First of all, and to be clear, this concerns a system change for everyone with a pension plan offered by the employer. So it concerns pensions accrued in the past (including with other employers) and pensions currently being accrued with the employer.
And to clear up another misunderstanding, even in the new pension system, every employee must spend the accrued pension capital on a lifetime pension. So, simply withdrawing this amount at once for a new house or a vacation is not allowed for the time being.
What do I notice about the change?
What is unique about the current Dutch pension system is that a large part of pensioners’ income comes from a capital-backed pension, unlike the AOW that is paid by current working people. Employees and employers together set aside a portion of the salary tax-free each month for later. This is invested with a pension fund that pays out a pre-agreed amount after retirement. This pension system is well known by the terminology “defined benefit scheme”.
This promise of a fixed benefit linked to salary will be abandoned. In the new system, it must become clearer who pays what and what the participant receives in return. Unlike now, everyone will be able to see on their own pension statement how much capital has been built up, the premiums that have been paid in, how much return has been made on them and what costs have been deducted. That statement will also show, as it does now, what the expected pension benefit is. That expected benefit will soon be a calculation based on the assets that are already there, and the expected returns. This is called a defined contribution scheme.
Pension benefits may therefore be higher, but the downside of taking more risk is that pensions may also be lower. Pension funds do try to design retirement benefits so that they become fairly stable and that it is mostly the assets of working people that fluctuate.
One of the main drivers of this system change is the abandonment of the promise (a defined benefit) because that also means that the premium no longer automatically increases or decreases. This will make the cost of pensions more predictable for employees and especially employers.
In the new pension system, the so-called “average system” for premiums disappears, in which young workers contribute to the pension accrual of their older colleagues. From 2028, a premium rate will apply that will be the same for young and old. As a result, young people will no longer be disadvantaged compared to the elderly. However, the latter group will have to be partially compensated for this.
Finally, employers (together with the social partners) will soon have a choice of 2 flavors, i.e. new pension schemes, namely the flexible scheme where the employee builds up his own pension pot. The participant can then choose what he wants to invest in, and choose between a fixed pension benefit or a benefit that moves with the stock market. In the so-called solidarity-based scheme, investments remain collective, with no choices of their own, in the expectation that this will yield higher returns on average. Funds allocate a portion of assets and investment gains and losses to participants on paper. From that, they pay a benefit that moves with the financial markets. There will also be a “solidarity buffer” to maintain benefits in times of crisis. It is expected that this solidarity scheme will be chosen most often by social partners.