The Netherlands has embarked on sweeping pension reform that will affect most employer-sponsored and industry-wide pension plans and require significant effort from employers, employee representatives, pension providers, and asset managers over the next several years to amend schemes by the 1 January 2028 deadline. Employers should begin their transition planning now.
The Future of Pensions Act (Wet toekomst pensioenen – WTP), which came into force 1 July 2023, implements reforms of the Dutch supplementary pension system agreed upon between employers, employees, and the government in 2019. The WTP introduces important changes, notably that occupational pension schemes be provided only on a defined contribution (DC) rather than a defined benefit (DB) basis and that they use flat-rate contributions rather than the age-related contributions common in exiting plans. A transition period lasting until 1 January 2028 applies for employers and pension providers to implement the changes in consultation with the employees and their representatives.
Background
Retirement benefits are provided through state pension insurance (AOW) and administered by the Social Insurance Bank. The state pension is a pay-as-you-go system, with retirement benefits paid to pensioners at retirement age linked to life expectancy. The AOW retirement age increased to age 67 in 2024 and will further increase to age 67 and three months in 2028.
Industry-wide or employer-sponsored occupational pension schemes cover approximately 90% of employees in the Netherlands. The schemes are typically administered through pension funds, as well as by pension insurers and premium pension institutions (Premie pensioeninstellingen – PPIs). From 1 January 2028, defined benefit accruals will no longer be permitted.
Key details
The WTP introduces the following changes:
Defined contribution requirement
All occupational pension accruals will be contribution-based. Final pay and career average DB schemes can no longer be agreed between employer and employee. Companies with an existing DB scheme have until 1 January 2028 to change the scheme to comply with the new pension legislation. Three types of DC pension schemes will be allowed: 1) the solidarity contribution scheme, 2) the flexible contribution scheme, and the 3) contribution-benefit scheme.
- The solidarity contribution schemewill have a single collective investment policy covering, at a minimum, excess returns for active, former, and future scheme members. Financial gain and loss distribution are made in accordance with a predefined allocation rule by the pension fund. In a nutshell, the allocation rules aim to deliver an age-related allocation of excess returns, which leads to a decrease in volatility and risk as members age. Pension accruals are based on collective risk-sharing between employees. A solidarity reserve is required.
- The investment policy for the flexible contribution schemeis based on a mix of investments that varies by age cohort (e.g., individual life cycle). Some pension schemes, depending on their design, may allow scheme members to choose their investment portfolio. The pension accrual phase and the benefit payment phase are separate. The accrued capital may be converted upon retirement into either a fixed or variable lifetime pension benefit.
- The contribution-benefit schemeis only available through pension insurers and PPIs. Participants can use the accrued capital and/or contributions to purchase guaranteed-fixed or partially-fixed lifetime pension benefits as early as 15 years before AOW retirement age, transferring a portion of the risk to the pension insurer/PPI.
In all schemes, members may choose to take up to a maximum of 10% of the total value of the accrued old age pension as a lump-sum payment at retirement age. The legislation allowing this lump-sum payment at retirement age is still pending.
Flat-rate contribution requirement
Contributions to schemes open to new members on or after 1 January 2028 must be made at the same rate regardless of member age. Historically, most schemes have used age-related contribution structures.
Existing DC pension schemes that are not already using flat-rate (age-independent) contributions will need to be updated accordingly by 1 January 2028, with the following exceptions and subject to specific conditions:
- Voluntary DC schemes
- DC schemes existing on 30 June 2023 with an age-related contribution scale that are effectively closed to new employees hired on or after 1 January 2028. (While age-related DC schemes existing before 30 June 2023 and flat rate DC schemes may coexist from 1 January 2028, multiple schemes may not be an optimal solution for many companies.)
Tax limitations
Tax limitations will apply to contributions rather than to pension accruals. The contribution rate will be capped at 30% of pensionable earnings (pensionable salary to a ceiling of EUR 137,800 in 2024) less a social security offset (a minimum offset of EUR 17,545 applies in 2024).
The contribution limits are structured within a fiscal framework intended to keep pension provision within 75% to 80% of career average pay with 40 to 42 years of participation. During a transition period lasting until 1 January 2037, the maximum contribution rate is temporarily increased to 33% to compensate for any loss in accrual due to the transition. The maximum of 30% (or 33%) can be adjusted according to a table included in the legislation if the expected returns (expected interest rate as determined by the Dutch Central Bank and Ministry of Finance) change. Such changes will be notified in advance by the Dutch Central Bank.
Transition plan and key dates
Employers, working with their pension consultants and providers, should draft a transition plan in consultation with the unions. If no unions are involved, employers must submit the transition plan to the works council (if any) as part of the consent request for the change of the pension scheme. If there is no works council, the employer must inform the employee representatives about the intended change. As a rule, in the absence of union involvement, all individual employees must consent to the pension scheme change as laid down in the transition plan. In limited circ*mstances, a unilateral change may be considered.
In the case of a pension fund, the employer must submit a transition plan to the pension provider no later than 1 January 2025.
In the case of a pension insurer or PPI, the transition plan should be submitted to align with the scheme contract period but no later than 1 October 2027.
Since older participants may be disadvantaged by the lower accruals under the age-independent scheme, suitable compensation for such participants may be required. If such compensation measures are agreed upon, they must be reflected in the transition plan, including the required funding. If the transition from the old to the new scheme does not generate sufficient funding for compensation, employers may pay an additional premium for certain age groups.
Employers who do not transfer to the new scheme before the end of the transition period risk facing several consequences, including the taxation of the full accrued pension plus a 20% interest penalty.
Other changes
Survivors’ pensions
The definition of a partner will be standardized and will include registered or cohabiting partners. Partner pensions paid at death after retirement will be limited to a maximum of 70% of the primary member’s retirement benefits. Partner pensions paid at death before retirement will be on a risk basis and limited to a maximum of 50% of the pensionable salary without regard to the participation years.
Orphans’ pensions paid at death before retirement cannot exceed a maximum of 20% of the pensionable salary—a maximum of 40% for full orphans—with payment to age 25. (This modifies current rules allowing up to 14% of the pensionable salary—up to 28% for full orphans—with payment until the age as agreed in the scheme, but ultimately until the age of 30.)
Eligibility age for scheme participation
The eligible age for pension accrual was lowered from age 21 to 18 from 1 January 2024. All Dutch pension schemes must comply with this rule.
Next steps
Employers with pension schemes in the Netherlands should work with their Lockton Global People Solutions consultants, relevant stakeholders, and local pension advisors to better understand the new legislation and its impacts on their business. We expect that the overall transition will be time-intensive and require extensive planning and consultation. The transition period for schemes to comply has already begun, with the deadlines for the submission of transition plans falling on 1 January 2025 and 1 October 2026, depending on scheme type As stated previously, employers who do not comply could face penalties.
Vanbreda Netherlands, a member firm of Lockton Global, has a team of experienced pension consultants ready to assist. Employers may also find value in strategic legal advice to prevent or manage potential stakeholder disputes.
Prepared in collaboration with:
Corine Hoekstra
Attorney, Pensions Law
Blom Veugelers Zuiderman
Debora Ottink
Pension Consultant
Vanbreda Risk & Benefits
Hans van Poppel
Employee Benefits Consultant
Vanbreda Risk & Benefits
