Could a change in business activities affect your pension arrangements?
Below, we explain what this can mean for businesses that are, or are not, affiliated with an industry-wide pension fund.
Business is not affiliated with an industry-wide pension fund
More than 50,000 businesses have arranged their own pension scheme for employees with a commercial pension provider. The business determines the terms of the scheme, where appropriate in consultation with the works council, and records these in the pension agreement with the employee.
The pension adviser has established that the business activities consist solely of purchasing and selling a product, with sales made only to business customers (B2B). As a result, no mandatory industry-wide pension fund applies. At some point, the business decides to sell the product directly to consumers as well (B2C), initially on a small scale but eventually as its main sales activity. In short, the product stays the same, but the customer base gradually changes.
Expanding its activities may mean that a business becomes legally required to join an industry-wide pension fund. If the business already has its own pension scheme, it may need to amend the scheme to meet the pension fund’s requirements.
This can significantly increase the employer’s pension costs, sometimes even retrospectively. The next question is whether part of these additional costs can be passed on to employees through higher employee contributions. Under certain conditions, case law indicates that employers may pass on part of these additional costs to employees, for example where pension accrual demonstrably improves and a higher employee contribution is introduced gradually.
Business is affiliated with an industry-wide pension fund
The business carries out an activity that falls within the scope of an industry-wide pension fund and is affiliated with that fund. The terms of the pension scheme are determined by the social partners in the industry. The pension fund sets the contribution payable, while the employee contribution is agreed during collective labour agreement negotiations.
The business decides that, in addition to trading the product, such as clothing, it will also make alterations to the product itself, such as applying a company logo. As a result, the Retail Pension Fund (wholesale of textile goods) is no longer the only fund that may apply. The MITT Pension Fund for the fashion industry may also become relevant. The Retail Pension Fund has a lower maximum pensionable income, lower contribution costs and a more favourable division of contributions for employees than the MITT Pension Fund. At the same time, the business cannot, of course, be affiliated with two different pension funds.
In principle, the pension funds should resolve any overlap in their respective scopes between themselves. In practice, however, this does not always happen. The business can therefore become involved in a dispute that is essentially between the two funds and may even need to ask the courts to resolve it. Both the business and its employees must also establish which pension accrual applies, what contribution is payable and what employee contribution is required. Here too, the business will want to avoid a situation in which its contribution costs increase while employee contributions remain unchanged.
Impact on the business
A business may see commercial opportunities in changing or expanding its activities without realising that this can also change its pension position. As a responsible employer, it may already have put its own pension scheme in place or joined the pension fund that applies to its activities.
The impact on the pension position should be carefully assessed before a decision is made to expand or change business activities. In some cases, carrying out the new activities through a separate legal entity may help avoid the issues outlined above.
Want to know more?
Would you like to know more about how expanding or changing your business activities could affect your pension arrangements? Please contact your usual Forvis Mazars contact or Paul van Ravenzwaaij of Pellicaan Advocaten directly by email at paul.vanravenzwaaij@pellicaan.nl or by telephone on +31 (0)88 627 22 39. They will be happy to help.