Discussion about pension system raging again

This article tells you about the transition from the old pension system to the new one. Find out the details about how it all works and the political discussions it has stirred up. We also cover the advantages, disadvantages and the possible outcomes.

Pension capital is now being transferred to the new pension system. This only affects people who have built up pensions under final-pay and average-salary schemes with pension providers (not with insurers).

The idea behind the new system is to ensure everyone remains covered as the landscape changes. As in the old system, employers in certain sectors are required to include all employees.

The idea is to transfer pension capital in each fund collectively, which is expected to have several advantages:

• The entire pension capital, which consists of the capital already accumulated and the capital to be built up, is treated as a single unit. This makes it easier to administer it collectively.
• This will probably allow the pension already built up to be indexed earlier under the more flexible rules of the new pension system, so pensions can increase more quickly.

Neither the old nor the new pension system provides full security of a guaranteed benefit.

The old pension system has the following main features:

• Pension capital for all members is combined and invested collectively. Members do not have their own individual capital.
• A promise is made about the amount of pension paid out. So you know ahead of retirement how much you can expect to receive.
• But making promises about the pension benefit amount means the pension fund needs to maintain high buffers so you have as much certainty as possible.

The new pension system works differently:

• Everyone has their own pension pot instead of a shared one.
• You don’t know how much your pension will be worth until payout, as this depends on the contributions you’ve made and the returns gained.

So, the differences between the old and the new pension systems are quite significant. What’s more, it’s not yet clear whether everyone gains by moving to the new system. What would staying in the old system mean for you?

Since the Dutch election in 2023, there has been a great deal of debate once again surrounding the pension system. As individual pension fund members have no say in the matter, two political parties ‒ New Social Contract (NSC) and Farmer–Citizen Movement (BBB) ‒ have argued in favour of a universal right to opt in or out. This would mean that any member of a pension fund would have to agree to make the switch in advance. Meanwhile, NSC, BBB and the Socialist Party (SP) have been pushing for another motion for a referendum on the matter.

There is also debate about whether it is right to move members to the new system without their explicit consent. Can social partners – representatives of pension fund members – simply decide to join, even though it’s their members’ capital at stake? This could breach the European Convention on Human Rights, some experts say.

Both BBB and NSC have called for a referendum for members of each pension fund before they switch. There is also no legal obligation to make the move. If it turns out that a certain group of members is significantly worse off under the new pension system, the social partners can decide not to switch.

In practice, this would mean two pension systems for one pension fund. Pension providers would then have to maintain the two systems side by side for decades to come. The increased administrative costs would come out of the pension capital paid into both plans, resulting in a lower return for members.

For pension funds that do expect to make the switch, there will be an opportunity to benefit sooner under the new pension system. One of the advantages is that funds won’t need as high a buffer, meaning they can index members’ pensions earlier and pensions would therefore increase earlier than under the current system.

There doesn’t seem to be a majority in the Dutch parliament in favour of NSC’s plan to amend the Pension Act as yet. The pension sector and outgoing pension minister Carola Schouten have already said that they won’t be bringing a motion to that end.

Under the new pension legislation, all pension funds must submit a transition plan to the Dutch central bank by 1 July 2025, stating how the fund expects to make the transition from the old to the new pension system. One thing seems certain: this isn’t the last we’ve heard of the great pension plan debate. By 1 January 2028, all pension plans will have to comply with the new rules.

We’ll continue to keep a close eye on this topic.