The Future of Pensions Act (Wtp): What do employers need to know?

Introduction

In this blog, we discuss the most important changes introduced by the Future of Pensions Act (Wtp). We then address the ways in which the pension agreement can be amended. We conclude with the statutory deadlines for the Wtp transition.

Key changes of the Wtp

The most important change introduced by the Wtp is that every employee who participates in a pension scheme will, from the transition date - at the latest by 1 January 2028 - start accruing pension in an age-independent defined contribution scheme (with the exception of current age-dependent defined contribution schemes for which transitional law may be applied). In a defined contribution scheme, the amount of the pension contribution is agreed upon, while the final pension benefit is not fixed in advance.

There are three variants of the age-independent defined contribution scheme under the Wtp, of which the two most important are the flexible defined contribution scheme and the solidarity-based defined contribution scheme.

Flexible defined contribution scheme

The flexible contribution scheme most closely resembles the defined contribution scheme as we currently know it. The participant is entitled to an individual pension capital. This individual pension capital is invested according to the lifecycle principle, meaning that the investment risk decreases as the retirement age approaches. Financial gains and losses are immediately reflected in the individual pension capital. The participant has the option, after reaching retirement age, to continue investing, resulting in a variable pension benefit, or to opt for a fixed benefit. The employer or social partners may choose to establish a risk-sharing reserve, which allows financial gains or losses to be shared collectively.

Solidarity-based defined contribution scheme

The solidarity contribution scheme is characterized by extensive risk sharing. The total assets are invested collectively. The collectively achieved investment results must be periodically allocated to each age cohort based on pre-established allocation rules. Furthermore, the solidarity reserve is mandatory within the solidarity-based defined contribution scheme. The solidarity reserve can be used to supplement pension assets and benefits, and to share risks collectively. The participant does not have the option of a fixed benefit; after the retirement date, a variable pension benefit is mandatory.

Accrued pension rights conversion (‘invaren’)

If the pension agreement is administered by a pension fund, the default procedure is for the social partners to request the pension fund to convert the pension entitlements accrued up to the transition date into individual pension capital through a collective value transfer, in accordance with the chosen defined contribution scheme (solidarity or flexible), unless this would be disproportionately disadvantageous for the participants or the employer. This process is referred to as ‘invaren’. Before accepting the request to convert, the pension fund must first assess, among other things, the overall balance of the transition; it must not result in a disproportionate disadvantage for participants. Unlike a regular collective value transfer where the pension agreement is amended (Article 83 of the Pensions Act), participants do not have a right to object. A recent Amendment to the Wtp proposed by Member of Parliament Joseph, which aimed to make the right to object or the use of a referendum mandatory in the case of ‘invaren’, did not pass in Parliament. 

Compensation

Another important change is the abolition of the average pension contribution system (‘doorsneesystematiek’). The average pension contribution system refers to the combination of an age-independent contribution with an age-independent (pro rata temporis) accrual of defined benefit pension entitlements. Instead of the average pension contribution system, the Wtp introduces a system with age-independent contributions and actuarially neutral pension accrual. The abolition of the average contribution system and the introduction of age-independent contributions and actuarially neutral pension accrual will affect pension accrual in virtually every pension scheme.

In particular, for employees in the 40–55 age category, the abolition of the average pension contribution system may result in them accruing less pension than would have been the case if the average pension contribution system had continued, or if progressive contributions in defined contribution schemes had continued. According to the legislator, a balanced transition to a defined contribution scheme with an age-independent contribution will therefore require that employees who suffer a disproportionate disadvantage as a result are adequately compensated.

Grandfathering

Approximately 1,385,000 participants are currently accruing a pension with an insurer or a premium pension institution ('PPI') under a defined contribution scheme with progressive contributions. These pension schemes must also be converted to a defined contribution scheme with an age-independent contribution, which will affect the expected pension accrual for current employees. The Wtp includes a transitional arrangement that allows the grandfathering of progressive contributions for existing employees. As a result, it remains possible to apply progressive contributions for existing employees even after 31 December 2027. For new employees, however, an age-independent contribution will be mandatory after 31 December 2027 (or an earlier chosen transition date).

Fiscal

There are also many fiscal changes. Apart from the above-mentioned exception in the transitional law, from the transition date onwards, only an age-independent contribution of a maximum of 30% of the pension base is permitted. For compensation purposes, it is also possible to agree on an additional contribution of up to 3% until 31 December 2036 at the latest, making a total of 33%.

Amending the pension agreement

As mentioned, due to the Wtp, every pension scheme in the Netherlands needs to be amended. Through which methods can this amendment be implemented?

If the amendment of the pension agreement is made via a collective labour agreement, it is the trade unions and the employer (or employer organizations) who agree to the amended pension agreement. In that case, individual employees do not play a direct role. The amendments are binding on organized employees pursuant to Articles 9 and 12 of the Collective Labour Agreements Act, and, through incorporation of the collective labour agreement into the individual employment contract, also binding on non-organized employees.

If the employer is affiliated with a mandatory industry-wide pension fund, the social partners who determine the pension agreement in the relevant sector are also responsible for amending it in response to the Wtp. Participants in mandatory industry-wide pension funds and their employers are, by operation of law, bound by the amended pension regulations.

If no collective labor agreement or industry-wide pension fund is applicable, any amendment to the pension agreement must be agreed upon between the employer and the individual employee. This can be done by obtaining the employee’s consent, either expressly or tacitly. When a change is made with the (tacit) consent of the employee, the employee is, in principle, obliged on the basis of good employment practices to accept a reasonable proposal from the employer to amend the pension agreement, unless acceptance cannot reasonably be required of the employee (Article 7:611 of the Dutch Civil Code). Proper information must be provided to the employee, clearly outlining the consequences of the changes for his or her pension (informed consent), as this is a requirement for a legally valid amendment.

An amendment can also be made through a unilateral amendment clause (Article 19 of the Pensions Act / Article 7:613 of the Dutch Civil Code), in which case the employer must have a sufficiently weighty interest and the unilateral amendment clause must be included in the pension agreement or employment contract. Here too, it is crucial that employees are properly informed.

If there is no collective labor agreement or industry-wide pension fund, the works council has the right of consent with regard to changes to the pension agreement as a result of the Wtp (Article 27 of the Works Councils Act). According to case law and the legislative history of Article 7:613 of the Dutch Civil Code, the consent of the works council is a factor that must be taken into account when assessing whether the employer has a weighty interest. The consent of the works council also plays a role in assessing whether the employer’s proposal to amend the pension agreement constitutes a reasonable proposal in the context of good employment practices.

Timeline

The final transition date by which employees must start accruing pension benefits under the new solidarity-based or flexible defined contribution scheme is 1 January 2028. Prior to this, a number of statutory deadlines apply.

For pension schemes administered by pension funds, the transition plan - which sets out the agreements regarding the new pension scheme - had to be completed by no later than 1 January 2025. 

These agreements were to be submitted to the pension fund no later than 1 January 2025, prior to acceptance of the assignment. Subsequently, the pension fund’s implementation plan, including the communication plan, must be finalized no later than 1 July 2025 or - if later - at least twelve months before the transition date. The final transition (including any possible value transfer) must be completed by 1 January 2028.

For pension schemes administered by insurers or premium pension institutions ('PPI's'), both the transition plan and the implementation plan must be finalized by no later than 1 October 2027.