Mercer | Your pension scheme in 2018

Everything you need to know: Amendment to legislation affecting your pension scheme in 2018

Financiële zekerheid

Amendment to legislation affecting your pension scheme in 2018

Through regular updates, Mercer will keep you informed of all amendments to legislation which affect your pension scheme. The following is an overview of the amendments which we expect in 2018 and which may be of importance to you.

PREMIUM SCHEMES (IMPROVEMENTS) ACT (WET VERBETERDE PREMIEREGELING): THE CONSEQUENCES

Employees who participate in a premium scheme (the official term for a defined contribution scheme) have been given the option of purchasing a variable pension on retirement instead of a fixed pension. Of course, combinations are also possible. As of 2018 (at the latest), pension administrators must offer additional opportunities for investment to members who wish to have a variable pension. This Act also has consequences for the pension administrator’s communication policy.

PENSIONS (SMALL PENSIONS ASSET TRANSFER) ACT

The Act has since been passed by the Upper House of the Dutch Parliament and the date on which it will come into force will soon be announced. The effective dates may differ for various parts of the Act. The most important part of the Act, which relates to small and very small pensions, is expected to take effect on 1 January 2019.

This relates, for instance, to the following topics:

1. Replacement of the pension administrator’s right to surrender small pensions by a statutory right of the pension administrator to transfer small pensions.

2. The lapsing of very small pensions; and

3. the option of converting the accrued pensions on a group basis in line with a new fiscal standard retirement age without the beneficiary’s consent, subject to conditions.

Point 1. The situation with regard to the surrender of small pensions will change (or is expected to change) as of 2019 for those who enter employment from 2018 onwards. This will be replaced by the right of the pension administrator to transfer the pension to the employee's new pension administrator without the employee’s consent. If this is not successful after five annual attempts, the pension administrator may then surrender the pension. In the case of those who leave a company’s employment before 2018, an attempt will still be made to clean up as many small pensions as possible in phases and to transfer these to a new pension administrator without overburdening the (administrative) system. Since calculation rules apply to asset transfers, employers may incur payment obligations for the transfer of small pensions.

Point 2. In accordance with the Act, very small pensions (less than € 2 per annum) will lapse on the termination of employment, unless the employee emigrates to a different Member State and has informed the pension administrator of this (this is obligatory in relation to provisions of EU law). The transitional arrangements also offer the possibility of doing so in the case of existing very small pensions of employees whose pension accrual has ceased due to the fact that their employment has been terminated.

Point 3. The Act also offers the option of commuting the retirement pension in line with the new fiscal standard retirement age (in other words 65, 67, 68), without the employee having the right to object to this. The (amended) pension scheme must, however, include this conversion and the employee must be able to revert to the original age without this resulting in a difference in the outcomes. An amendment may arise due to later changes to the bases applied on a group basis by the pension administrator, but in applying such an amendment the pension administrator may not take into account the risk that certain groups may commute their pensions sooner than others.

PENSIONS (GENERAL AMENDMENT) ACT 2017

The Act has since been passed by the Upper House of the Dutch Parliament and the date on which it will come into force will soon be announced. The effective dates may differ for various parts of the Act.

There are no major consequences for employers. Most of the amendments relate to the administration of pensions.

The fact that those who retire before 2016 will have the opportunity to purchase an AOW bridging pension from their lifelong retirement pension up to the age of 65 years and five months offers this group of pensioners more flexibility. However, this will result in a lower lifelong retirement pension. This opportunity is offered in relation to the increase in the commencement age of the state old-age pension. This has not been taken into account by all pensioners and not all pensioners are able to take this into account.

INSTITUTIONS FOR OCCUPATIONAL RETIREMENT PROVISION

The directive on the activities and supervision of institutions for occupational retirement provision has been amended. The Netherlands must have implemented this directive in national law by 13 January 2019.

In the case of employers who are considering insuring their pension scheme in a foreign country, it is important to bear in mind that the procedure for transferring the assets of accrued pensions to another Member State have become more onerous. Explicit procedural rules will be included which largely already apply. In addition, the consent of the employer and the majority of pension beneficiaries or their representatives is required. What a majority means exactly will depend on the way in which the Netherlands implements this.

In addition, detailed rules have been included for the provision of information by pension administrators. This means that the information which your employees receive will change once again.

Finally, new governance rules will apply to pension administrators who are subject to the directive, but as an employer you will not be confronted with these. These will have consequences, in particular, for pension funds.

GENERAL DATA PROTECTION REGULATION (GDPR)

The GDPR will come into effect on 25 May 2018 and will replace the present Personal Data Protection Act [Wet bescherming persoonsgegevens (WBP)] as of that date.

The GDPR works directly through the national legal systems of the Member States of the European Union. The GDPR, however, includes provisions at various places in the directive which can be elaborated in more detail by national governments. For this purpose, the General Data Protection Regulation Implementation Act (GDPR Implementation Act) was tabled in the Lower House of the Dutch Parliament on 12 December 2017.

The GDPR and the GDPR Implementation Act are further developments of the Personal Data Protection Act. The material standards for the processing of personal data have largely remained the same. The most important differences relate to the rights of the persons in question and the accompanying obligations of those who process data. The obligations will become stricter.

A pension administrator or institution that administers pensions, which stores personal data, is required for this reason to inform the persons involved of the data which it has, the purpose for which it has it, the period for which this data will be kept and the rights which the person in question has in relation to this data.

The pension administrator or institution that administers pensions may therefore be expected to take action soon in relation to your employees. 

NET PENSION IN THE CASE OF PENSION FUNDS

If your employees have a net pension with a pension fund, the rules applicable to the purchase of pensions on retirement in relation to this pension have been relaxed. Subject to conditions, the pension fund may now base the rate at which the capital is commuted into a pension on the pension fund’s funding ratio. Previously the pension fund had to assume the so-called cost-effective premium, which included a surcharge for the buffers maintained by the pension fund.

Many pension funds, however, do not have such a buffer and employees consequently feel that they have to pay too much for the commutation of the pension capital. This has partly been taken into account.

If the pension fund, for instance, has to maintain a buffer of 20%, a 20% surcharge was also included in the purchase rate. If the actual buffer, however, is 10%, then a member would have to pay 10% more, but nevertheless participate in the risk of curtailment incurred by members if the buffer requirements are not met.

Your pension fund will inform you of the way in which the relaxation of this rule will be implemented.

In many cases, the legislation will mean that the capital accrued through the net pension plan will have to be used on the termination of employment in accordance with the pension fund’s standard pension scheme. Normally this would mean a fixed pension. Consequently, those employees would not have the opportunity to purchase a variable pension which may develop, for instance, in line with investment results.

To make this possible, the government intends to relax the Act and to give employees who have a net pension with a pension fund the opportunity to use their capital to purchase a pension on the market. Employees already have this option in the case of pensions insured with an insurer or premium pension institution.

NEW PENSION SYSTEM

The government has announced that it will present the outline of a new pension system at the beginning of 2018. The exact form which this will take is still the topic of much discussion.

What is clear in any case is that the government wishes to move to a system in which the value of the pension to be accrued annually is not age related and is based on personal pension assets.

The government has also stated that it wishes to move towards more flexibility and customisation for employees. The possibility of paying out part of the pension capital immediately on retirement is also being considered.

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