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Article | Global News Briefs

Netherlands: Draft legislation to implement pension agreement

By Wichert Hoekert and Willem Eikelboom | April 08, 2022

Delayed draft legislation to implement the pension deal to become effective from January, 1, 2023.
Retirement|Health and Benefits|Ukupne nagrade

Employer Action Code: Act

Long-awaited draft legislation to implement the pension deal of 2019 has been released. The draft is largely in line with the content of the consultations at the end of 2020. The intention remains for the legislation to become effective as of January 1, 2023, and for all pension plans to be adapted to comply with the new law within a four-year time frame (see our previous Global News Briefs: Pension reforms postponed for up to one year).

Key details

Key points include:

  • All new pension accruals would have to be in defined contribution (DC) plans, with representatives of employers and employees choosing between solidarity and flexible arrangements having different degrees of risk sharing between generations.
  • All new pension accruals would have to be based on flat contribution rates unrelated to age. However, employers with an existing DC or insured defined benefit (DB) plan can provide future DC contributions that increase with the employee’s age, but only for employees in service at the time of the transition. In our survey of employers (in Dutch. Also available to download in English: The Future of Pensions in the Netherlands), the majority indicate that they expect to maintain the current contribution pattern for these employees, but at the same time we see an increasing number of employers that, after further consideration, expect to move to flat contribution rates for all employees.
  • Existing DB pension rights in pension funds would be convertible into the new DC arrangements (even for inactive plan members and pensioners).
  • For older workers, future pension accruals would typically be lower than those based on the current age-related rates. Employers and employee representatives would have to agree on a transition plan, potentially including compensation to employees who experience lower pension accruals if these aren’t offset by other aspects of the changes.
  • Pension funds that commit to transitioning (including past service) to the new DC plan type when it is implemented may apply full inflation indexation at funding ratios above 105% (the threshold is now about 125% for full indexation), effective from July 2022 and retrospective to 2021.

Employer implications

Employers would decide when to transfer to the new system within the four-year time frame. In our survey, employers with DB or collective DC plans mostly intend to transfer in 2025 or after. Any earlier date would be a challenge, as the legislation still has to be approved by the upper and lower Houses of Parliament, and implementation (e.g., the transfer of accrued benefits) might take considerable time.

Among surveyed employers with DC plans, the expected date of transition is fairly evenly distributed over the four-year window. We would expect (and recommend) that employers use the end date of current contracts for their transition date unless specific circumstances are a reason to prefer a different date. For DB pension funds, the transition plan (which is the responsibility of the employer) would have to be available by January 1, 2025, but for plans with insurers or premium pension institutions (PPIs), this deadline would be October 1, 2026.

The changes would also significantly increase employees’ freedom of choice with regard to pensions, particularly with flexible arrangements: Employees might be confronted with freedom of choice in their investment strategy and potentially also in their contribution level. At retirement, they would be offered a choice between variable and fixed annuities, and (also the case with solidarity arrangements) would be able to take 10% of the value of their old age pension as a one-off lump sum payment. This increased freedom of choice implies that employers would have to determine to what extent and how they would have a role and a responsibility when it comes to supporting the choices of their employees. The vast majority of employers in our survey acknowledge that that responsibility would become much more important under the new pension framework.


Wichert Hoekert


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