Main elements of the Future of Pensions Act

The current Pensions Act has three types of pension agreements: defined benefit agreements, capital agreements and defined contribution agreements. In the new pensions system, pension accrual is only possible on the basis of a defined contribution agreement. The consequence of this is that once the new Act becomes law, the parties can only agree on a pension scheme for the retirement pension in the form of a defined contribution agreement.

According to the Future of Pensions Act, all pension schemes concluded after 1 January 2022 must adopt an age-dependent pension contribution. The Act provides for a maximum age-independent contribution of in principle 30% of the pensionable base. However, a transitional regime will apply to defined contribution agreements concluded before 1 January 2022. Any defined contribution schemes concluded before this date contain an age-dependent contribution and this can remain unchanged. Defined contribution schemes are characterised by low pension contributions for relatively young employees and high contributions for relatively old employees.

The Future of Pensions Act provides for a thorough reform of the partner’s pension. The most important element of this is the partner’s pension paid to the widow or widower if an employee dies before the relevant pension commencement date. On this point, the new Act provides for a partner’s pension on a risk basis. This means that if the employee dies before the pension commencement date, in principle a partner’s pension is only paid out if the employee was still in your employment when he or she died.

Once the new Act has entered into force, from 2022 to 2026 a transitional phase towards the new pension system will apply. Important here is whether the pensions accrued up to the moment the bill becomes law are converted into a defined contribution agreement. In pension terms, this conversion is referred to in Dutch as ‘invaren’. With regard to the above, employers are required to draw up a transition plan, which must in any case provide for choosing a defined contribution agreement, the way in which existing pension entitlements will be managed with ‘invaren’ as the starting point, and agreements on obligatory and adequate compensation for employees.

Points to consider when revising the pension scheme for your employees in 2022

  • It is recommended taking stock of the options, sticking points and costs that you, as the employer, will be confronted with as a consequence of the Future of Pensions Act. This will enable you to anticipate the upcoming legislation by revising your pension plan in 2022.
  • If you switch to a defined contribution scheme before 1 January 2022, according to the transitional scheme you do not need to make significant changes to this before the Future of Pensions Act enters into force. However, in that case you do need to arrange a separate pension scheme for employees you take on after 2026.
  • You are obliged to compensate your employees if you change the pension scheme for your employees as a consequence of the Future of Pensions Act entering into force. This is not obligatory if you change your pension scheme before the Act enters into force. However, such a change does require the agreement of the works council and your employees.
  • In anticipation of the Act entering into force, you may like to consider reducing the partner’s pension. This may save you costs.
  • Are you required as an employer to participate in the basic pension scheme of a sectoral pension fund? In that case, usually you can change the supplementary pension scheme you have arranged with that pension fund or with another pension provider.
  • Most contracts between employers and pension providers for administering a pension scheme, what is known as the administration agreement, have a notice period of six months. If, for example, an administration agreement you have concluded is to end on 1 January 2022, you must give notice of termination before 1 July 2021 if you want to switch to a different pension provider and/or you want to make major changes to your pension scheme.

Would you like to know more?

If you would like to know more about the way in which you can change the pension scheme for your employees as efficiently as possible with effect from 1 January 2022, please contact your Loyens & Loeff adviser or one of our advisers from the Pensions team.