On January 1, 2004, employers’ obligations to continue payment of salary in case of illness was extended from one year to two years.
On January 1, 2004, employers’ obligations to continue payment of salary in case of illness was extended from one year to two years. Now it is expected that employees’ benefit schemes covering occupational disability will face radical changes on January 1, 2006, when the Dutch Act on Work and Income According to Occupational Ability ("Wet Werk en Inkomen naar Arbeidsvermogen – WIA") is introduced. In anticipation of this, the government reached a social agreement on the new system with the trade unions on November 5, 2004, which includes the following:
- The old occupational disability system will continue to apply to anyone over 50 to whom the Disablement Insurance Act (WAO) applies now. The criteria of the old Dutch Assessment of Occupational Disability Decree ("Schattingsbesluit") will continue to apply in the event of a re-examination of the members of this group.
- As from 2006, the Act on Income Provisions for Totally Disabled ("Inkomensvoorziening volledig arbeidsongeschikten – IVA") will become applicable to employees who are completely and permanently occupationally disabled and who have no or hardly any chance of recovery. During the first five years, they will be re-examined on an annual basis in order to establish if they are recovering in any way.
- The benefit under the IVA is 70% of the last-earned salary (but not more than the maximum daily salary). Persons to whom the IVA has applied for a long period of time will not suffer a further loss of income; this means that the so-called WAO-shortfall will cease to exist.
- The BALTZ bill – which discourages payments in excess of 70% of the last-earned salary in the second year of sickness – will not be submitted to Parliament. The government has decided to refrain from doing so in light of agreements reached between employers and employees on limiting the continued payment of salary in the second year of illness.
- If the number of totally and permanently disabled persons increases by less than 25,000 a year after 2006, the benefit under the IVA will be increased to 75% of the last-earned salary (up to the maximum daily salary), with retroactive effect to January 1, 2006.
- If an employee to whom the IVA applies is found to be partially able to work, he or she will face the application of the Dutch Return-to-Work Regulation for Partially Disabled ("Werkhervattingsregeling voor gedeeltelijk arbeidsgeschikten – WGA"). After this transition from the IVA to the WGA, a wage-related period of at least one year will apply, subject to deduction of the period the employee was covered by the IVA.
- After the end of the wage-related benefit under the WGA, the disabled employee may be eligible for a supplementary benefit. This benefit depends on the use of the so-called “remaining income-earning capacity” ("restverdiencapaciteit").
Zwitserleven advises: wait before acting
The recent general agreement shows that there is a substantial degree of consensus about the contents of this Act. One effect is that the so-called WAO-shortfall will cease to exist.
Zwitserleven believes, however, that it would be unwise to terminate WAO-shortfall insurance in advance. The situation must be avoided where employees who were ill and partially disabled on January 1, 2004, and who can still claim a (higher) WAO-shortfall benefit are no longer insured.
Collective contracts do not cover the long-tail risk for collective contracts in the event of premature termination. If the WIA should come into effect at a date later than January 1, 2006, perhaps on account of technical difficulties in relation to its introduction, employees who became ill after January 1, 2004, would no longer be insured either.
Zwitserleven therefore advises clients to wait for the final Act and the time of its introduction before taking action.
Reimbursement of premiums
In this case, any paid premiums in exchange of which no benefits can be paid will be refunded with retroactive effect. These repayments may take the form of a refund, but it is also possible that payments for other parts of the pension scheme, including (new) occupational disability insurances, will be considered as having been paid. Zwitserleven will take a pragmatic approach to managing repayments.
For more information, please visit www.zwitserleven.nl
- The old occupational disability system will continue to apply to anyone over 50 to whom the Disablement Insurance Act (WAO) applies now. The criteria of the old Dutch Assessment of Occupational Disability Decree ("Schattingsbesluit") will continue to apply in the event of a re-examination of the members of this group.
- As from 2006, the Act on Income Provisions for Totally Disabled ("Inkomensvoorziening volledig arbeidsongeschikten – IVA") will become applicable to employees who are completely and permanently occupationally disabled and who have no or hardly any chance of recovery. During the first five years, they will be re-examined on an annual basis in order to establish if they are recovering in any way.
- The benefit under the IVA is 70% of the last-earned salary (but not more than the maximum daily salary). Persons to whom the IVA has applied for a long period of time will not suffer a further loss of income; this means that the so-called WAO-shortfall will cease to exist.
- The BALTZ bill – which discourages payments in excess of 70% of the last-earned salary in the second year of sickness – will not be submitted to Parliament. The government has decided to refrain from doing so in light of agreements reached between employers and employees on limiting the continued payment of salary in the second year of illness.
- If the number of totally and permanently disabled persons increases by less than 25,000 a year after 2006, the benefit under the IVA will be increased to 75% of the last-earned salary (up to the maximum daily salary), with retroactive effect to January 1, 2006.
- If an employee to whom the IVA applies is found to be partially able to work, he or she will face the application of the Dutch Return-to-Work Regulation for Partially Disabled ("Werkhervattingsregeling voor gedeeltelijk arbeidsgeschikten – WGA"). After this transition from the IVA to the WGA, a wage-related period of at least one year will apply, subject to deduction of the period the employee was covered by the IVA.
- After the end of the wage-related benefit under the WGA, the disabled employee may be eligible for a supplementary benefit. This benefit depends on the use of the so-called “remaining income-earning capacity” ("restverdiencapaciteit").
Zwitserleven advises: wait before acting
The recent general agreement shows that there is a substantial degree of consensus about the contents of this Act. One effect is that the so-called WAO-shortfall will cease to exist.
Zwitserleven believes, however, that it would be unwise to terminate WAO-shortfall insurance in advance. The situation must be avoided where employees who were ill and partially disabled on January 1, 2004, and who can still claim a (higher) WAO-shortfall benefit are no longer insured.
Collective contracts do not cover the long-tail risk for collective contracts in the event of premature termination. If the WIA should come into effect at a date later than January 1, 2006, perhaps on account of technical difficulties in relation to its introduction, employees who became ill after January 1, 2004, would no longer be insured either.
Zwitserleven therefore advises clients to wait for the final Act and the time of its introduction before taking action.
Reimbursement of premiums
In this case, any paid premiums in exchange of which no benefits can be paid will be refunded with retroactive effect. These repayments may take the form of a refund, but it is also possible that payments for other parts of the pension scheme, including (new) occupational disability insurances, will be considered as having been paid. Zwitserleven will take a pragmatic approach to managing repayments.
For more information, please visit www.zwitserleven.nl