By: HUB’s EB Global Benefits Team

Traditional defined benefit (DB) arrangements will be replaced with defined contribution (DC) plans, which favor individual savings accounts using a life-cycle investment framework. The new law came into effect July 1, 2023, with a four-year period for full implementation.

The new legislation aims to address some of the structural differences existing between generations while assuring the long-term objective of a sustainable and transparent pension system that better meets the needs of a more mobile workforce.

A large majority of Dutch employers provide supplementary retirement benefits to employees, with most employees having pension entitlements funded through industry-wide pension funds. These benefits have historically been on a DB basis with final pay plans having made way for career average plans.

The Netherlands has seen more and more employers offering DC plans following worldwide trends. However, the environment has been restrictive, with employers having to align with a prescribed age-related contribution rate scale derived from a target benefit at retirement age and a set discount rate that often does not represent current financial market conditions. Such age-related contributions may be appropriate for employees with long careers at a single company, but they are not ideal for employees moving frequently between employers.

Discussions about reforming the pension system started over a decade ago with the common understanding that pension plans should be structured to support employee mobility, more personalized benefits, and a higher correlation between benefits received and the country’s economic performance.

Highlights of Proposed Regulations

  • New plans will be in a DC format. Traditional final pay or career average DB plans are no longer permitted.
  • Existing DB plans will cease future accruals, and accrued pension benefits within a pension fund are likely to be transferred to a new DC arrangement.
  • Employers will be required to compensate employees whose future DB pension accruals are negatively impacted by the changes.
  • Age-related contribution rate scales for DC plans will be replaced by flat rate scales for new employees.
  • The maximum contribution rate is expected to be set at 30%, with an extra 3% allowed until 2037 at the latest.
  • A pension fund will offer one of two types of DC plans: an individual retirement savings account with annuity conversion at retirement, or a collectively funded DC plan with fixed contribution rates.
  • Investments under the DC plan options should be structured on a life-cycle basis.
  • A "solidarity" reserve should be set up to minimize the impact of volatility in investment returns affecting generations of participants differently.
  • New early retirement options will be introduced without penalty for employers.
  • Survivor’s pensions will be modernized.

How this impacts you

  • New retirement plans will be in a DC format. Existing DB plans will cease future accruals, and accrued pension benefits will be transferred to a new DC arrangement.
  • Employees could be negatively impacted when their accrued DB pension benefits are transferred to new DC arrangements.
  • Employers will be required to compensate the negatively impacted employees.

Next steps

  • Conduct an in-depth review of the existing pension arrangements to evaluate how negatively affected employees could be compensated.
  • Monitor funding carefully to determine the impact on transition and timing to the DC arrangement.
  • Assess the impact on employees and pension expenditure to prepare for the overall compensation budget in the coming years.
  • Enhanced employee communication on the changes, and the message that pension amounts are based on expectations and no longer a promise.
  • Financial wellbeing programs could be established providing employees with education and tools to help prepare for future.

If you have any questions, please contact your HUB Advisor. View more updates in our Global Benefits Directory.