The second step towards modernizing the Dutch pension system has been taken with the new pension agreement (in Dutch: ‘Pensioenakkoord’). Current benefit agreements will eventually cease under the new agreement. Two new pension contracts have been introduced, namely an extension of the current Act on Improved Defined Contribution Schemes (in Dutch: ‘Wet Verbeterde Premieregeling’ or ‘Wvp’) and "the new pension agreement". In both contracts there is less certainty than before. In this blog we will be discussing the first type: what does it mean? And what steps can you take already as a Dutch pension fund?
15 Sep 2020
More accessible Wvp contract
A contribution agreement with individual pension assets and a collective risk sharing part is relatively new for many pension funds. A contribution that is age-independent and the addition of solidarity elements now makes the improved defined contribution scheme for industry and occupational pension funds within reach.
The improved defined contribution scheme distinguishes between the period before and after retirement. In the period before retirement it concerns individual pension assets that are invested through a ‘life cycle’-mechanism. This is usually based on a higher risk for younger participants, whereby the risk is gradually reduced towards the retirement date. Participants can often opt for different (initial) investment profiles. Each life cycle leads to a certain expected pension, whereby taking more risk in the expected outcomes also leads to a higher expected pension. By leaving this freedom to choose up to the participant, he/she can make this choice individually based on personal conviction and/or in line with his/her own risk appetite.
In the new design of this pension contract, it is also possible to share more risks than is currently the case. In the Wvp contract, the longevity and investment risk can only be shared within a collective agreement. More risk sharing is not possible under the existing DC-based pension scheme. In the Wvp contract, the pension benefit is lifelong and the rate of payment of the pension is based on a projection of future returns.
What steps can you already take?
At the beginning of 2021 the bill will be submitted to the House of Representatives of the Netherlands (in Dutch: ‘de Tweede Kamer’). The intended date on which the legislation will enter into force is January 1, 2022. On January 1, 2026 all pension schemes must be adjusted. During the transitional period, the social partners (mainly employers and employees) must make a choice for a new form of contract. This makes it important as a pension fund or pension administrator to start a dialogue with the social partners about these changes. Current accrued liabilities of Dutch pension funds will be, if possible, converted into one of the new contract forms before January 1, 2036.
KAS BANK N.V. has been part of CACEIS since September 2019. CACEIS is a European specialist for the custody and administration of securities and high-quality risk and reporting services. We focus entirely on providing securities services to professional investors in the pensions and securities world. The acquisition of KAS BANK N.V. strengthens CACEIS' position in the Netherlands, Germany and the United Kingdom. Our combined product range makes us market leader in custody services and fund administration in Europe. CACEIS is part of Crédit Agricole, the world's largest cooperative financial institution.
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