On 10 June 2011, representatives of employer and employee organisations concluded an agreement with the Dutch government to change the Dutch pension system.
The reasons for changing the Dutch pension system are several. Firstly, the pension contributions to DB Schemes have reached a high of approximately 20% of the total salary, which could adversely affect the ability of Dutch companies to compete internationally. Secondly, DB pension funds may not be able to meet their indexation obligations for a long time, due to recent investment returns being poor and the increase in life expectancy.
The parties have therefore agreed the following:
- The future Dutch pension system and its regulatory rules will be based on real pension benefits and obligations instead of nominal benefits and obligations.
- The employer contributions to be paid will be capped to the level that has been reached over the past few years.
- Longevity and investment risks will no longer be borne by the employers, but by the members.
- All additional (recovery) payment obligations of the employer will end.
In other words, DB schemes will change to DC schemes, which parties interestingly enough are refraining from explicitly confirming.
The transferring of the longevity risk to the members will, broadly, be achieved by limiting the period members receive a pension to 18.26 years. If the average life expectancy is higher than 18.26 years, all accrued pension benefits (including those of pensioners) will be lowered within 10 years. If it is lower, the benefits will be increased accordingly. Similar measurements will be put in place in respect of the investment risk.
At present, it is not clear whether reforms will become law and will actually be implemented. The employee organisations have committed themselves to submitting the reforms to their members for approval in a referendum and further supporting legislation will need to be made. It is also unclear whether (and how) the pension benefits that have been accrued under the current system can be transferred to the new system without breaching the right of ownership protected by the 1st Protocol of the European Convention on Human Rights. Article 1 of that Protocol states that every person is entitled to the peaceful enjoyment of his possessions and shall not be deprived of them, the understanding of this provision being that this right can be limited by the State if that limitation is in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
Fundamental changes in the Dutch pension system can therefore be expected in the coming period.