Defined contribution plans
The current Pension Act has three types of pension agreements: defined benefit agreements, capital agreements and defined contribution agreements. In the new pension system, pension accrual is only possible on the basis of a defined contribution agreement. After this legislative proposal enters into force, in principle from 1 January 2022, the parties can only agree on a pension scheme for the old-age pension that falls within the legal frameworks for one of the forms of defined contribution agreements. In short, the following types of defined contribution schemes are possible in the new pension system:
- The new defined contribution agreement (the "new pension contract)
- The improved defined contribution agreement
- A contribution benefit agreement (only for insurers)
- A contribution capital agreement (only for insurers).
We would also like to point out that in certain cases you, as an employer, are partly responsible for a choice between one of the four types of contribution schemes.
Amount of pension contributions
The bill provides for a maximum age-independent contribution of in principle 30% of the pensionable base for contribution agreements concluded in the years 2022 or later. According to the government, such contributions are necessary to realize lifelong yearly retirement benefits equal to 75% of the average pensionable basis. This percentage is significantly higher than the average pension contributions in 2020. As an employer, you will therefore probably have to make a choice between increasing pension contributions or a less favorable pension for your employees.
Do you already have a defined contribution agreement that is administered by an insurer? In that case, according to the bill, you must make a choice between continuing the progressive and age-dependent contributions, or a switch to age-independent contributions.
Transition period between 2022 and 2026
After the bill enters into force, a transition phase to the new pension system will be created from 2022 to 2026. The transition will be a complex exercise with many responsibilities for pension providers, social partners and employers. Parties must make agreements and take decisions about how they want to switch to the new pension system. It is important to decide whether pensions which are accrued until the bill enters into force, are converted (in Dutch: invaren) into a defined contribution agreement.
Employers are obliged to draw up a transition plan in connection with the above. This transition plan must in any case relate to (1) the choice of the defined contribution agreement, (2) how to deal with the accrued pensions: conversation is the starting point, but will not be mandatory, (3) the effects per age group and (4) agreements about adequate compensation and financing of the compensation.
In addition to the transition plan, pension providers are obliged to draw up an implementation plan, including a communication plan. In order to enable a careful transition, the current financial assessment framework will be temporarily adjusted for pension funds that will convert the accrued pension rights into the new pension contract. This is also a complex issue with many legal snags and great responsibilities for employers and pension providers.
Would you like to know more?
Would you like to know more about the consequences of the Act future of pensions for you as an employer? Then contact your Loyens & Loeff adviser or one of our advisers from the Pensions team.