What will change with the new pension reform?

April 2023

As of July 1, 2023, the Future Pensions Act is expected to take effect in the Netherlands, subject to the agreement of the Senate. Pension plans must comply with the new rules no later than January 1, 2027. The pension reform presents employers not only with challenges but also opportunities.

The main reason for the pension agreement is to make pensions future-proof. From July 1, 2023, the Future Pensions Act will take effect, subject to the agreement of the Senate. Employers will then have a transition period of almost four years (until January 1, 2027) to adjust their pension plans.

The most significant change is that, going forward, pensions can only accrue through defined contribution (DC) plans. The amount of the pension benefit is partially based on investment returns and is not fixed in advance (unless the choice is made to purchase a guaranteed benefit). The pension benefits received by an employee are determined by the contributions made and the resulting investment returns.

The premium for pension accrual changes from age-related increases in contributions to a flat-rate age-independent DC contribution for all participants. A 30% cap will be placed on the contribution rate of pensionable income.

In 2019, it was agreed in the Pension Agreement that the state pension age (the “AOW" age) would rise at a slower rate. Until then, the retirement age rose 1-to-1 with life expectancy. Now the law states that for every year that Dutch people are expected to live longer, the AOW age will automatically rise by 10 months. 

The age at which Dutch people are entitled to state old age pension in 2023 is 66 and 10 months. For the years 2024 through 2027, the state pension age will remain at 67 and will rise to 67 years and three months in 2028.

However, the retirement target age in occupational pension plans remains mostly at age 68. This means that the state pension (AOW) starts at a different time than your occupational pension.

When considering the investment risk profile, this has an impact on employees whose pensions are based on investments. The risk typically decreases as the target pension age gets closer. The risk is however not optimally reduced if the worker decides to retire earlier.

How a.s.r. can help:  a.s.r. has introduced the "personal retirement age”.  The employee specifies the date that they wish to retire. a.s.r. will then adjust investments and interest rate hedging to best tailor the risk to the individual situation.

The employee will have the option of choosing to receive up to 10% of their accrued capital in a lump sum. This can be done immediately upon the retirement date. The choice of timing of the lump sum payment affects the amount of the retirement benefit: depending on whether the employee retires in the month in which the state pension starts or after the state pension starts, the employee can have the lump sum paid in January of the following year. This will have a positive effect on the tax rate, both on the monthly and lump sum payments.

This part of the pensions act will come into effect on January 1, 2024 at the earliest.

How a.s.r. can help: a.s.r. is optimizing their employee portal in which the employee can indicate when and how much should be paid out as a lump sum. Employees can also request a calculation.

In the current system, the survivors’ pension depends on the length of service and is a percentage of the pension base. In the Future Pensions Act, the survivor's pension becomes more standardized, less complex and offers surviving relatives more financial security: the survivors’ pension will be a standard percentage of the most recently earned salary:

• Years of service no longer affect the amount of survivor's pension: employees with the same salary in the same scheme with an employer have an equally high survivors’ pension.
• The partner's pension may not exceed 50% of the salary.
• The orphan's pension may amount to a maximum of 20% of the salary (or 40% in case of double orphan) and is subject to a fixed final age of 25 years.

In the new pension system, the survivors’ pension is only on a risk basis. This means that the survivors’ pension is insured only as long as there is employment.  After leaving employment, the coverage stops after a couple of months (in many situations 3 or 6 months).

The survivor's pension that has already been accrued up until now will remain intact even after the pension reform.

Beginning July 1, 2023, the Future Pensions Act will take effect, provided the Senate agrees. As an employer, you must have adjusted your pension plan for your employees by January 1, 2027.

The new pension system gives employees more control over their pension accrual. This is especially true when converting from defined benefit (DB) plans to defined contribution (DC) plans, which requires an active attitude from both the employee and the employer.  With this shift, the employer empowers the employees to make choices related to their investments and whether they want to withdraw a one-time maximum of 10% of the retirement pension on the retirement date.

With the transition from defined benefit (DB) plans to defined contribution (DC) plans, employees will have more choices in the new pension plan. As an employer, it is important that you prepare your employees well for this. Employees need answers to at least three key questions:

• What choices do I have?
• What changes will there be to the survivor's pension?
• What does my overall financial picture look like?

There are several ways to offer your employees more insight into their finances. For example, a.s.r. offers the free platform ikdenkvooruit.nl. Here, employees can get an initial insight into their financial situation within just 10 minutes.