Impact of the Future Pensions Act on pension schemes for exempt employers

In brief

• Exempt employers must ensure that their pension scheme remains equivalent to that of the sectoral pension fund under the Future Pensions Act (WTP).
• The WTP effectively requires a defined contribution scheme with a fixed contribution rate, with the pension fund’s choices serving as the benchmark.
• Maintaining an age-dependent contribution scale for existing employees is permitted, but adds complexity and may result in higher costs.
• Equivalence must be demonstrated both at the time of transition and every five years thereafter, based on financial and actuarial assessments.
• Amendments to the pension scheme require the consent of employees (and, where applicable, the works council) as well as approval from the pension fund.

Employers who fall within the scope of a sectoral pension fund (BPF) but have obtained an exemption remain formally connected to that fund. However, they operate their own pension arrangement. Such exemptions are subject to statutory conditions. With the introduction of the Future Pensions Act (WTP), the Dutch pension system is undergoing fundamental reform. What does this transition mean in practice for exempt employers?

What changes under the WTP?

The WTP brings an end to traditional pension arrangements such as defined benefit (average salary) schemes. Under the new legislation, only defined contribution arrangements are, in principle, permitted. This entails:

• a single fixed contribution rate for all employees;
• a partner’s pension based on a fixed percentage of pensionable salary.

Employers who currently operate a defined benefit scheme with an insurer, or a defined contribution scheme with an age-dependent contribution scale, are granted transitional arrangements. For existing employees, such contribution scales may be maintained under certain conditions. However, new employees must, from the transition date onwards, participate in a scheme with a fixed contribution rate.

How does equivalence work in practice?

The choices made by the sectoral pension fund are leading in this context. In practice, this means that the pension fund will transition to a defined contribution scheme with a fixed contribution rate and a partner’s pension based on a fixed percentage of pensionable salary. Many pension funds supplement this with a temporary partner’s pension in addition to a lifelong partner’s pension.

The statutory equivalence requirements stipulate that employers must adopt these principles in full—both the contribution rate and the level of partner’s pension coverage—in their own pension scheme. In that case, the employer’s scheme aligns fully with that of the pension fund.

For employers who choose to maintain an age-dependent contribution scale for existing employees, the equivalence assessment becomes more complex. They must demonstrate that this scale is financially equivalent to the pension fund’s fixed contribution rate.

This is done by linking the contribution scale to the so-called “statutory” scale, which is based on the maximum fiscal contribution rate of 30%. The actual contribution scale is expressed as a percentage of this statutory scale. This percentage corresponds to the ratio between the pension fund’s contribution rate and the aforementioned 30%. For example, if the pension fund applies a contribution rate of 21%, the employer must apply a contribution scale that amounts to at least 70% of the statutory scale.

Equivalence is not a one-off assessment

Equivalence must not only be demonstrated at the transition date but must also be reassessed every five years. This is done through two tests:

• Financial equivalence This assessment considers the level of contributions (or contribution scale) and the coverage of partner’s and orphan’s pensions, based on identical pension bases.
• Actuarial equivalence This involves comparing the expected pension outcome of the employer’s scheme with that of the pension fund. The result of the employer’s scheme must be at least 95% of that of the pension fund. This margin is permitted because pension providers do not offer identical products or investment strategies.

Compensation upon transition

When accrued pension entitlements are transferred into the new scheme (“invaren”), many pension funds provide a one-off compensation to offset the abolition of the uniform contribution system. This compensation is not part of the equivalence assessment, as exempt employers typically do not apply the uniform contribution system in their own pension arrangements.

Implications for employers

The impact of the WTP on exempt employers is not determined solely by the legislation itself, but to a significant extent by the choices made by the pension fund. In particular, maintaining an age-dependent contribution scale for existing employees may have substantial financial implications. These should be carefully considered in the decision-making process.

In addition, the process itself must be taken into account. Amendments to the pension scheme require not only the consent of employees (and, where applicable, prior approval from the works council), but also the approval of the pension fund that granted the exemption.

Would you like to know more?

If you would like to learn more about the equivalence of your pension scheme and the impact of the WTP, please contact your Forvis Mazars advisor or reach out directly to Paul van Ravenzwaaij of Pellicaan Advocaten by email or by phone at +31 (0)88 627 22 39. They will be pleased to assist you.