The old age pension system in the Netherlands

The old-age pension system in the Netherlands | �

Index

Index 1

Introduction 3

1.PrinciplesoftheDutchpensionsystem 5

2.Firstpillar:thestateold-agepension(AOW) 7

3.Secondpillar:occupationalpensions 9

4.Thirdpillar:privatepensionprovisions 13

5.Occupationalpensionsandlegislation 14

6.Taxlegislationandpensions 20


Introduction

TheDutchpensionsystemhasthreemainpillars:aflat-ratestatepension(AOW)relatedtominimumwagesandfinancedviapayrolltaxes,occupationalpensionschemeswhicharecapital-funded,andindividualsavingschemes.

Thepresentoutlinefocusesinparticularonthesecondpillarthatisthesupplementarypensionasanelementoflabourcompensation,andthelawsrelevanttoit.Italsoprovidesabriefoutlineofthestateold-agepension.

MoreinformationoncurrentdevelopmentsintheareaofpensionsintheNetherlandscanbefoundontheinternationalwebsiteoftheDutchMinistryofSocialAffairsandEmployment:www.english.szw.nl(benefits/old-agepension).


1. Principles of the Dutch pension system

TheDutchpensionsystemmaybecharacterisedintermsofthreepillars,namely:• basicstateold-agepensionunderastatutoryinsurancescheme(firstpillar);• supplementarypensionschemesbyvirtueoftheemployer(secondpillar);• privatesavingsforretirement(thirdpillar).

TheDutchGeneralOldAgePensionsAct(AOW)providesforbasicstatepensionsforpeopleaged65andover.Inaddition,theAOWschemeincludesasupplementaryallowanceforpartnersandbenefici-arieswhoareunder65andhaveeithernoincomeoranincomebelowacertainlevel.TheDutchSurvivingDependantsAct(ANW)providesforstatebenefitsforpeoplewhosepartnerhasdiedandforchildrenyoungerthan16whohavelostoneorbothparents.

SupplementarytothestatepensionsandthelargestpillarintermsoftheoverallDutchpensionsystemaretheoccupationalnon-statutorypensionschemes.Theemployerusuallypaysmorethanfiftypercentofthepensioncontributions.Thissystemofsupplementarypensionschemeshasarichhistoryandisthebackboneoftheold-agepensionsystemintheNetherlands.Inpercapitaterms,theNetherlandshasoneofthelargestpensionreservesintheworld.

Thethirdpillarincludesthepersonalannuitiesofferedbyinsuranceproviders,supplementarytotheAOWand/ortheoccupationalpensions.

Various types of pension provisionsIntheNetherlandsthereisamixedsystemofpublicandprivateprovisions.Publicmeansthattheprovisionsareregulatedbylaw,privatemeansthattheprovisionsareregulatedbytheemployerorthatpeople,individually,makepensionarrangementswithaninsuranceproviderbybuyinganannuityinsuranceorendowmentinsurance.TheDutchpensionsystemguaranteesthateveryoneaged65andoverenjoysadecentstandardoflivingandwillcontinuetodosointhefuture.

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Character Whoexercisescontrol? Whatisit?

1stpillar Public Regulatedbylaw Basicstatepension:AOW

2ndpillar

Private Regulatedbylaw Supplementarypension(collectiveschemes)

3rdpillar Private Individualaction Supplementarypension(individual):annuities,endowment

Incomparisonwithothercountries,thebasicold-agepensionsaccountforaminorpartofthetotalprovisionsforoldage.Thejointcapitalofallpensionprovidersismuchhigher,namelyEUR725billion(source:2007AnnualReport,DutchCentralBank).Morethan8.5millionpeoplereceiveapensionbenefitorhaveacquiredvestedpensionrights.

Itispossiblethatpeopledonotreceiveasupplementarypensionfromtheiremployerbecausethereisnoobligationforemployerstomakepensioncommitmentstotheiremployees.Alternatively,itmaybebecausepeoplehavenotbeenengagedinpaidlabourorwereself-employed.ThosepeoplecanopttosupplementtheirAOWbenefitbyarrangingindividualpensionprovisions,suchaslifeinsurances,afiscalold-agereserveforentrepreneurs,andendowments.

Althoughthereisnostatutoryobligationforemployerstoofferapensionschemetotheiremployees,morethan95%ofemployeesarecovered.Thesesecondpillarschemesarethereforebestthoughtofasquasi-mandatory.

FundingStateold-agepensionsarefinancedaccordingtothepay-as-you-go(PAYG)system:today’scontributorsfinancethepensionpaymentsmadetotheretireesoftoday.

Secondandthird-pillarpensionsareprimarilyfinancedbymeansoffunding.Pensionbenefitsarefinancedbypensioncontributionspaidinthepastandaccumulatedbyinvestmentyields.


2. First pillar: the state old-age pension (AOW)

Thefirstpillarincludesstateregulationsthatprovideforanincomeforpeopleaged65andoverorafterdecease.Twoformsofold-ageprovisionsareinvolved:• GeneralOldAgePensionsAct(AOW).Thisstatutorysocialsecurity(state)old-agepensionprovides

allresidentsoftheNetherlandsaged65andoverwithaflat-ratepensionbenefitthatinprincipleguarantees70percentofthenetminimumwage;

• SurvivingDependantsAct(ANW).Asurvivingdependant’spensionisaflat-ratebenefitpayabletothesurvivingpartneraftertheotherpartnerpassesawayandafterthedeceaseofparents.

Vesting of pension rightsSincetheintroductionoftheAOWin1957,theintentionhasalwaysbeentoentitleallpeopleaged65andovertofullAOWold-agepensionrights.Inprinciple,allresidentsoftheNetherlandsbetweentheagesof15and65areinsured.EntitlementtoAOWpensionisaccumulatedatarateof2%foreachyearofinsurance.Thisleadstoa100%entitlementtotherelevantpensionbenefituponreachingtheageof65,providedtherearenogapsintheperiodofinsurance.IfonehaslivedoutsidetheNetherlandsforanylengthoftime,onewillnotaccrueanyAOWpensionrightsduringthisperiodunlesssomeonehaspaidacontributionforvoluntaryinsurance.At65peoplereceivealifelongAOWbenefit.Attheendof2008,2.7millionpeoplewerereceivingAOWpensionbenefitsamountingintotaltoEUR27billion.

AOW benefit: domestic situationTheAOWbenefitisaflat-rateonebasedonthenetstatutoryminimumwage.Theamountofthebenefitdoesnotdependonanyformerincomeoroncontributionspaidinthepast.HousewiveswhohaveneverpaidcontributionsarealsoentitledtoanAOWbenefitwhentheyreachtheageof65.TheamountoftheAOWbenefitdependsonthedomesticsituationoftheretiree.Therearedifferentbenefitsforsinglepeople,singleparentsandmarriedcouples.

Assumingtheyhavefullentitlementtothestateold-agepension,on1January2009thegrosspensionratesforsinglesis70percentofthestatutoryminimumwagepermonth(EUR1001),whilebothpartnersinacouple(eithermarriedorlivingtogetherofficially)areeachentitledtoapensionbenefitamountingto50percentofthestatutoryminimumwage(EUR686).

Reduced AOW pension: supplementary national assistanceTheoldagepensionentitlementofpeoplewhohavebeeninsuredforlessthan50yearsisreducedproportionately.PeoplewhohavenotacquiredthefullAOWpensionrightsmaybeentitledtosupplementarynationalassistance.ThereisaseparatenationalassistancestandardforpersonswithareducedAOWpension,enablingthemtoreceiveasmuchaspeoplewithafullAOWpension.Municipalauthoritiesdecidewhetherapersonisentitledtoanadditionalallowance.Inaddition,supplementarynationalassistancequalifiesforacapitalexemption.

Supplementary allowance for a partner under 65Apersonaged65withapartnerunder65maybeentitledtoasupplementaryallowanceifthepartner’s

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incomeislimited.Theamountofthesupplementaryallowancedepends,amongotherthings,onthepartner’sincomeandendswhenthepartnerreachestheretirementageof65.Singleparentswillreceive90percentofthenetminimumwage(EUR1271).Thissupplementaryallowancewillbeabolishedin2015.

FundingInthepay-as-you-gosysteminthefirstpillar,theAOWisfinancedbycontributionsleviedonearningsataratethatisstatutorilylimitedtoamaximumof18.25percent.Oncethiscontributionisnolongeradequatetocovercostsasaresultoftheageingpopulation,thedeficitwillbemetfromthepublicpurse.Alltaxpayerscontributetothissystem,includingretireeswhodonotpayanyAOWcontribution.

Administration and supervisionThetaxauthoritiescollecttheAOWcontributionsthroughincometax.TheadministrativebodyfortheAOWistheSocialInsuranceBank(SVB).Foranumberofmunicipalauthorities,SVBadministersthesupplementarynationalassistanceforpeopleaged65andoverwhohavenotacquiredthefullAOWpensionrights.Inordertopreventtheseolderpeoplefromrunningintofinancialdifficulties,allretireesthatareentitledtosupplementarynationalassistancewillbepaidbySVBinthenearfuture.

ThemembersoftheBoardsofDirectorsandAdvisorsofSVBareappointedbytheMinisterofSocialAffairsandEmployment.Theministerispoliticallyresponsibleforsocialsecurity,suchastheAOWandANW,anditsadequateimplementation.Inconnectionwiththisresponsibility,SVBisobligedtosubmititsannualplanandbudgettotheministerforapproval.Inaddition,SVBperiodicallyreportstotheministeraboutitsperformanceandactivities.SVBissubjecttosupervisionoftheWorkandIncomeInspectorate(IWI),asectionoftheMinistryofSocialAffairsandEmployment.Amongotherthings,IWIsupervisestheadministrationofthestatutoryemployeeinsuranceschemescarriedoutbyanumberofotheradministrativebodies.


3. Second pillar: occupational pensions

The main characteristics of the second pillar of the Dutch pension system are mandatory participation, collective risk sharing and the system of transfer of pension value. Annually, employees accrue equal pension rights for each year of service, in most pension schemes amounting to about 2% of their salary. Each employee pays an equal fixed percentage of his salary for his future pension entitlements. This average contribution rate does not depend on age, sex or income. Annually, accrued pension rights of all members are conditionally adjusted in the same way by wage indexation or price indexation. Finally, each pension fund has an investment policy that treats all members and retirees in the same way.

OccupationalschemesarehighlydevelopedintheNetherlandsduetocollectivesectoragreementsthatensurethequasi-mandatorycoverageofmorethan95percentoftheemployedpopulation. Occupationalschemescoverprivateandpublic-sectoremployeesincludingcivilservants.Mandatoryindustry-widepensionschemescoverallemployeesintherespectiveindustry,includingprivateandpublic-sectoremployees.Inthecaseofallotherschemes–voluntaryindustry-wideandcompany-specificpensionschemes–coverageisregulatedbytheapplicableschemeregulations.Membersofaprofessionmayestablishprofession-widepensionschemesthatareimplementedthroughprofession-widepensionfunds.TheMinisterofSocialAffairsandEmploymentmaymakeparticipationinaprofession-widepensionschememandatoryfortheprofessionasawholeuponrequestofanorgani-sationororganisationsrepresentingthemajorityoftheprofessionconcerned.

Thesecondpillarservestosupplementthefirst.Asamemberinthepensionscheme,apersonaccruesentitlementstoaretirementpension,partner’spensionandorphan’spension,andthepersonisusuallyinsuredforadisabilitypensionwhichsupplementsthepublicdisabilitybenefit.Theemployerusuallypaysthemajorpartofthecontributionforthesupplementarypension.Thefuturepensionbenefitisinfactdeferredsalaryfortheemployee.Theemployerhastodeductpensioncontributionsfromthesalaryandtransferthesecontributionstoapensionprovider.

PensionprovidersCapitalfundingisnecessaryinordertoachieveasolidsupplementtothePAYGfirstpillar.IntheNetherlands,themoneyintendedforsupplementarypensionschemesmaythereforenotbeincludedinthecompany’sriskcapitalinordertoprotectthebeneficiaries’rights.Fundingmusttakeplacethroughalegalentitywhichmaybeapensionfundoraninsurancecompany.Apensionfundcanexploitthepotentialofintergenerationalrisksharing,whereasinsurancecompaniescannot.Thebasisforthissolidarityisconstitutedbymandatoryparticipationinpensionschemes.

Socialpartnersmaydecidewhichcoverageleveltheyprefer,company-specificorindustry-wide,andalsowhichinstitutionwilladministertheaccruedpensionassets.1.Company-specific pension funds (12% of the members):theymaybelinkedtooneormorecompaniese.g.

Philips,AHOLD,andHeineken.2.Industry-wide pension funds (76% of the members):theymaybelinkedtomorethanonebranchofindustry.There

arenon-mandatoryfundse.g.foremployeesinthepublictransportsector,DutchRailways,andthere

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aremandatoryfundse.g.ABPforcivilservants,foremployeesinthemetalandelectrotechnicalindustryandthebuildingindustry.

3.Insuranceproviderswhohavetodealwithapproximately30,000grouplifeinsurancecontractsforseparatecompanies.

Anemployermayalsoopttohavethepensionschemeadministeredbyaninstitutionforoccupationalretirementprovisions(IORP)withitsseatabroad.

Socialpartnersappointtheirownrepresentativestotheboardofapensionfund.Theserepresenta-tivesmustprotecttheinterestsofthefund’smembersinabalancedway.

Thebulkoftheaccruedassetsareadministeredbypensionfunds.TheDutchpensionsystemconsistsof651pensionfunds(endof2008);543ofthesefundsaresingle-employerfunds,95concernindustry-widefunds(ofwhich69mandatory)andfundsareforprofessionalgroups.Together,theseschemescoverapproximately6millionmembers.Theamountofassetsheldbypensionfundsin2008wasapproximatelyEUR445million.

Alimitedproportionofthepensionassetsunderthesecondpillar(approximatelyEUR70million)areaccountedforbyso-calleddirectschemes.Insteadofbeingadministeredbypensionfunds,theyhavebeenoutsourcedby22,000mainlysmalleremployerstoinsurancecompaniesformorethan800,000employees.

Thenumberofpensionfundsisgraduallydecreasing.Amongotherthings,thedecreaseinthenumberofsingle-employerschemesisduetocost-influencingfactors,suchasscale,pensionfundtype,schemetype,outsourcingandreinsurance.

Membersofagivenprofessionmayoptforapension fund for professional groups (0.5% of the members).Thesefundsconcerngroupsofself-employedpeoplewhoexercisethesameprofession(i.e.onlyactivemembersandretireesandnoemployer),suchasgeneralpractitionersandcivil-lawnotaries.

Characteristicsofoccupationalpensionschemes

Types of pension schemesApensionschememayincludethreeelements:old-age pension, partner’s pension and disability pension.Noteveryoccupationalpensionschemeincludesalltheseelements.Tradeunionsandemployerorganisationsjointlydecideonthecontentsofapensionscheme.

Theoccupationalold-agepensionbenefitispaidfromtheretirementage(usually65)untilthedateofdeath.

Apartner’s pensionispaidouttoone’snextofkinafterone’sdeath.Sometimes,thebenefitislinkedtothestateold-agepensionanddependsonthesalaryandmaximumattainablenumberofyearsofservice(accrualbasis).Anincreasingnumberofpensionfundsareofferingapartner’spensionona‘riskbasis’.Intheeventofdeathwhilestillinpaidemployment,thepartnerwillreceiveanallowancecomparabletoa‘normal’pensionscheme.However,iftheemploymentrelationshipisterminated,thepartner’spensioniscancelledtoo.

The old-age pension system in the Netherlands | ��

Itispossibletoswappensionrights.Swappingpensionrightsmeansthatatthetimeofretirement,oneconvertsclaimstoapartner’spensionintoahigherold-agepension.Onecanalsoconverttheclaimstoretireearlier.Swappingisnotpossiblewithallpensions.Itisonlypossiblewithpensionschemesthatincludeacompulsorypartner’spensionandinwhichthepartner’spensionisguaranteedonan‘accrualbasis’.Swappingisnotpossiblewithapartner’spensionona‘riskbasis’.Therearepensionschemesthatarrangeforone’spensionaccrualtocontinuewhenanemployeebecomesoccupationallydisabledinfullorinpart.Forthepartthatoneisstillabletowork,onewillpaypensioncontributionshimself.Forthepartthatoneisunabletowork,onedoesnotneedtopaycontributions.Disabilitypensionissupplementarytooccupationaldisabilitybenefits(WorkandIncomeaccordingtoLabourCapacityAct).

Pensionagreements

Thenatureofthepensionarrangementsagreedbetweentheemployerandtheemployeemustbeestablishedexplicitlyinthepensionagreement.Pensionrisksarisewhenthefinancingofapensionschemeoffersinsufficientguaranteesforachievingtheplannedbenefits.Theserisksmaybelinkedtothepensioncommitment.Duetodemographicchanges(longevityandreturn)adifferentapproachtorisksharinghasbeenintroduced.Pensionarrangementsaremadeinmanydifferentways.IntheNetherlands,thebasicagreementshouldbeeithera defined benefit (DB)scheme,anagreementforthepaymentofacapitalsumoradefined contribution(DC)scheme.Collective Defined Contribution(CDC)schemes–thatis,schemeswhichcombineadefinedbenefitpromisetotheparticipantandafixedpremiumfortheemployer–willhavetoqualifyasoneoftheseagreements.OnlyifbuffersarehighenoughwilltheyqualifyasDBschemes.

ThemajorityofDutchemployeesareinDBoccupationalpensionschemesinwhichthefinancialorlongevityrisksarebornebytheschemesponsor.Benefitstothemembersarebasedonaformulalinkedtothemembers’wagesorsalariesandlengthofemployment.ADCschemeisapensionschemebywhichbenefitstomembersarebasedsolelyontheamountcontributedtotheschemebythesponsorormemberandanyreturnonthatinvestment.Theinvestmentrisksduringtheaccrualstageareborneentirelybytheindividual.Ultimately,whentheretirementageisreached,thetotalamountaccruedwillbeconvertedintobenefitsoranannuity.

Ashiftistakingplacefrompensionschemesbasedonfinalpaytopensionschemesbasedonaverageearningsovertheaccrualperiodinordertocreateamorebalanceddistributionofrisksbetweenemployersandemployees.In2000,59percentoftheactivemembershadafinalpaypensionscheme,whereasin2008thecorrespondingfigurewas1percentand,formembersofacareer-averagescheme,87percent(31percentin2000),respectively.

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Types of pension scheme, 2000-2007 (expressed as a percentage of active members)

2000 2001 2002 2003 2004 2005 2006 2007 2008Defined benefit

Finalpayscheme 59 56 54 49 12 11 10 3 1

Career-averagescheme

31 32 32 35 73 74 77 85 87

Other 8 8 8 10 10 9 9 1 0.5

Defined contribution 1 3 3 3 3 4 4 5 5

Other 2 1 3 3 3 2 0,5 3 2

Source: DNB Statistics Bulletin, December 2008

InDBagreements,thebenefitsarelinkedtotheearningsintheaccrualperiod.Ifpensionbenefitsarebasedonincomebeforeretirement,thenthepensionschemeisafinal pay scheme.Witheverycareerstep,thepensionentitlementswillberaisedtotheleveloftheactualbasicvalueofthepensionbenefit.Ifpensionbenefitsarerelatedtolifetimeaverageearnings,thenthepensionschemeisacareer-averagescheme.Inacareer-averagescheme,thepensionrightsarelinkedtotheincomeinaspecificyearandareindexedtothegenerallevelofconsumerpricesinasubsequentyear.Periodicindexationisgenerallynotguaranteedandisadiscretionarypowerofthepensionfundboard.

Anotherpossibilityisapensionschemewithacombinationoffinalpayandcareer-averageelements.Thebasicprincipleisabenefitbasedonfinalpaybutwhich,onceacertainageisreached,nolongerincludesincreasesinincomeinthebuild-upofthefuturebenefit.Thislevellingiscalledamoderated final pay scheme.

Average contribution amountIntheDutchsystemofoccupationalpensions,thecontibutionisafixedpercentageofearnings(about16percentofthegrossincome).Solidarityisachievedbylevyinganaveragecontribution:allmemberspayanequalpercentageoftheirsalaryoranequalcontributiontothepensionprovider,whichwillinvestthiscontributionuntiltheretirementdate.Theaveragecontributionamountisdividedamongallaffiliatedemployersandisbasedonaverageearningsoronanothercriterion.

Thereisthereforenodirectlinkbetweentheannualcontributionpaymentsandtheemployee’spensionaccrualinacertainyear.Inaddition,thedeterminationofthecontributionratedoesnotdependonage,sex,healthandincome.

Basic value of the pension contributionOccupationalpensionschemesareconsideredsupplementarytotheold-agestatepension.ThisAOWbenefitisthereforeincludedwhencalculatingtheoccupationalpensionbenefit.AOWandoccupa-tionalpensionbenefittogetherusuallyamountto70percentofthefinalpay.Thepartoftheincomeoverwhichnoadditionalpensionentitlementsareaccrued,becausethepartisexpectedtobecoveredbytheAOW,isknownastheoffset (franchise).Thegrossincomelesstheoffsetisthebasicvalueofpensionableearnings.


4. Third pillar: private pension provisions

TheDutchpensionsystemalsoincludesindividualpensionprovisions,eitherthroughannuityinsuranceorendowmentinsurance(providingalumpsum),encouragedbytaxreliefsuptocertainlimits.ThisthirdpillaroftheDutchpensionsystemisrelativelysmall.Employeescanopttosupple-menttheirpensiontocompensateforapensiondeficitduetogapsinpensionaccrual.

Formostemployees,participationinapensionschemeisautomaticallylinkedtothecontractofemployment.Self-employedpersonsarenotlinkedtoanemployerandcannotparticipateinasupplementarypensionscheme.Inmanycases,theymustensurethattheirAOWstatepensionissupplementedbyindividualpensionprovisions.Self-employedpersonscanalsoaddapercentageoftheircompany’sprofittothespecialtaxallowanceonanannualbasis.Thetaxauthoritieswilltakethatamountintoaccountinthetaxreturnandtaxpaymentoverthatamountwillbedeferred.

Life-course savings schemeWiththelife-coursesavingsscheme,theDutchgovernmentgivesfinancialsupporttoeveryemployeewhowantsaperiodofleaveduringhisorherworkinglifeforparentalleave,education,partialearlyretirementorold-agepension.Peoplecansave12%oftheirannualpayupto210%ofthegrossannualsalary.Beingasavingsscheme,itguaranteesthepersonalcontributionoftheemployee.


5. Occupational pensions and legislation

Safeguardingtheaffordabilityofthepensionsysteminthelongterm

ThelegalframeworkofoccupationalpensionsconsistsofthePensionsAct(PW),the2000MandatoryParticipationinanIndustry-WideFundAct(Bpf2000),theMandatoryPensionActforProfessionalGroups(WVB)andtheEqualisationofPensionRightsintheEventofaDivorceAct(WVPS).

PensionsActThevastmajorityofthoseemployedintheNetherlandsparticipateinanoccupationalpensionscheme.Occupationalpensionsaresubjecttonegotiationsbetweenemployerassociationsandtradeunions.Thegovernment’srolewithrespecttosupplementarypensionsistoensurethatpensionentitlementsareactuallyfulfilled.Onceanemployerhasmadeapensioncommitmenttohisemploy-ees,thiscommitmentmustbeimplementedinthewayprescribedinthePensionsAct.Thecommit-mentisthereforesubjecttotheprotectionofthePensionsAct.

ThePensionsActcameintoeffecton1January2007.ThebasicprincipleofthisActistosafeguardthefinancialsecurityofpensionentitlements,individualsecurityandprotectionofparticipantsandsecurityinthepensioninstitution’soperationalmanagement.Tothisend,thisActconstitutesatechnicalrevisionandmodernisationofpensionregulations.Forinstance,aclearandtransparentdivisionofresponsibilitiesbetweentheemployer,theemployeeandthepensionproviderisarranged.Majorpolicychangesrelatetothesurrenderofsmallold-agepensionsupontheendofparticipation,transferofpensionvalueiftheemploymentrelationshiporparticipationisterminated,transparencyregardingtheinformationprovidedtomembersandfinancialsupervision.ThePensionsActalsohasprovisionstoimprovetheaccesstopensionschemes.

Responsibility triangleIntheold-agepensionsystemoftheNetherlands,theemployer,employeeandpensionproviderareinatriangularrelationship.ThePensionsActspecifiesanumberofmandatorylegaldocumentsbetweenthethreepartiesinvolved.ThebasicprincipleofthePensionsActisthatsocialpartnersareprimarilyresponsiblefortheoccupationalpensionprovisions.Theyjointlydecideonthecontentsofthepensionagreement.Theemployerisresponsibleforplacingthepensioncontributionsoutsidethecompanybyjoininganindustry-widefund,establishingasingle-companyfundoroutsourcingtheaccruedpensionassetstoaninsurancecompany.Finally,thepensionproviderisresponsiblefordrawinguppensionschemeregulationsinaccordancewiththepensionagreementandwhichcomplywithlegalrequirements.Thepensionproviderisalsoresponsiblefortheprovisionofinformationtomembersandbeneficiaries.

Equality of rightsAnimportantaspectofcollectivepensionschemesisthegenderequalityincontributionandaccrualsystem.Thisistailoredtotheaverageparticipant,bothwithrespecttothecontributionrateandtothe


retirementbenefit.Otherprotectivemeasurestosafeguardthepensionrightsareequalityintreat-mentoffull-timeandpart-timeworkers,ofworkerswithatemporaryappointmentandapermanentposition,andofpensionrightsofretiredpersonsandearlyleavers(peoplewithnon-contributoryentitlementsthatremainwithpreviousemployers).Since2005,pensionbenefitsbasedonDCpensionschemeshavebeenthesameformenandwomen.AnyonewhofeelsthattheyhavebeensubjecttounequaltreatmentmaygotocourtorapproachtheDutchEqualTreatmentCommission,whichcanlaunchaninvestigationintoanycomplaint.TheCommissionisanindependentbodyofexperts.Contrarytocourtrulings,decisionsoftheCommissionarenotbinding.

UndertheDutchPensionsAct,theaccrualofold-agepensionrightsunderapensionagreementbeginsnolaterthanthedateonwhichanemployeereachestheageof21.

Surrender of small old-age pension upon the end of participationPensionrightsofadeferredbeneficiarymaynotbeexchangedforalumpsum(surrender)unless,onthebasisoftherighttoold-agepensionaccrueduptothemomentofendoftheparticipation,theold-agebenefitwillamounttolessthanEUR417.74(in2009)peryearontheregularretirementdate.Thecostsofadministeringsmallold-agepensionentitlementsarerelativelyhigherthanthebenefitsexpected.

Transfer of pension value if the employment relationship or participation is terminatedPensionrightsarefullytransferablewhenpeoplechangejobs.Thereisalegalrequirementtoindexpensionrightsofpeopleleavingaschemebeforeretirementinexactlythesamewayaspensionsinpaymentareindexed.Vestingperiodsareveryshort(generallytwomonths).

Iftheemploymentrelationshiporparticipationonanindividuallevelisterminated,thepersoninquestionmaytransferthepensionvaluetothepensionproviderofthenewemployer.However,thatpersonisnotobligedtotransferpensionentitlementstothepensionproviderofthenewemployer.Ifthepensionvalueisleftbehindbythepensionproviderofthepreviousemployer(deferredpensionrights),thisproviderwillpayoutlater.

InformationTheinformation-relatedprovisionsofthePensionsActbecameeffectiveon1January2008.Theseprovisionsareexpectedtoboostpensionawareness.Thismaybesignificantifpeopleexpectadeficitintheirold-ageincome,wishtoleavethelabourmarketbeforetheageof65orwanttoliveabroad.Theymaythenconsciouslybuyadditionalpensionproductstocompensateforinsufficientold-ageincome.

Onjoiningthepensionscheme,membersmustbeadequatelyinformedaboutthecontentsaswellastheimplementationofthepensionscheme.Thesedocumentsmustclearlyandunderstandablystatetheobjectivesofthepensionfundandtherightsofthescheme’smembersandbeneficiaries.Materialchangesintheseobjectivesorrightsmustbereportedtotheminatimelymanner.Forinstance,withinthreemonthsaftertheaccrualofpensionentitlementshasstarted,theemployeeisentitledtoinformationaboutthecontentsofthepensionscheme(‘startingletter’)fromhisemployer.The


employeemustbeinformedbythepensionprovideraboutthedevelopmentofthepensionentitle-ments.ThisinformationmustalsoshowwhetherthepensionschemequalifiesasaDBagreement,aDCagreementoracapitalagreement.Theimplementationagreementtobeformedmustalsoincludetheinformationprovidedbytheemployertothepensionprovider.

Inaddition,from1January2009onwards,theso-calledindexationlabelwillbeincludedintheannualpensionstatementthatisprovidedbythepensionprovider.Thislabeloffersinsightintothequalityoftheindexing(adjustmenttopricedevelopment)ofthepensionscheme.Itrepresentsboththeexpectedindexingforthecoming15yearsaswellasitscertaintybyalsorepresentingtheindexingina‘badcase’scenario.Thelabelwillalsohelptheindividualchangingjobstomakeachoiceaboutwhetherornottotransferpensionvaluetoanewpensionprovider.

Thepensionportal,whichisaninitiativeofthepensionsector,mustalsobementioned.Thisportalwillcomeintoeffectin2011.Withtheintroductionofthepensionportal,peoplewillbeabletoviewtheiraccruedpensionrightsonline,includingthebenefitundertheGeneralOldAgePensionsAct(AOW).Itisalsoimportantforobjectiveandnon-commercialinformationaboutpensionstobeavailable.ThatiswhytheDutchgovernmentsupportsprojectsofthePensioenkijker.nlfoundation,inwhichthemainstakeholdersinthepensionsectorareparticipating.ThepensionawarenessofDutchpeopleismonitoredannuallyinMarchbyPensioenkijker.nl.

Pension fund governance and participation councilsTheboardofapensionfundnormallyconsistsofanequalnumberofemployeeandemployerrepresentatives.Theboardissupposedtotakeintoaccounttheinterestsofallactivemembers,deferredmembersandretireesofthefundandensurethateachofthesegroupsfeelsequallyrepre-sented.Furthermore,apensionfundmustorganiseitselfinsuchawayastoensurepropergovern-ance.Inshort,agoverningbodymustclearlyunderstanditsresponsibilities,howthoseresponsibili-tiesmustbeborne,howinternalsupervisionisarranged,andhowandtowhomthegoverningbodymustreport.

TheGuidelinesforPensionFundGovernanceweredevelopedbytheLabourFoundation.Thisfounda-tionformulatedanumberofbasicpremises.Agoverningbodymustperiodicallyaccountforitspolicytoallstakeholders(ortheirrepresentatives),namelyactivemembers,deferredmembers,retireesandtheemployerswhoarefinanciallyinvolved.Theremustthereforebeanaccountabilitybody.Inaddition,theremustbeeffectiveandtransparentinternalsupervisionofthegoverningbody’sownperformance.Itisuptotheindividualpensionfundstodeterminethewayinwhichtheseguidelinesareimplemented.SincetheyarepartofthePensionsAct,theguidelinesarelegallybinding.

Theguidelinesalsoapplytopensioninsurancecompanies.Inthiscase,theinsurancecompanymustaccounttotheemployerfortheresultsachieved,totheextentthatthisisrelevanttothepensionandadministrationagreement.TheemployermustinformhisWorksCouncilandrepresentativesofretireesoftheabove-mentionedresults.Inaddition,theinsurancecompanymustensureeffectiveandtransparentinternalsupervisionofitsownperformance.


Inadditiontotheguidelines,therearealsorulesregardingtherepresentationofretirees.Industry-widepensionfundsareobligedtoestablishacouncilofparticipants.Asingle-companyfundmayhaveacouncilofparticipantsoradmitretireestobeamemberofthepensionfund’sboard.Therearesomesingle-companypensionfundsthathavebothformsofrepresentation.Thecouncilofparticipantshastherighttopriorconsultationonalargenumberofissues.Furthermore,bylawtheratiobetweenemployeesandretirees(ortheirrepresentatives)inthecouncilofparticipantsmustbeequaltotheratiobetweenactivemembersandretirees.Financial supervisionThereisafinancialregulatoryframeworktoensurethatapensionfundhassufficientassetstopayoutpensionbenefits.TheFinancialAssessmentFramework(FTK)isthepartofthePensionsActthatlaysdownthestatutoryfinancialrequirementsforpensionfunds.ThemainprincipleoftheFTKisthatpensionfundsmustdecideoncost-effectivecontributionsandmustbuildupregulatoryfundsoftheirowntoensureadditionalreservesof25to30percentinordertoguaranteetheirmembersapensionbenefit.Afundwhoseownassetshavefallenbelowitsbasiclimitsmustdrawuparecoveryplan,outlininghowitwilleliminatethereservedeficitand/orfundingshortfall.

AccordingtotheFTK,pensionfundsmuststateinaclearwaywhetherornottheywillindexthepensionrightsandunderwhatconditionstheyintendtodoso.Ifpricesaregoingupthepensionrightswillfollowlater.Thisindexationisvirtuallyalwaysconditional.IntheNetherlands,thereisanelementofrisksharingthroughdiscretionaryindexationandincreasesincontributions.Itisnotrequiredforpensionfundstohaveadditionalreservestocopewithfutureindexation.Ontheotherhand,eachpensionfundmustreporttothesupervisoryauthoritythattheleveloffinancingachievedandthedegreetowhichclaimsareawardedtomembersmeettheexpectationsraised.Theirindexa-tionlabelindicatesthedegreetowhichtheircommitmentskeepupwithinflationundernormalconditionsandwhathappensinabadcasescenario.

Supervisory structurePensionschemesandpensionprovidersareprofessionallymonitoredandsupervisedbytworegula-toryauthorities,namelytheDutchCentralBank(DNB)andtheNetherlandsAuthorityfortheFinancialMarkets(AFM).UnderthePensionsAct,theMinisterofSocialAffairsandEmploymentispoliticallyresponsiblefortheDutchold-agepensionsystem.Inaddition,hemustensurethatthesupervisionexercisedislegitimate,effectiveandefficient.

DNBmonitorsthefinancialpositionofpensionprovidersandassesseswhethertheyarefinanciallysoundandabletofulfiltheirfutureobligations.DNBisalsoresponsibleforthematerialsupervision,i.e.fortherequirementsimposedonpensionproviders.

ThemostimportantissuesdealtwithbyAFMarebetterprovisionofinformationtomembers,currentandformer,andbeneficiaries,andthemaintenanceofthedutyofcarewhenpensionsarebeingaccruedthroughinvestments.Thismeans,inparticular,thatpensionprovidersmustproperlyinformtheircustomersandmustactaccordingtoparticularstandardswhenapplicable.Theintentionistoimprovemembers’andcurrentretirees’understandingofthepension-relatedinformationprovidedsothatthisinformationcanbeusedinpersonalchoicesabouttheaccrualanduseofpensions.


MandatoryParticipationinanIndustry-widePensionFundAct(WetBpf2000)Underthe2000MandatoryParticipationinanIndustry-widePensionFundAct,whensocialpartnersmakeacollectivepensionagreementinaspecificindustrialsectorforalloftheirmembers,andiftherepresentativesoforganisedbusinessesinthissectorfilearequest,thentheMinisterofSocialAffairsandEmploymentcandeclarethecollectivepensionagreementbindingforallotheremployersinthatparticularsector.Inthisway,agreementsbetweensocialpartnersaremadebindingforeveryoneinthesectorandinternalsolidarityisoptimal,forexampleinthegraphicsandmediaindustryorthemetalindustry.Employeescaneasilychangejobswithinthesectorwithoutconsequencesfortheirpensionaccrual.Forparticipationinapensionfundtobedeclaredmandatory,however,theemployerorgani-sationssupportingtherequestmustemployatleast60%oftheemployeesintheirsector.Nocorre-spondingfigureisprescribedforemployeeorganisations.

Incertaindefinedcases,employerscanbeexemptedfromparticipationinamandatorypensionscheme,forexampleifacompanyalreadyhasapensionschemethatisatleastequivalent.

MandatoryPensionsforProfessionalGroupsAct(WVB)TheMandatoryPensionsforProfessionalGroupsActcameintoeffecton1January2006.TheMinisterofSocialAffairsandEmploymentcandeclarethecollectivepensionagreementbindingforallprofes-sionalmembersinaparticularsector.Thisoccursattherequestofmorethan60percentoftheprofessionalsaffiliatedwithaunionofprofessionals.Theagreementconsistsofregulationsconcern-inginformation,supervision,solidarity,representativenessandsoon.Aspensionschemesforprofessionalgroupsarenotbasedonpensioncommitmentsmadebyemployers,suchschemesareonlypartiallysubjecttothePensionsAct.Apensionschemeforprofessionalgroupsisbasedonanagreementbetweenself-employedprofessionalsinaparticularprofession.Atpresent,thereare13pensionfundsforprofessionalgroups,e.g.forpilots,civil-lawnotariesandmedicalspecialists.Apensionfundorinsurancecompanymayadministerthepensionassets.

EqualisationofPensionRightsintheEventofaDivorceAct(Wet verevening pensioenrechten bij scheiding, WVPS)PursuanttotheDutchEqualisationofPensionRightsintheEventofaDivorceAct,inthecaseofadivorceorendingofapartnership,bothformerspousesorformerpartnersareentitledto50percentoftheold-agepensionaccruedduringthemarriageorregisteredpartnership.Thepensionproviderpaysoutashareoftheaccruedpensionentitlementstoeachoftheformerpartnersindividuallyfromthepensiondateofthepartnerthathasaccruedpensionrights.

Pensionsharingwillalwaysbeapplicable,unlessitisexcludedinadvanceorinadivorceagreement,sothereisnoneedforinterventionbyajudge.Thebenefitswillbepaidoutaslongasbothformerpartnersarealive.Whentheex-partnerpassesawaythepersonliableforpensionsharingwillreceiveafullold-agepensionagain.Ifthepersonliableforpensionsharingpassesaway,thepaymentofpensionbenefitswillstop,butthesurvivingindividualcanhavearighttoaspecialpartner’spension.


Partner’s pensionNoteveryoccupationalpensionschemeincludesapartner’spension.Ifthereisanarrangementforapartner’spension,however,thisbenefitwillbepaidouttothenextofkin.Sometimes,thebenefitislinkedtothestateold-agepensionanddependsonthesalaryandmaximumattainablenumberofyearsofservice(accrualbasis).Notallpensionschemeslinktheamountofapartner’spensiontotheold-agepension,however.Thereisanimportantdistinctionbetweenpartner’spensiononanaccrualbasisandoneonariskbasis.Manypensionschemesfeatureapartner’spensiononariskbasis.Thismeansthatnocapitalisaccruedforthesurvivingindividual.

�0 | The old-age pension system in the Netherlands

6. Tax legislation and pensions

Taxreliefsplayanimportantroleinensuringanadequatestandardoflivingduringretirement.Contributionstopensionproductsaretax-deductibleandtaxedinthepay-outperiod(EETsystem).Inaddition,marginaltaxrateswillbelowerduringretirementthanemployment,offeringfurtherbenefits.TaxlegislationisthereforeveryinfluentialintheDutchpensionsystem.Thepensionfacilitiesencouragemembersofthepublictomakefinancialarrangementsduringtheiractivelivestoensureadequateold-ageprovisions.

Ingeneral,supplementarypensionschemesaresubjecttothefollowingfiscallimitations.Pensionaccrualismaximisedto100percentfiscalpayattheageof65,atleast.Theyearlyaccrualoffinalpaysystemsismaximisedto2percent.Theaccrualrateofcareer-averagesystemsvariesfrom2percentto2.25percentperyear.

Contributionstovoluntaryearlyretirementschemesandpre-fundedflexiblepensionschemesarenolongerdeductiblefromtaxableincome.Atransitionperiodapplies.Itisstillpossibletoleavethelabourmarketbeforereachingtheageof65,butonlyatone’sownexpense:• ifanemployeewishestoreceivehisold-agepensionbeforetheageof65,thenthepensionbenefit

willbelowerbecausetheaccruedpensioncapitalhastobepaidoutforalongerperiod;• thelifecyclesavingsscheme–ataxfacilitythatmakesitpossibleforworkerstoreservesalaryand

daysoffinordertotakeuppaidleavelater–isasavingsarrangementthatguaranteesthepersonalcontributionoftheemployeeandcanalsobeusedforearlyretirement.

Financial incentives to retire laterItisalsopossibletoworkbeyondtheageof65(i.e.toretirelater).Thisisonlypossible,however,withtheapprovaloftheemployerandifthepensionschemesupportslongerworkinglivesandactiveageing.Bycompletingmoreyearsofservice,oneaccruesmorepensionrights.Thepensionbenefitcanbepaidoutlaterandwillthereforebehigher.Broadlyspeaking,everyyearofpostponementyieldsapensionaccrualofabout9percent.Deferringtheretirementdatethereforeyieldsaconsiderableincreaseinpensionbenefitsandmightbeanattractivewayofcompensatingforapossiblepensiondeficit.

Itispossibletocombinereceiptofthestateold-agepensionbenefitwithwork.Theafter-taxearningsofemployeesaged65andoverarehigherthanthoseofemployeesunder65.Thisisaconsequenceofthefactthatpeopleaged65andoverarenolongercompulsorilyinsuredunderinsuranceschemesforemployeesandnolongerpayacontributionforthestateold-agepension.

Undertaxlegislation,paymentofpensionbenefitsmuststartwhenanentitledpersonreachestheageof70atthelatest.Ifpeopleaged70andoverarestillinpaidemployment,thereisnomorepensionaccrual.


Partial retirementTherulesonpensiondeferralvarybetweenoccupationalschemes.Itispossibletocombinetheoccupationalpensionschemewithwork.Indeed,someschemesallowamembertodrawapensionandcontinuetoworkwiththesameemployer.Fortheworkingpart,theemployeecanstillaccruepensionrights.

Iftheemployeedecidestoworkpart-timeduringthetenyearsprecedinghisretirement,hecontinuestoaccruefullpensionrightsifthepart-timejobisequaltoatleast50%ofhisoriginaltermsofemployment.Inthisway,thecombinationoperatesasanincentivetoretirelater.

Link with individual pension provisionsInthecaseofapensiondeficit,peoplecanbuyannuityinsurancewhichisencouragedbytaxreliefs.Thecontributionisdeductiblefromincometax;thefuturebenefitwillbetaxed.TheBankSavingsActcameintoeffecton1January2008.TheaimofthisActistoencouragesavingforone’soldagebymeansofasavingsaccountoraninvestmentrightwithabank.

Inaddition,employeesareabletosavemoneyfromtheirgrossincomeinafiscallyfavourablewaybymeansofthesalarysavingsschemeorthelife-coursesavingsscheme.Thebasicprincipleofthesalarysavingsscheme(spaarloonregeling)isthatemployeespaylessincometaxandlesscontributionfornationalinsurance.Onthebasisofthesalarysavingsscheme,anemployeemaysaveEUR613(2009)ofhisearningsannually.Thesesavingsmaybeusedforbuyingannuityinsuranceorasaself-imposedcontributionforadditionalthird-pillarpensionproducts.

Thelife-coursesavingsscheme(levensloopregeling)hasasimilaroperatingprocedure.Thissavingsarrangementenablesemployeestoreserveapartoftheirsalarytobeusedduringperiodsofunpaidleaveinthefuture.Fiscallyattractive,employeescanreserve12%oftheirsalaryupto210%oftheirgrossannualpay.Paymentoftaxesoverthereservesisdeferredtothemomentthesavingsareused.Thearrangementrequiresthecooperationoftheemployer,whohastooffertheschemetohisemployees.Thearrange-mentincreasesthepossibilitiesforemployeestoadaptthetimespentonwork,care,educationandleisure.Furthermore,beingasavingsscheme,itguaranteesthepersonalcontributionoftheemployee.

The old age pension system in the Netherlands

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