NETHERLANDS Trends and Developments Contributed by: Tijmen Noordoven, Maarten Minnaard, Claire Huijts and Annemeijne Zwager, Rutgers & Posch
depends on uncertain variables such as investment returns, interest rates and life expectancy. This means pension outcomes are less predictable than before. However, the Wtp legislator considers this acceptable – even beneficial – because the availa - ble contributions are now used more efficiently. There is no longer a need to hold buffers to back a guaran - teed nominal pension, and there are fewer unintended transfers of solidarity. These changes are designed to enable a better pension result in purchasing power, though without guarantees. Transition mechanics: legal architecture and involvement of social partners Employers and employees, typically represented by trade unions or works councils, are responsible for deciding whether and how to transition to the new system. They draft a transition plan, setting out their choices on conversion ( invaren ), the new scheme design, and possible compensation. The pension fund must then assess this plan and adopt an implementa - tion plan detailing how it will execute the transition in practice. Conversion of existing pension rights constitutes a legal interference with property rights under the Euro - pean Convention on Human Rights (ECHR) and the EU Charter. However, the interference may be lawful if it serves a legitimate aim, is proportionate, and is prescribed by law. The Wtp satisfies these require - ments in principle, but proportionality will be closely scrutinised, particularly where the conversion leads to materially different rights for certain groups, such as near-retirees. Compensation and transitional relief A key issue in the transition is how to compensate participants who may be disadvantaged by the shift from the current system of uniform contributions in a defined benefit scheme to a flat contribution rate in a defined contribution scheme. In a system with uniform contributions, all participants pay the same percent - age of their pensionable salary and receive the same pension accrual, regardless of age. This implicit form of solidarity benefits older workers at the expense of younger ones. The Wtp abolishes this model in favour
of age-independent flat-rate contributions, thereby eliminating unintended intergenerational transfers. The group most affected by this shift consists of mid - dle-aged workers (typically those around age 45 at the time of transition), who no longer benefit from the redistributive effect of the previous system and may also be disadvantaged if their current plan included age-related (progressive) contribution rates. The Wtp offers several ways to mitigate such effects: • Transitional use of progressive contribution rates – If an existing pension scheme applied an age-relat - ed (progressive) contribution scale before 1 July 2023, it may, under certain conditions, continue this scale for existing participants after the transi - tion. This form of transitional relief is, however, only available for pension schemes administered by pension insurers (not pension funds). • Compensation in the form of extra pension accrual – Employers may grant temporary extra pension accruals to affected age cohorts. This compensa - tion must also be granted to new employees within the same age cohort to prevent labour market lock-in. The amount, form and duration of the compensation are subject to fiscal limits and equal treatment rules. The scope and duration of such compensation are subject to fiscal constraints. The maximum flat-rate contribution permitted under Dutch tax law is 30% of pensionable salary. During the compensation period, this ceiling may be tem - porarily increased by an additional 3 percentage points, allowing a total contribution of up to 33%. The compensation period may not extend beyond 1 January 2037. • Compensation outside the pension scheme – Employers may also opt to offer financial compen - sation through other employment benefits, such as a temporary salary supplement. This type of compensation is more flexible and does not need to be offered to new employees. Political developments and legal controversies A recent political development briefly stirred unrest within the Dutch pensions sector. In early 2025, mem - bers of parliament proposed a controversial amend - ment that would have given participants – including pensioners and deferred members – a veto right
391 CHAMBERS.COM
Powered by FlippingBook