Act Future Pensions (Dutch “PensionAccord”)

2 March 2021

In September 2019 the Dutch Minister of SZW informed the Dutch parliament about a principal agreement between social partners of both employees and employers regarding the complete renewal of the Dutch pension system. This principal agreement was transferred in a definitive agreement in the summer of 2020. In the beginning of 2021 the Minister has sent the necessary concept legal texts for consultation to all involved parties. The intention is to start de political debate about the final legal texts in parliament in the summer of 2021. If the legal texts are transferred into new law almost all pension schemes in the Netherlands need to be adjusted within the coming four years. What does this mean for the pension scheme of your company?

The Dutch pension landscape

A large number of Dutch employees (about 70%) is participating in the mandatory industry-wide pension fund (in Dutch: BPF) of their industry. The content of the pension scheme is determined by the social partners. The board of the pension fund is in charge of the execution of the pension scheme and sets the due premium. In the past years the amount of companies with their own company pension fund (in Dutch: OPF) has decreased from around 1.000 to around 150. Finally, there are around 25 “commercial” providers like insurance companies, the General pension fund (in Dutch: APF) and the premium pension institute (in Dutch: PPI). Combined they execute the pension scheme of around 50.000 employers. There is still a small group of employees in the Netherlands who do not have a pension scheme as part of their labour agreement.

The pension scheme is based on the Defined Benefit system (DB system) or the Defined Contribution system (DC system). In the DB system the yearly accrual is based on a certain amount of pension. This pension is guaranteed by the provider (insurance company) or depends on the financial situation of the pension fund. In the DC system the right of the employee is based on the defined premium in that year. This premium will be invested till the retirement date in a by the employee selected investment fund. At the retirement date the built up capital is transferred into lifelong pension payments. The amount of these payments depends on the accrued return on investment and the cost price of one euro pension at the retirement date.

The reason for the “PensionAccord”

The renewal of the Dutch pension system has its grounds in several economic developments. First of all, life expectation has been increasing. As a result, the number of pension payments increases and the cost price of one euro pension increases. The second development is the (extremely) low interest rates, which do not only increase the premium but also lower the coverage ratio of the pension funds. The final development lies in the way people seek to perform their labour. Changing jobs has become more common and an increasing number of people chooses to work as a contractor rather than as an employee. A decreasing amount of people spend their entire carrier as a participant in the same pension scheme.

These developments have led to several discussions about the Dutch pension system and its continuation in the future. Because of the legal requirements for separating the pension capital from the company, the so called “external capital coverage”, the Netherlands are praised for their pension system. However, this external capital coverage causes pension providers to suffer from the mentioned developments.

Purpose of the “PensionAccord”

The main purpose is a future-proof and sustainable pension system. Parties involved try to achieve this by increasing the prospects of pension payments with sufficient purchasing power. The pension is still based on the external capital coverage and on the fact that the retirement age is based on life expectancy. The goal is to provide employees with a solid pension after their labour carrier. In the end this will ensure a pension that fluctuates directly with the economy. The pension of the employee will become more transparent and personal, and will be linked to developments in society and the labour market.

How will this be achieved?

Important starting-point for the new pension system is maintaining the strong aspects of the current system, including the basic principle that the pension accrual will at least remain at the current level. The ultimate goal remains that every employee can achieve a pension result of 75% of his average income within a period of 40 working years. Solidarity and collectivity remain important principals and the current mandatory participation in an Industry-wide pension fund will be continued.

What will change is the overall pension system. Currently, about 85% of the employees are participating in a defined benefit scheme. Under the new rules all pension schemes must be based on the defined contribution system. The premium must be based on a “flat rate” for all employees. In the concept legal texts a maximum of 30% of the pensionable income (income minus AOW-franchise) is mentioned. The premium will be invested in a collective or individual way until the retirement date. At this date the employee will consume his accrued pension capital during his lifelong period of retirement. Social partners, or the employer, can decide to ask the provider to take extra action to stabilize the pension payments as much as possible.

Consequences Industry-wide pension funds

In principal the new pension system has no consequences for companies participating in an Industry-wide pension fund. The current average premium will be replaced by a new flat rate premium. The only question is what social partners decide regarding the height of this flat rate premium. Will it be equal to the current level of premium? A lot of funds charge a premium in 2021 which is pretty close to the mentioned maximum percentage of 30%.

For the employees there will be considerable changes. In the current situation all employees accrue the same pension rights (depending on the height of the income) and the due premium is the same for everyone. In principle, this premium is too high for young employees and too low for older employees in relation to the value of their own pension rights. In the new situation the premium is the same for all employees (depending on the height of the income). Because of the fact that a young employee has a longer period to make return on investment than the older employee, they reach a higher pension capital. From the same premium their pension result will be higher than the pension result of their older counterpart. So basically, the pension result will decrease over time.

The biggest challenge the industry-wide pension funds will face is how to compensate the participants who paid too much premium in the past and are not compensated for this through a lower premium in the future. Social partners will have to find, together with the fund, a decent way to compensate the participants. The concept legal texts mention a maximum of 3% extra premium for this compensation.

The last question that has to be answered is how the fund is going to treat the already accrued pension rights. Are they going to be respected or are they going to be transferred into the new system? The final decision on this matter is in the hands of the board of the fund.

Consequences company-specific pension fund

Usually, for employers with a company-specific pension fund, the social partners play a key role in determining the employment conditions. This means that they are also involved in determining the flat premium rate in the new pension scheme. The impact for the company depends on the social partners. They will also be involved in deciding on the employee compensation for changing the employment conditions regarding their pension.

For the employees, the pension scheme and the individual labour agreement will be altered Depending on the actual situation of the company all employees might need to accept this change on an individual basis. For the company this means that they have to follow a strict consent process.

The pension fund itself has to make a lot of new choices as well. Are they able to execute the new pension scheme through their administration systems? And is the company-specific fund still of enough value to maintain the fund? Or is it better to liquidate it? What conditions do they need to offer the company for providing the pension scheme and are those conditions reason for the company to go look for another pension fund?

Consequences insured pension scheme

Around 25% of the employees in the Netherlands accrue their pension based on the pension agreement between them and their employer. This pension agreement is accommodated by an insurance company, a general pension fund (APF) or a premium pension institute (PPI). The impact of the “PensionAccord” is enormous because all employees have to agree with the change of the pension agreement on an individual basis.

Companies with a defined benefit scheme need to change this into a defined contribution scheme with a flat rate premium. For the employee this means not only a change of the pension system but also a loss of the yearly guaranteed pension accrual. It seems fair to expect that employees demand some kind of compensation before they agree to changing their pension agreement. The concept legal texts give the opportunity to continue the defined benefit scheme up till 2026. It is up to the company to decide whether they will change the current pension scheme in 2021 into a defined contribution scheme with an increasing premium scale, or that they will wait until 2026 to change the pension scheme into a defined contribution scheme with a flat premium rate.

Companies with a defined benefit scheme based on an increasing premium scale are allowed to continue this scheme for all employees who joined the company before 2026. After this date new employees will get a flat rate premium. This way the company doesn't need to compensate the current employees. There will be two different pension schemes within the company. If the company decides they want to have only one pension scheme in the future, all current employees have to agree and the discussion about any form of compensation starts.

Companies with a flat rate defined contribution scheme don’t have to do anything. Unless they want to change their pension scheme into one based on an increasing scale, because this should be done in 2021.

The Works Council Act obligates companies to ask permission of the works council for any change in a pension scheme. Individual employees are not bonded by the permission. Their individual approval is still needed. A negative response of the works council gives the works council the possibility to block the wanted change.

Additional agreements

Part of the “PensionAccord” is that the social retirement age (AOW) will increase less in the future. Each year of increase in life expectancy will lead to a change in the AOW age of only 9 months instead of the current 12 months.

It will be possible to take out 10% of the pension capital on the retirement date in one lump sum. It will also be possible for employers to make arrangements for early retirement without the current fiscal penalty. These arrangements are less extensive than in the past.

In the new pension scheme the partner-pension at death-before-retirement must be insured through a risk insurance. The height of the partner pension can be set at 50% of the pensionable income regardless of the labour years the employee can achieve at this employer. In addition, it will still be possible to supplement the lifelong partner pension with a temporary partner pension till retirement date (the so called ANW gap). The partner pension after retirement stays at 70% of the old age pension. The orphan pension will be (maximum) 20% of the pensionable income till the age of 25 of the child.

Further trajectory

It is the intention of the legislator to implement the new law per January 1st, 2022. This means that after the consultation the definitive legal texts should be ready before the summer of 2021 and the parliamentary debate should be finalized before the end of 2021. In 2026 all pension schemes must comply with the new rules.

For companies with their own pension scheme we can distinguish three different phases: the orientation phase, the decision phase and the implementation phase. In the orientation phase (2021) employers need to figure out the impact of the “PensionAccord” on the current pension scheme. It might be smart even to change the current pension scheme in this phase to profit in full from the transitional measures. In the decision phase (2022 till 2024), the actual decision can be made, the discussion with the works council and/or the employees can take place and the employer can draft the obligated transition plan. In the implementation phase (2024 till 2026) the company implements all the changes in the pension scheme and communicates them in a clear way to the employees.

This information is also available in Dutch. Click here for the Dutch version.


Paul van Ravenzwaaij
Pension specialist Pellicaan Lawyers
Phone: +31 88 6272220