Through regular updates, Mercer will keep you informed of all amendments to legislation that affect your pension scheme. In this update we will discuss developments in the areas of law and tax.


Developments in relation to the Pension Agreement 


On 16 December 2020, the draft bill reforming the second tier of the pension system (“Pensions (Future) Bill”) was published for consultation by the Ministry of Social Affairs and Employment. This consultation document further elaborates the agreements set out in the “Principal Memorandum on the Elaboration of the Pension Agreement” of 22 June 2020.


Individuals and organisations were able to respond to the draft legislation until 12 February 2021 at the latest. A massive response ensued. No fewer than 481 responses were submitted. Minister Koolmees intends to submit a final bill to the Lower House of the Dutch Parliament after the summer of this year. It is the intention that the legislation take effect as of 1 January 2022.


We have provided a brief overview below of some of the relevant items in the draft legislation.


The new contract and improved premium agreement.


Under the new system, only pension agreements based on a defined contribution will be eligible for tax relief. Final pay and average-pay schemes will therefore definitively be relegated to the past. An age-related premium will apply to all members. Under the new system, four types of premium scheme will be possible, of which the new pension contract and the improved premium scheme are the most important.


Maximum premium 


The level of the pension premium will be capped and may not exceed 30% of the pension basis. This percentage will apply in principle up until 2036. Administration expenses and risk premiums, which may be paid for separately, will be added to this premium. Up until 2036, an increased exemption of up to 33% will apply. The difference between the regular premium and 33% may be used as compensation for the transition to the new system.



Transitional entitlements


The transitional arrangements have been worked out in more detail in the consultation document, All current defined contribution schemes with a progressive (increasing) premium that existed before 2022 will be exempted from the obligation to have an age-related premium. After 1 January 2026, it will still be possible for members, who were members on 31 December 2025, to pay a progressive premium. As of 1 January 2026, an age-related premium will apply to new members.


In addition, defined benefit schemes (final pay and average pay) insured with an insurer may still be converted into a defined contribution scheme with a progressive premium before 1 January 2026. After 1 January 2026, it will also be possible for members, who were members on 31 December 2025, to continue to pay a progressive premium.



Do you have a defined contribution scheme with an age-related premium for your employees? Do you have a defined benefit scheme for your employees who have been in your employment for slightly longer, which is not insured with an insurer but with a pension fund? In both cases, you must take action this year if you wish to make use of the transitional arrangements!

Steps to be taken

Many companies are having projections calculated at the moment to obtain an insight into the impact in terms of costs and benefits of a transition to a level premium as of 2022 or 2026. In addition to new members, it is interesting to ascertain what the effect will be if the entire population (in other words, including the present group of members) were to make the switch. In the latter case, this results in compensation. With regard to the implementation of this, consideration is often given to increasing opportunities for leave savings, whether or not in combination with the temporary exemption for early retirement schemes.


The advantage of a uniform pension scheme with a level premium for all employees is that it simplifies the task of making employee benefits packages more flexible. After all, it is possible to work with budgets. Mercer has all the necessary expertise at its disposal to assist you with this.


Survivor's pension


The draft bill “Pensions (Future) Bill” provides new rules in relation to the survivor’s pension. In large part, these are based on the recommendations of the Joint Industrial Labour Council of 17 June 2020.


The point of departure is to simplify the rules and improve the financial position of surviving dependants. The most important changes are set out below. 


Partner's pension prior to the retirement date


On the basis of the bill, the partner’s pension in the event of death prior to the retirement date will always be insured by means of risk insurance.


The partner’s pension will no longer depend on the employee's years of service and will amount to a maximum of 50% of his or her salary, subject to a maximum salary of €112,189 (2021). It is not necessary to take an AOW offset into account.  


Partner's pension prior to the retirement date


The partner’s pension that commences after the retirement date will remain unchanged at 70% of the retirement pension (insured on an accrual basis) 


Orphans’ pension


The maximum amount of the orphans’ pension will change to 20% of the member’s salary. This amount will be doubled in the case of full orphans. In the case of the orphan’s pension, a fixed final age of 25 years will apply (now 30 years).


The new rules in relation to the survivor’s pension must have been implemented by the latest on 1 January 2026.


Uniform concept of a partner


Since pension schemes often differ with regard to when one is considered to be a “partner”, the inclusion of a uniform concept of a partner in the new legislation has been proposed.


The following options are available:

  • married or registered;
  • married or cohabiting at the same address with a notarial deed; and
  • unmarried and cohabiting at the same address without a notarial deed for at least six months.
  • a partner may not be related by consanguinity in the first or second degree.

Lump Sum Payment, Early Retirement and Leave Savings Scheme Act


The Lump Sum Payment, Early Retirement and Leave Savings Scheme Act provides for the surrender of 10% of a pension on the retirement date, an exemption of 52% of the early retirement levy for employers and an extension of leave savings from 50 to 100 full weeks.


In our autumn edition we discussed this in detail when the bill had not yet been passed by the Lower and Upper Houses of the Dutch Parliament. This has since occurred and the Act came into force with retrospective effect as of 1 January 2021.


It is important to note that an additional moment at which a choice can be made was introduced in the Second Memorandum of Amendment of the Bill in relation to the surrender of 10% of the retirement pension. The surrender may now take place not only on the commencement date of the retirement pension, but also in the month of February of the year following the date on which the commencement age of the state old-age pension (AOW) is reached. The effect of this is that a state old-age pension contribution will not be payable on the lump sum. The choice must always be made before the commencement of the state old-age pension.


In addition, we also wish to note that no provisions governing the commencement date of the part relating to the surrender of 10% of the retirement pension have been included in the decree implementing the Act. This part will come into force at a later date to be determined by Royal Decree. The intended commencement date, however, is 1 January 2023.


Lifespan plans


The lifespan plan was introduced in 2006 as part of the Early Retirement, Prepension (Adjustment of Tax Treatment) and Lifespan Savings Scheme Act to offer employees the opportunity to save towards unpaid leave with tax relief. In total, 210% of the gross annual salary could be deposited into the lifespan plan. This scheme was abolished as of 2012.


However, a transitional right was introduced  for members of a lifespan plan who had a balance of at least € 3,000 in their lifespan plan account as at 31 December 2011 whereby they could continue saving for a further 10 years. 


In the Tax Plan 2021, the final date of the lifespan plan was brought forward for technical reasons relating to its implementation from 1 January 2022 to 1 November 2021. If any funds are still present in the lifespan plan account as at this date, the balance will be paid out to the beneficiary after deduction of salary tax.


The Salary Tax Act 1964, however, makes it possible to convert the lifespan plan balance into a supplementary pension without the deduction of salary tax, as a result of which this high one-off tax levy can be avoided. This is only possible, of course, insofar as the pension administrator allows this and insofar as the total pension entitlement after conversion of the lifespan plan balance remains within the boundaries of fiscal legislation. Mercer can assist you in making these (complex) calculations.


The Tax Department (unfortunately) also recently made known that it is not possible to convert (a part of) the balance on the lifespan plan account into leave savings in a way that is fiscally neutral.


Minimum level of the salary-related benefit after termination of employment


If after involuntary termination of his or her employment an employee receives a salary-related benefit in lieu of salary, the period that this benefit is received may count towards the pensionable years of service.


Examples of salary-related benefits in lieu of a salary are unemployment benefit and benefits in accordance with the Sickness Benefits Act and the Work and Income (Capacity to Work) Act (WIA). The Tax Department was asked what the minimal level of the salary-related benefit must be to meet the conditions for continued pension accrual after the involuntary termination of employment.


The Tax Department has replied as follows:


“A salary-related benefit in lieu of salary applies if the benefit is equal to the statutory norm for social assistance applicable to beneficiaries of 21 years of age and older in accordance with Section 21(a) of the Participation Act.”


In the case of the partial termination of employment, the minimum benefit is a pro rata part of the statutory norm for social assistance. This means that if a full-time employment contract is terminated for 50% on an involuntary basis, the salary-related benefit must amount to at least 50% of the statutory norm for social assistance in order to be able to accrue a pension on this benefit.