A lot has already been said and written about the new pension law that went into effect last year, yet misconceptions persist. In the series “Pension myths debunked”, we scrutinize one myth at a time. Ruben Laros, strategic policy officer at APG, presents the second one - in the new system, everyone will be getting their own pension pot.
In many conversations about the renewed system, there is talk about personal pension pots that people will supposedly be getting in the renewed system. This term suggests a pension pot, which the participant has free access to. However, this is not the case, Laros says.
“In the renewed pension system, participants no longer receive a pension entitlement, but a defined contribution. No longer is a specific benefit level promised, but a fixed premium is deposited for you. The sum of the premiums paid in and the investment return earned on them will constitute the participant's pension equity. A new feature of the pension system is that members can see how much pension equity has been accrued for them.”
Entitlement to life-long benefits
So it is not true that people will have their own pot of pension money that they can dispose of themselves in the renewed system. The accrued pension assets cannot simply be withdrawn by the participant to spend on their own, Laros emphasizes.
“In the renewed system, the accrued pension capital is in fact also an entitlement to a lifelong pension benefit. When the participant reaches retirement age, the personal pension assets are converted into a lifetime benefit. The amount is not fixed, but there are tools to keep the benefit as stable as possible.”
Laros continues: “Because participants do not have their own pension pot, personal pension assets can also never run out. If a participant dies, the accrued pension equity will go to the remaining participants in the pension fund. This has the advantage that everyone receives pension payments, even if participants live longer than expected.”
To clear up the confusion, Minister Schouten (Poverty Policy, Participation and Pensions) promised that the ministry will not refer to personal pension pots when communicating about the renewed system.
In the “Pension myths debunked” series, we take as our starting point the solidarity premium scheme (SPR), one of two contract forms from that funds can choose in the revamped system. All the funds APG works for have opted for the SPR.