The Future of Pensions Act is a reality: what does it mean for you as an employer?

On May 30, 2023, the Senate passed the Bill on the Future of Pensions Act (WTP). This means that as of July 1, 2023, all pension schemes must start complying with this new law (hereinafter: WTP). Since the new pension system is a far-reaching operation for pension providers and has major consequences for employers and participants, there is a transition period. This transition period will last until January 1, 2028 at the latest.

On this page we will briefly outline the main changes introduced by the WTP. We will also present a plan of action to help you comply with this law on time.

If you already have questions about this topic and/or would like to make an appointment for this. Please feel free to contact us. We are happy to be of service to you!

Main changes

Below is a non-exhaustive list of the main changes brought about by the introduction of this legislation.

1. Lowering the entry age.
2. Abolish salary service retirement plan.
3. Abolish age-dependent defined contribution.
4. Change in commitment of partner's pension and orphan's pension.

1. Entry age

Effective January 1, 2024, the entry age will be lowered from 21 to 18. This will directly affect any employer employing staff under 21.

2. Salary service retirement plan

Under this pension plan, known as an average- or final-pay plan, members accrue a portion of their pension each year. It is a guaranteed pension entitlement from the pension target age. There are currently two types of salary service plans. The final pay and average pay plans. The employer who has a salary service plan on June 30, 2023, must ensure that by December 31, 2027, the pension plan complies with the Wtp.

What options does this employer have?

1. The employer may still promise a defined contribution plan using an age-related (increasing) contribution tier until Jan. 1, 2028. As of Jan. 1, 2028 (end of transition period), the employer must have made a choice whether the age-dependent contribution tier will continue to apply to employees employed on Dec. 31, 2027, or whether these employees will also join an age-independent contribution tier. For employees entering service as of Jan. 1, 2028, an age-independent premium tier, the so-called equal premium, always applies.

2. The employer commits an age-independent premium tier to all employees by January 1, 2028.

See below for further explanation when it comes to the premium scale.

The orphan's pension has a fixed final age of 25 under the Future Pensions Act.

Employment

Pension is part of the employees' terms of employment and therefore part of the employment contract. A unilateral modification of a voluntary pension plan cannot be done just like that. This requires the individual consent of the employees or any works council. An employee has the right to agree or disagree with the proposed change. Particularly when the pension plan is scaled down, you can expect resistance from employees. As an employer, it is very important to prepare well for the changes and make clear what the difference is between the old and the new pension plan. The employee can sign the change proposal making the signed document part of the employment contract (adddendum).

Plan of action

The WTP brings quite a few changes that you as an employer need to think about.

Some questions are:

• Are you or are you not taking advantage of the entire transition period?
• Is it wise to switch earlier or wait longer?
• What premium tier will my current employees receive?
• What premium rate will future employees receive?
• Does unequal treatment in terms of pay in retirement arise?
• What percentage of salary will you use to insure the partner's pension?

In short: many questions that cannot be answered without sound advice. This advice is precisely what is needed to properly substantiate the changes to the Works Council and your employees. After all, the employees will have to agree to the proposed changes if there is a cutback in the pension commitment.

Below you will find an overview of the different stages we propose to ensure sound advice.

Phases:

1. Inventory the employer's requirements and current retirement plan
2. Per employee understanding of pension entitlements in current pension plan
3. Establish alternative pension plan (based on employer needs and goals)
4. Charting the difference in pension entitlements per member using stages 1 and 3
5. Advise on new pension plan
6. After employer agreement: communication to works council/employees about the new pension plan
7. Implementation of the new pension plan(s).

Investment

We understand that you want to control the costs of this change as much as possible. Our plan of action will be pragmatic and we will take your wishes and objectives into account to come to an appropriate advice. This may mean that part of these one-time costs will be borne by the employees or the pension plan will be slightly lower in the future. A renewed consideration between the employer's own contribution and contribution is also discussed.

In short, we will make every effort to keep the costs as contained as possible. Of course, great care and clear communication is a must in this process.