Investing in a good pension
From 1 January 2028, pension accrual will only be possible via a so-called defined contribution plan. The amount of the pension income is not fixed in advance. During the accrual period, the premiums are invested. With the investment value, an employee buys a pension income from a pension provider on the retirement date. All pension plans where a pension income is fixed in advance are no longer possible (average wage system and final wage system).

The defined contribution itself is then determinant; a promise is no longer made about the amount of pension benefit. For employers who now have a pension plan based on an average or final wage system for their employees, this means a significant change.

A variable pension income
Employees can choose to continue investing with (part of) the pension capital after the retirement date. For example, because he/she is not yet financially dependent on a certain pension income. Would the employee prefer more certainty about the amount of pension? Then he/she can opt for a fixed retirement income.

The end of the premium scales
In the new pension system, the contribution for accruing pension entitlements will be age independent. The same premium percentage applies to each participant, regardless of age. There is then no longer any difference between the deposits for young or old participants. The maximum tax-permissible pension contribution is 30%.

The adjustment of the survivor’s pension

In the new pension system, the survivor’s pension will be simpler and more uniform. The partner’s pension in the event of death before the retirement date no longer depends on the number of years of service. A percentage (maximum 50%) of the gross salary is simply insured for the partner’s pension. The orphan’s pension will have a fixed final age of 25 years (now 18 or 21 years). The maximum for the orphan’s pension is 20% of the gross salary.

The one-time withdrawal of 10% on retirement date
In the new pension system, employees will have an extra choice. It will become a statutory right for employees to withdraw a maximum of 10% of the old-age pension on their retirement date. The remaining pension benefit is then lower. The one-time withdrawal is taxed. The effective date is not clear at this time.

The age at which an employee starts in his employer’s pension plan is lowered. As of 1 January 2024, this is a maximum of 18 years. Before, pension accrual often starts at age 21. From 1 January 2024, this age of entry will no longer be allowed.

Employees accrue pension from the age of 18
There is no transition period during which the new age of entry can be gradually implemented in pension plans. The pension contribution is equal to the contribution percentage of a participant aged 21. From 1 January 2024, employees who are younger than 21 years old and have not yet been registered with the pension provider must still be registered.  If there is a personal contribution to the pension plan, you can deduct it from the employee’s wages.

The age at which an employee starts in his employer’s pension plan is lowered. As of 1 January 2024, this is a maximum of 18 years. Before, pension accrual often starts at age 21. From 1 January 2024, this age of entry will no longer be allowed.

There is no transition period during which the new age of entry can be gradually implemented in pension plans. The pension contribution is equal to the contribution percentage of a participant aged 21. From 1 January 2024, employees who are younger than 21 years old and have not yet been registered with the pension provider must still be registered.  If there is a personal contribution to the pension plan, you can deduct it from the employee’s wages.

When will the change take effect?
The new pension rules apply as of 1 July 2023. The transition period started on 1 July 2023. The transition process has three phases. The employment conditions phase in which representatives of employers and employees make agreements. A phase of accommodation with the pension administrators. And an implementation phase. All pension plans must eventually be adjusted before 1 January 2028.

Does an employer set up a pension plan for the first time as of or after 1 July 2023? Then this pension plan must immediately comply with the new law.

For existing pension plans, an employer must have switched to a pension plan that complies with the law by 1 January 2028 at the latest.

Transitional law and grandfathering clause
The new pension system represents a major overhaul of the pension system. The new pension system must be switched to before 1 January 2028. This transition may be done under transitional law. The aim is to limit the consequences of the switch for employees as much as possible.

The transitional law may be applied to the following types of existing pension plans:

• Defined contribution plans with a progressive age-dependent defined contribution
• Average wage plans with a progressive premium

The transitional right means that the existing defined contribution plan with progressive premium scale for existing participants may continue unchanged until 1 January 2028. For an insured average wage plan, until 1 January 2028, it is possible to convert the plan for existing participants into a defined contribution plan with a progressive contribution scale.

From 1 January 2028, the grandfathering clause may then be used for existing participants. This means that these employees are allowed to keep their pension plan with progressive contribution scale. However, on 1 January 2028, survivors’ pensions must be adjusted in accordance with the new law. Existing employees are those employees who have joined you no later than the end date of the transitional regime (1 January 2028). The increasing scale then ends when the last employee who is in the transition group is retired or out of service.

For employees who start working after the transition date, the flat premium applies from the start of their employment.

Transition plan
Employers are obliged to draw up a transition plan (or have it drawn up) if they have a pension agreement with their participants on 30 June 2023 and no use is made of the grandfathering clause. With the grandfathering clause, which runs until 1 January 2028, an age-related scale can still be used for existing participants.

The transition plan is the basis for the transition. It states, among other things, which pension plan was chosen, why this was chosen and what the consequences are for the pension of the participants and what compensation measures are taken. The plan is sent along with the request for approval to amend the pension agreement to the works council and/or employee representation if there is one.

Advantage of transitional law and grandfathering clause
In summary, the transitional right means that for these pension plans, the progressive contribution scale may continue or be applied for existing participants after 1 January 2028. The advantage of this is that any adverse pension consequences are limited. And the advantage is also that no compensation arrangement must be made for the existing participants.

Disadvantage transitional arrangement
There are two different pension plans as of the transition date, which means extra administrative work and possibly higher administrative costs. In addition, there is inequality between employees who start working before and after the transition date.  

Transitional arrangements and pensions funds
This transitional arrangement does not apply to average pay plans operated by a company pension fund or branch pension fund.

Considerations and choices for you as an employer in transition
Do you choose not to make use of the transitional arrangement? Then you need to draw up a transition plan. When completing the new pension framework, the following considerations and choices emerge for you as an employer:

• Are all your employees switching to a flat premium?
• Do you make use of the transitional right and only new employees transfer to a flat premium?
• Should and will you compensate employees for the pension decline?
• How high do you set the new flat premium?
• How high is the compensation for the employees?
• And the compensation will take place within the pension plan (temporary extra contribution) or outside it (higher salary).

To be able to make a choice from the available alternatives, insight is needed into the effect you are aiming for in the transition. These can be the following effects:

• Continuation of the original ambition level of the plan (continuation of achieving equivalent pension result from start to finish)
• Continuation of the current pension result (none of the current employees will deteriorate in terms of pension result),
• Continuation of the current cost level of the plan (the employer will no longer pay contributions).