1. Why a new pension system?
The review for changing the pension system lies, on the one hand, in the desire to ensure a better balance between pension outcome and the contribution rate. In short: a (relatively) more stable pension, at less premium costs. This means less emphasis on nominal security, as a result of which part of the collective buffers and future investment results can be used (directly) for pensions. On the other hand, the goal is to provide for a more personal and transparent solidarity-based system. To reach this goal, the Wtp introduces personal ‘pension depots’ for each individual accruing pension through their employer.
2. Important changes
The introduction of the Wtp will eliminate the so-called defined benefit scheme that is currently in effect for 80% of Dutch people who accrue pension through their employer. This scheme was characterized (in short) by a certain fixed amount of pension benefits guaranteed to participants. Pursuant to the Wtp, all defined benefit schemes must be replaced by a defined contribution scheme. The defined contribution scheme is characterized by a fixed pension premium that participants (and employers) pay, with which a personal pension capital is then accrued for the individual in question (in a 'personal pension depot’). There are three variations of the defined benefit scheme to choose from pursuant to the Wtp: (a) the’ solidarity defined contribution scheme’, (b) the ‘flexible defined contribution scheme’ and (c) the ‘defined contribution scheme’.
- The solidarity defined contribution scheme. Within this scheme, a collective investment policy is pursued for the participants. The achieved financial results are then allocated individually on the basis of predetermined allocation rules (per age cohort). A solidarity reserve is also formed, which the pension administrator can use to spread risks over different generations.
- The flexible defined contribution scheme. Within this scheme, an individual investment policy is pursued (investment mixes per age cohort), which (among other things) is based on the risk attitude of a certain age cohort. As a result, financial gains and losses are in principle for the account and risk of the individual participants. However, through a so-called risk-sharing reserve, certain risks can be shared collectively. Maintaining such a reserve is mandatory for mandatory (industry) pension funds.
- The defined contribution scheme. This variant is also known under the current pension system and is thus an existing scheme. The scheme can only be executed by an insurer (and under certain conditions by a pension contribution institution (PPI). Within this scheme, starting 15 years before the retirement date, it is possible to use the pension capital accrued up to that point for a (partial) defined benefit retirement pension. When purchasing a fixed pension benefit, the risks (interest rate investment and longevity risks) are taken over by the insurer.
3. The conversion of existing pension entitlements
Employers (the social partners) together with the pension funds should come up with a ‘transition plan’, which transition plan forms the basis for the transition to a new pension scheme in the form of the defined benefit scheme (as set out above). The transition plan makes clear which defined contribution scheme will be chosen (see possible variants above) and elaborates on how to deal with the conversion of current pension entitlements to the new scheme (in Dutch this is called: ‘invaren’). Pursuant to the Wtp, the transition (including the conversion) must be ‘balanced’. This is (still) an undefined standard, which the social partners, pension funds and employers involved can and (and are expected to) interpret differently. In principle, negative and positive transition effects are acceptable, but the parties involved will have to (be able to) properly justify the choices made. This is also important in order to avoid litigation about the conversion choices made.
- Employer remarks. It follows from the Wtp that all employers in the Netherlands with a pension scheme in place are obliged to draft such a transition plan.
- Pension fund remarks. In practice, this will be done in consultation with the pension administrator (the pension funds) – as pension funds maintain their own responsibility under the Wtp and will thus have to carefully consider whether they agree with the transition plan.
- Supervisory authority. If both the social partners and the pension fund(s) agree to the decision about the conversion (‘invaren’), the pension fund notifies ‘De Nederlandsche Bank’ (DNB) (the Dutch Central Bank). In its role as supervisory authority, DNB will assess this notice. DNB does this on the basis of the assessment criteria laid down by law. These include the financial impact, the decision-making process and the financial and other risks of the decision to convert the current pension entitlements to the new pensions scheme (‘invaren’). For example, the financial effects must have been properly identified, the pension fund board must have adequately substantiated its consideration of the different interests, and the proper conduct of business must be safeguarded during the transition.
- Asset manager remarks. The adoption of the new Pensions Act is also no be noted by asset managers / asset management companies. This is related to the legislator's choice to legally prescribe the ‘risk attitude’ on which the chosen investment mixes must be based, which may (and probably will) lead to an amendment of the chosen investment mixes. The question is then (among others) whether the investment mandate is still in line with the (new) risk attitude - and if that is not the case: which agreements within that framework should be reviewed or adjusted. This could include an adjusted fee for the services to be provided and agreements on the investment mandate during the transition period.
4. Important deadlines
In the entire transition process, a number of deadlines are of particular importance. If parties wish to make use of a transition committee*, they must submit a request to do so before 1 January 2024. If the pension scheme is administered by a pension fund, the transition plan must be submitted to the pension fund by 1 January 2025. This does not apply to employers affiliated with insurers and PPIs; for them there is a deadline of 1 October 2026. The entire transition process (changing the pension schemes) must be completed by 1 January 2028.
- *If the social partners cannot reach an agreement on changing the pension scheme, a temporary transition committee may be established. The transition committee's task is to advise parties entering into a new pension agreement, if these parties make a joint request to do so and agree to be bound by the transition committee's advice.