Pension system

Employees and employers pay monthly contributions for the accrual of pension. The average life expectancy is taken into consideration to determine these contributions. That life expectancy has risen enormously because we live longer on average. This means today’s elderly people are retired for a much longer period of time than initially anticipated. And this leads to pension funds having to pay more and for a longer period of time than calculated in advance.

The current pension system works well if people work their entire lives for the same employer. But that is no longer the case. People switch jobs more often. Or they stop working for a while. And once they start working again, they sometimes work less or in the capacity of a self-employed person. Employed people who switch to being self-employed mid-career, don’t accrue enough pension.

Pension funds hold more assets than ever before, but the participants don’t see this reflected in the payout. The new system provides for pension increases that can be implemented quicker. Moreover, the new pension rules ensure that we can also enjoy a comfortable retirement in the future.

The new pension rules make it more insightful how much money you and your employer deposited in pension contributions and how fast the money for your pension is growing. The new system provides better insight into the amount of money reserved for your pension. An overview of your current personal situation and the expected pension in case of ‘normal weather, good weather or bad weather’ can be obtained from your own pension fund or at mijnpensioenoverzicht.nl.

The money employers and employees set aside for pension is invested by the pension funds. In the new system, your pension capital moves along with the economy. This means your capital increases quicker when the economy is doing well. But it also means your personal pension capital may decrease should the investment results be disappointing. A pension fund will be getting several buttons to make sure the pension payments are not fluctuating too much. As participants grow older, the investment risk can be limited. Shocks on financial markets can be mitigated and setbacks can be (partially) compensated by means of a so-called solidarity reserve. This is a type of piggy bank in which the pension funds deposit money in times of economic growth, so disappointing results in times of less economic prosperity can be compensated. This can prevent the fluctuations from becoming too large.

In order to make sure everyone is able to reach their pension in a healthy way and that a financially healthy retirement can be provided for everyone, additional agreements will be made in the next years for some professional groups. These agreements relate to, for example, retraining for other work, additional leave and other special arrangements making it possible to stop working sooner.

The moment you retire, you will probably be given an extra choice. It will then be possible to withdraw 10 percent of your pension capital in one go. This ‘lump sum’ is expected to be offered already as of July 1, 2024. It is not mandatory to withdraw the amount.

Currently, many pension schemes are benefit plans: participants are promised a certain level as to their pension payments. Pension funds invest the amounts paid by the employer and the employee. Their goal is to earn sufficient revenues to pay the pension that was promised. They make use of the market interest to provide for these calculations, which has been very low for years. That means it is sometimes impossible to apply indexation, even though the investment results are good.

In the new system the pension schemes are contributions schemes, meaning the contributions are the starting point. Pension funds invest the contributions paid by employers and employees to the best of their abilities. We are heading towards a personal pension capital. Your personal pension assets are composed of the total payments made by you and your employer, and the investment results minus the costs. This makes it clearer to you how much money is deposited for you in the large pension pot and how those assets move with the economy and the investment results.

Two types of contribution schemes

The social partners of the pension funds, together with the funds, make their choice between two types of contribution schemes. Both contribution schemes offer pension funds the possibility to decrease the investment risk when people are getting closer to their retirement date. That will prevent too many fluctuations in the expected pension payment for people who are almost retiring. And that the pension payment of pensioners is confronted with major movements.

The two contribution schemes the social partners and funds choose from are:

Solidary Contribution Scheme

A Solidary Contribution Scheme has a more collective nature. You will still have a collective investment pot and jointly share the risks within the pension fund. The solidarity reserve makes it possible to (partially) compensate certain risks, such as the risk of a decrease of the pension.

Flexible Contribution Scheme

A Flexible Contribution Scheme is more individually oriented. You will have more influence on the investment policy. For this scheme you, as a participant, choose whether you want to invest defensively, neutrally or offensively. Other investment choices, such as sustainable investing, are usually made by the fund in both the flexible and the solidary contribution scheme. This is not a choice the individual makes.

The state pension payments you receive from the government starting the determined state pension age are maintained.

The mandatory pension accrual through the employer continues to be in force. This to prevent people from being left empty-handed once they retire.

In the new system we also save money together and you receive pension payments for as long as you live. And we continue to jointly share the risks, such as old age, death and disability. This way, the risks are limited for every individual. We also continue to execute the pension schemes together and the pension assets are invested collectively. This enables pension administrators to keep the costs limited for the people holding their pension with them.

The new Pensions Act became effective on July 1. This was preceded by an extensive legislative process that commenced in the second half of 2020.

In 2023 and 2024 it is up to the social partners – trade unions and employers’ organizations – to act. They will start working on making concrete agreements between employers and employees. Expectations are that provisional agreements will be made no later than in the beginning of 2024. The agreements have to be finalized completely on January 1, 2025 the latest. It will only then become clear what the agreement of the social partners means for employers and for people who are accruing or have accrued pension with that specific fund.

The new rules will be implemented by the various pension funds during the period 2025/2027. This is when your pension moves to the new system.

As of January 1, 2028, all pension funds must have transitioned to the new system. The new pension rules will apply to everyone starting January 1, 2028.

The new pension system applies to everyone in the Netherlands who accrues pension, has accrued pension or is retired.

The general expectation, based on history and without any guaranties for the future, is that participants will benefit from the new pension contract over the entire length of years. That obviously largely depends on the returns.

The pension already accrued in the current system will be transferred to the new pension system with the associated rules by default. The old and the new pension accrual will therefore remain together.