Netherlands: Difficulties with the Transition to a New Pension System – Future Pension Act Sequel

Transition to the Dutch Future Pensions Act (Wtp)

This change may have implications for certain groups of employees. In particular, employees who are in the middle of their careers may be disadvantaged by this transition. Under the previous system they contributed relatively more to the older generations, but under the new system they will no longer be compensated for this through future accruals. To ensure a smooth transition, these employees may be entitled to financial compensation provided by most pension funds.

 

Risk of pension deficits in case of job changes and employer obligations

To be eligible for this compensation, an employee needs to be an “active member of the pension scheme” at the time of the transition to the new system. This could create issues for employees who wish to change jobs shortly before the compensation is paid by the pension fund. If an employee has not yet received compensation from the pension fund during their employment with their former employer and the pension fund of their new employer has already completed the transition and paid compensation before the employee’s start date, they will miss out on compensation from both employers, resulting in a pension deficit.

In accordance with the principles of good employment practices (Article 7:611 of the Dutch Civil Code), employers may have a duty to inform their employees regarding the potential consequences in case of resignation by an employee and the impact this may have for their financial compensation by the pension fund. The same applies in case an employer is discussing the terms of a mutual separation agreement with an employee and the impact of a proposed termination date on the financial compensation from the pension fund. In case the end date of employment is a date shortly before the pension fund’s intended transition date, an employer may be required to actively inform the employee of the impact the end date may have. Further, some pension funds offer employees the option to continue participation on a voluntary basis following termination of their employment and with that the possibility for employees to benefit from the financial compensation. Employers may also be expected to inform their employees about this option

Key Points for HR

• Employers to investigate whether their pension fund has transitioned to the new pension regulations. If not, employers should assess the consequences of a potential termination of employment prior to the transition date by the pension fund and the impact for the pension entitlements of their employees and inform them accordingly.