The renewed pension system in the Netherlands

The Future of Pensions Act (Wtp), which went into effect on July 1, 2023, brings changes to the Dutch pension system. The reforms are aimed at making supplementary pensions more transparent, personal and sustainable. They are in line with social developments, such as changes in the labor market and demographics. Pension funds and insurers have to switch to the new pension rules before January 1, 2028.

This page provides an overview of the key points of the Wtp.

What’s changing?
In the renewed pension system, participants no longer receive a pension entitlement, but a fixed contribution is made for them. The sum of the deposited premium and the investment return achieved on it constitutes the participant’s pension assets. Something new in the pension system is that participants can see how much pension capital has been accrued for them. This makes it more transparent how much money has been set aside for each participant. It also makes transparent that the amount of the pension is uncertain because it ultimately depends on investment results. This is already the case under the FTK (the current system).

Elements that will stay the same
Important elements of the current system will be retained. The Old Age Pension will remain a fixed component of the Dutch pension and will not change. Supplementary pensions will be paid out for life. We currently invest the supplementary pension and will continue to do so in the future. Solidarity, in which risks are shared through collective investments and shared buffers, among other things, will also remain intact. These shared risks ensure that millions of participants are stronger together than if they were to bear these risks individually.

Mandatory participation in a pension fund will also remain. Thus, most workers will still be required to be affiliated with a pension fund through their employer. This ensures that they save for retirement on time and that the risks can be shared. The existing division of roles between the government and the social partners will also be maintained. Pension will still be an employment condition.

The core differences: accrual, investment and payout
The transition to the renewed system involves significant changes in the areas of pension accrual, investment and pension payout. These changes have direct implications for employers, employees and pension funds.

• Accrual: from benefit system to premium system
  The renewed system bids farewell to traditional benefit schemes, where a fixed pension amount was promised. Instead, a premium scheme will be used, in which the premium is the promise and the ultimate benefit depends on the investment result. This means that members no longer accumulate entitlements, but personal pension assets. These assets will grow based on the premium invested and the returns earned.
  In the current system, young people are disadvantaged by the average premium system. As a result, on paper every euro deposited returns the same amount, while this is not the reality. After all, the money deposited by a younger participant can earn returns for much longer. The renewed pension system puts an end to this average premium system.
  
  In practice, this means that communication with participants will change. Pension funds and employers will have to provide information not only about the expected amount of the monthly pension amount, but also about the personal pension capital and how this capital can develop.
  
  
• Investments: more customization by age cohort
  Under the current system, investment risks and returns are often shared collectively among all participants. This can have adverse consequences, especially for older participants who are exposed to interest rate risk that actually belongs to younger people. The revamped system offers more customization by tailoring investments to age cohorts. Younger participants can take more risk, while older participants benefit more from stable, less risky investments.
  
  This differentiation ensures that the investment portfolio better matches participants' personal situations. This increases financial security the closer they get to retirement age.
  
  
• Benefit: no fixed benefits, but stable pension benefits
  Under the current system, pension benefits are basically fixed, with the exception of indexations or reductions. Under the Wtp, the level of benefit will be adjusted annually, depending on investment results and market fluctuations.
  Pension funds will have some control, allowing them, for example, to ensure that the benefit of retired members remains virtually stable in most years (customized investment policy, spreading fluctuations and targeted use of solidarity reserve in the solidary premium scheme).

Types of contracts: solidarity-based and flexible contribution scheme
In the renewed system, social partners have a choice between two contract forms: the solidary premium scheme (SPR) and the flexible premium scheme (FPR). Both contract forms are contributory schemes and share the characteristics of personal pension assets, customized investments and the spreading of shocks. The difference between the two lies mainly in the degree of solidarity and flexibility.

• Solidary premium scheme (SPR).
  

  The SPR is more collective in nature and places more emphasis on solidarity. The joint solidarity reserve serves as a buffer to absorb shocks and make the payment phase more stable. Due to its collective nature, this scheme offers participants less freedom of choice than the FPR.

• Flexible contribution plan (FPR).
  The FPR offers more choice and flexibility and less solidarity than the SPR. For example, participants can choose their own investment profile. This flexibility is accompanied by a greater duty of care for pension funds and employers. Transparency and clear explanations of the possible consequences of choices are essential to properly inform participants. 

APG’s role in the renewed pension system
As an administrator of pension schemes for various funds, APG plays an important role in the transition to the renewed pension system. APG supports pension funds, social partners, employers and participants in the implementation of the Future of Pensions Act (Wtp). This includes the design and implementation of new pension schemes, managing participants' pension assets and investing. In addition, on behalf of the pension funds, APG provides clear and transparent communication to participants about their accrued pension assets and options. With extensive expertise and economies of scale, APG guarantees a smooth transition to the renewed system. The financial stability and reliable implementation of pension obligations for millions of Dutch citizens are central in this.

More information
Looking for more information about the renewed pension system? Please visit www.pensioenduidelijkheid.nl, a website of trade unions, employer organizations, pension administrators and the Ministry of Social Affairs and Employment.