On June 9, 2011, employers, employees and the government of the Netherlands signed agreements on a new pension system. These new agreements were necessary because the old pension system had become too expensive and was increasingly exposing employees, retirees, employers and the pension funds to risks they cannot bear.
The Dutch pension system rests on three pillars, supported by the government, employers, and individual savers. The new agreements relate to the first two pillars, but will also have consequences for the third pillar (individual savers).

Employer (second pillar) pension schemes are administered by pension funds or insurance companies. Approximately two-thirds of pension schemes are run by pension funds, with the remainder handled by pension insurers. The current agreements on the second pillar primarily concern pension funds; agreements concerning insurers must still be worked out.

Retirement age for state pension increased
The statutory retirement age for a state pension is currently 65 years. This will now increase in stages to 66 years in 2020, and probably 67 in 2025. This has been decided because the pension system threatens to become unaffordable, due to the decrease in the number of employed persons relative to the number of retired persons, combined with the increasing life expectancy of the Dutch population.

It will remain possible to stop working earlier or later and have the start date of the state pension adjusted accordingly. For each year of early retirement, the state pension will be decreased by 6.5% (but the state pension cannot be paid out before age 65). For each year of post-retirement age work without claiming pension benefits, the state pension will be increased by 6.5%.

Changes to employer-provided pensions
The pension agreement has major consequences for pension schemes provided by employers. Pension funds may no longer make unconditional pension commitments. Future pension commitments will not only be related to developments in life expectancy, but will also be affected by investment returns. Positive returns will benefit employees, negative returns will be at their expense. This means that employees will no longer have 100% certainty on their pension entitlements, which now become conditional.

The ink on the pension agreement was still wet when discussions broke out. The changes appear to put solidarity under significant pressure, and there are fears that the investment freedom now granted to pension funds will operate as a perverse incentive that encourages them to take more risks.

The parties must still decide on the consequences of the agreements for pensions administered by insurers. Insurers differ from pension funds in that they are in the business of providing certainty. It thus remains to be seen to what extent some agreements, such as that on the conditional nature of pension commitments, can be applied to pension schemes administered by pension insurers.

Change of retirement target age
In line with the increase in the retirement age for the state pension, from 2013 pension accruals will be based on a retirement target age of 66 years in 2020. From 2015, the retirement target age will be 67 years in 2025. Thereafter, the new retirement target age in ten years will be determined every five years, based on the average life expectancy on the change date.

Premium stabilisation
Under the new agreement, premiums payable by employers and employees are stabilised. This means that the current level of the total premium burden is set as a guide. Increases in the pension premium in connection with increased life expectancy are excluded. Decreases in the pension burden must be credited to the pension scheme.

What next?

On September 12, the majority of trade unions agreed to the proposals. The aim is now to convert the agreements as soon as possible into legislation, so that the measures can take effect on January 1, 2013.

For more information
please contact
Mr. Poul Gelderloos
E-mail: poul.gelderloos@zwitserleven.nl