Netherlands’ proposed pension reforms move forward

Netherlands’ proposed pension reforms take effect

Proposed extensive reforms of Dutch pension plans feature in the Framework Memorandum on the Elaboration of the Pension Agreement submitted to parliament on 22 Jun 2020. They include the introduction of a new pension contract, the transfer of members’ accrued pension benefits to the new contract, and the end of defined benefit (DB) schemes. The legislation and accompanying regulations are expected to be finalized by the end of 2021, with reforms transitioned in over a four-year period beginning on 1 Jan 2022 and fully effective from 1 Jan 2026 at the latest. The memorandum follows discussions with the social partners, and the proposed measures are based on a framework agreement signed in June 2019. 

Highlights of the framework memorandum

  • DB pension schemes will be terminated, and new pension accruals will be provided via defined contribution (DC) schemes based on the available premium.
  • Pension benefits would be paid from “capital reserved for distribution” funded by premium payments, investment returns and contributions paid from the solidarity reserve. The solidarity reserve aims to smooth intergenerational fluctuations and investment results, and its size would be 15% of total fund assets, comprising contributions or excess investment returns.
  • Contribution rates would be age-neutral, but age-related provisions in existing DC schemes would continue. The current pension benefits formula would remain unchanged — that is, the rate would aim to achieve 75% of average wages based on 40 years of contributions (80% based on 42 years of contributions).
  • Tax eligible annual pension contributions would be capped between 30% and 33% of pensionable earnings. The initial rate would be fixed until 2035 and then reviewed every five years.
  • Social partners would have to agree to new pension scheme arrangements proposed by the employer, and decide if accrued pension benefits should be moved into the new pension scheme. The reforms aim to keep together pension entitlements as much as possible — including being transferred into the new pension scheme (this would not apply to benefits provided by insurers and premium pension institutions). Social partners and pension scheme trustees could agree to alternative provisions if they would be detrimental to certain groups of scheme members.
  • Employers would have to prepare a transition plan that includes information on the available choices, the scheme’s rationale and the supporting calculations. Pension providers would have to publish an implementation plan setting out the arrangements for the new scheme. 
  • Pension members disadvantaged by the new pension contract would be compensated, either by a financial payment from the employer or an additional premium paid by the insurer or premium pension institution. The additional premium would be capped at 3% of an employee’s pensionable pay for a 10-year period, ending in 2036 at the latest. The payment of an additional premium would apply to certain age groups of employees; the payment would cease if a disadvantaged employee changed jobs, but their new employer would have to compensate them on the same basis as its own workforce (this could be more or less favorable to the employee).
  • The new pension contract would pay pension benefits for the person’s lifetime, with the longevity risk shared by all participants.
  • Social partners could opt for an improved premium scheme, allowing different payments for all members and allowing risks to be shared due to changes in life expectancy and investment returns. 

Related resources

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Pavel Kinderen
by Pavel Kinderen

Principal, Mercer Wealth

Fiona Webster
by Fiona Webster

Principal, Mercer’s Law & Policy Group

Stephanie Rosseau
by Stephanie Rosseau

Principal, Mercer’s Law & Policy Group

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