New pension system (part 1): End to uniform contribution rates, a major change
18 February 2019
Minister of Social Affairs and Employment, Mr. Koolmees, explained in his letter of 1 February 2019, which proposals the government has in mind to realize a new pension system.
Many pension funds are funded by employers and employees based on uniform contribution rates. Terminating this funding method will have severe impact on all Dutch pension schemes:
- No more final pay schemes or average pay schemes, only Defined Contribution schemes will be possible.
- Age dependent contributions must be replaced by flat rate contributions.
- Impact on the total remuneration of each employee.
- Age independent accrual of pension benefits will be replaced by flat rate contributions and a with age declining accrual rate.
- Almost each employee will be confronted with a decrease in attainable pension benefits.
- Employers and employee (representatives) must discuss the height and funding of compensation for the loss of benefits. Whether compensation can be partly paid for by a pension fund, the board of the fund must decide.
In our article, we contemplate the effect of termination funding based on uniform contribution rates.