News Update Employment & Pensions

The National Pension Agreement was signed in early-June 2019, containing arrangements between the Dutch government, employer organisations and employee organisations about overhauling the pension system in the Netherlands. Those arrangements have been further fine-tuned since then and have produced three legislative proposals: bills for the Dutch Rescheduling of Incremental Increase of State Retirement Age Act (Wet temporisering AOW), for the Dutch Lump Sum Payments, Early Retirement Schemes and Leave Savings Act (Wet bedrag ineens, RVU en verlofsparen) and for the Dutch Future of Pensions Act (Wet toekomst pensioenen).

The most important of these is the bill for the Dutch Future of Pensions Act.

Bill for the Dutch Future of Pensions Act

The draft bill for the Dutch Future of Pensions Act was published for online consultation on 16 December 2020. A new draft version of the bill, incorporating some of the feedback from the consultation round, was referred to the Dutch Council of State for advice on 26 November 2021. In March 2022, the bill was presented to the Dutch House of Representatives, which passed it on 22 December 2022. The bill is now before the Dutch Senate, which is similarly expected to pass it. The plan is for the new legislation to enter into force on 1 July 2023.

Some of the key elements from the bill are:

• Employers and their employee organisations have until 1 July 2024 to make their draft decisions on a new pension plan, on how to compensate employees, former employees and pension beneficiaries and on whether or not to convert previously accrued pension entitlements and rights under the new pension plan. All decisions for these new pension plans based on a defined contribution plan or system must be finalised by 1 January 2025. The two types of defined contribution plan to choose from are a 'solidarity-based' defined contribution plan and a 'flexible' defined contribution plan. All pension plans must be aligned with the new legal framework by 1 January 2027 at the latest. Existing plans based on salary and/or years of service (e.g. final-pay and average-pay plans, including those funded from fixed or capped contributions (CDC plans)) may not remain in place after 1 January 2027.
• Employers and their employee organisations must draw up a transitional plan for switching to the new pension plan, using information provided by the pension administrator.
• Where necessary, members need to be given 'sufficient' compensation for the transition to the new pension plan, although the transition itself must be cost-neutral. The transition plan should explain how the switch to the new pension plan will be handled for employees.
• Starting 1 January 2024, pension administrators will start implementing the new arrangements. This implementation must be finalised before 1 January 2027.
• The contributions that will be made available for old-age pensions and partner pensions after the member’s retirement date will, for the present, be capped for tax purposes at 30% of the member’s pensionable salary. This rule applies to all pension plans. The costs of insuring the risks and of pension administration are not included in this figure.
• Every employee will accrue their own individual pension capital, to purchase a fixed or variable pension on their retirement date.
• Every employee, regardless of age, is entitled to the same percentage of pension contributions from the employer under the pension plan.
• A transitional arrangement will be introduced for defined contribution plans and insured average-pay plans that were already in place before 1 January 2023 and that are based on 'progressive' contribution scales. In some specific cases, defined contribution plans that use a progressive scale may be continued beyond 2027 for existing employees.

Dutch Rescheduling of Incremental Increase of State Retirement Age Act

The Dutch Rescheduling of Incremental Increase of State Retirement Age Act entered into force on 1 January 2020. It froze state retirement age at 66 years and 4 months for 2020 and 2021, instead of 66 years and 8 months as per previous agreements. However, state retirement age has been rising again since 2022. In 2022, state retirement age was 66 years and 7 months; this will go up again to 66 years and 10 months in 2023, and to 67 years in 2024. Beyond that, however, state retirement age will only rise by 8 months (instead of a full year) per year of the longer life expectancy.

Bill for the Dutch Lump Sum Payments, Early Retirement Schemes and Leave Savings Act

This bill became law on 1 January 2021, and contains arrangements for:

• the possibility for pension fund members to draw a lump sum payment of 10% of their pension capital on reaching retirement age;
• a temporary relaxation of the rules for early retirement schemes and the final levy; and
• additional possibilities for tax-facilitated savings for various forms of leave.

Lump sum

A 'lump sum' payment refers to a partial commutation of pension capital. No arrangements are currently in place to allow this. In neighbouring countries, however, it is possible for pension fund members to commute part of their pension capital for specific purposes. Introducing a similar facility in the Netherlands requires changing the law to prevent a punitive tax levy on the payment of part of the member’s pension capital.

Once this aspect of the new legislation comes into effect, the administrator of the member’s pension fund will be obliged to allow the commutation, provided that the following conditions are met:

• the amount commuted may not represent more than 10% of the accrued value;
• the commutation must take effect on the member’s retirement date;
• the member may not simultaneously apply the high/low scheme (an arrangement offering variable pension benefits); and
• the balance of the pension capital must be more than the statutory commutation threshold for small pensions (2023: EUR 594.89).

The clauses that have not yet gained force of law offer the possibility of choosing a lump sum payment at the date when the member starts drawing their pension under the second pillar pension with the employer’s pension plan, or else in February of the year following the year when the member reaches state retirement age. A bill for the Dutch Lump Sum Payments (Revision) Act (Wet herziening bedrag ineens) was presented to the Dutch House of Representatives in June 2022. If the bill is passed and gains force of law, the possibility described above will no longer apply. The latest new proposal will allow lump sum payments only for pension fund members who start drawing their second pillar pension under their employer’s pension plan in the month when they reach state retirement age, or else on the first day of the following month. In that case, the lump sum payment may be pushed back until 1 January of the year following the year when the member reaches state retirement age. An extended period between retirement and drawing the lump sum payment has proved impractical.

The targeted date of entry into force of this specific part of the new Act is 1 January 2024, with a review two years after it enters into force. 

Early retirement schemes

Some employers have arrangements that allow older employees to bridge the period until they reach state retirement age or start drawing their pension. Depending on the details, these arrangements might qualify as an early retirement scheme, and the employer will be charged 52% on the payments, similar to a final tax levy. To accommodate older employees, the National Pension Agreement provides for an allowance that is exempt from the punitive levy on these early retirement schemes from 1 February 2021 until 31 December 2025.

Under this exemption facility, the employer will not have to pay the punitive levy if the following conditions are met:

• the employee must start drawing the benefits within the final three years before reaching state retirement age, and for no more than three years; and
• the gross benefits may not exceed an as-yet-undefined threshold (2023: EUR 2,037 per month).

If the benefits exceed this threshold, the employer will be charged the punitive levy on the difference. The punitive levy will also be charged if the early retirement begins more than three years before the employee reaches state retirement age. The temporary relaxation of the rules for the punitive levy on early retirement schemes will primarily benefit early retirement for employees with lower wages. For higher wages, the benefits will generally exceed the exempt allowance and the employer will be charged the punitive levy on the difference.

Additional possibilities for leave saving

The current arrangements for leave savings were introduced on 1 January 2021. The existing facility for saving towards tax-facilitated holiday leave and compensatory leave was increased, allowing leave savings with a value of 100 weeks instead of 50 weeks. Although this tax-facilitated leave may be used for early retirement, it may also be put towards other forms of leave such as caregiver leave or a sabbatical.