Also, several new arrangements apply per 1 January 2021. These have no direct link with the pension scheme but do help people to stop working (early).
Early retirement – exemption from RVU penalty
The RVU makes it possible for employees to receive an early retirement benefit shortly before their retirement date.
- Until 2021, there was a tax penalty for the employer when a payment was made which ensured that the employee could retire early.
- This tax penalty will not apply between 1 January 2021 and 31 December 2025 under the conditions:
- Payment starts a maximum of 3 years before the state pension date and amounts to a maximum of approximately €21,000 per year.
- Act in force as of 1 January 2021, after 2025 an alternative structural solution will be found.
To offer employees more opportunities to stop working earlier, the number of weeks of tax-free leave savings has been doubled.
- Employees were now allowed to save up to a maximum of 50 weeks of tax-facilitated leave.
- The maximum is extended to 100 weeks.
- Act in force as of 1 January 2021.
Choice for a fixed or variable pension after the retirement date
In a defined contribution scheme, the participant’s pension capital is usually invested until the retirement date. On the retirement date the participant then buys a fixed pension benefit: Fixed Pension. The participant can also continue to invest the pension capital after the retirement date. In that case, he or she chooses Variable Pension.
A participant can choose fixed or variable pension benefits. If no choice is made, the ‘default choice’ applies. In the envisaged new legislation, the default for participants in pension funds will be a Variable Pension
The proposed statutory default for a PPI (and therefore also LifeSight) is – as it is now – the fixed benefit, unless the social partners (i.e. employer and employees) have opted for the variable benefit to be the default within the pension scheme. This choice will then have to be included in the execution agreement. When you enter a new pension scheme, you must therefore, together with the employees (representation), make a choice as to whether the default will be a fixed or variable pension. Your pension advisor can support you in making this choice.
In the new system, pension providers must determine their investment policy based on participants’ risk attitudes per age cohort. The risk attitude will be determined by periodically surveying the risk preference per age cohort. This survey must take place at least once every 5 years. LifeSight already carries out this periodic survey for our model with our smart standard lifecycles. Nothing will change in our approach here.