The pros and cons of the pension agreement
After years of negotiations, the trade unions, employers and the cabinet reached an agreement in principle on 5 June on improving the pension system. The FNV played a crucial role during the negotiations, including the AOb is connected. The changes at a glance.
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In order for pensions to retain the same purchasing power value, benefit amounts must be increased from time to time to keep pace with price increases. Under the current pension law, pension funds may only proceed to such an increase, an inflation correction, if they have a substantial capital buffer. They must have sufficient capital on hand to be able to pay all current participants their pensions plus a few percent reserve. In technical jargon: their coverage ratio must be more than 104,3 percent. Partly thanks to the strict calculation rules in the same law, the required buffer has in many cases not been achieved for ten years. As a result, the pensions were not increased during that period and they have lost a lot of purchasing power.
Less large buffers
The pension law will be amended on the basis of the new pension agreement: pension funds will now have to maintain fewer large buffers. As long as they have enough capital to meet all their current and future payment obligations – that is, a coverage ratio of 100 percent – they can use their other capital reserves for inflation correction and thus to maintain purchasing power. An important decision, which the cabinet was not yet prepared to make in November 2018. On the other hand, pension funds must also cut back sooner if the funding ratio falls below 100 percent.
However, setbacks and thus discounts will be smaller on the basis of the new pension agreement, because it has been agreed to spread out windfalls and setbacks in the investment field over ten years from now on. That is not the case now: on the basis of the current Pension Act, pension funds that have been below the coverage ratio of 104,3 percent for five consecutive years must, in one fell swoop, implement a discount large enough to bring the coverage ratio back to the desired level.
Discounts can therefore take place earlier, but will then be smaller. According to the pension funds, this will mean that pensions will be increased more quickly on balance. Based on experiences in recent years, increases will occur more often than decreases in the new situation. In combination with the agreed spread of both interventions over ten years, an upward trend can then be expected in the amounts paid out. And that is also one of the intended goals of the renewal of the pension system: higher reliability, in other words, preservation of purchasing power.
A slower rise in state pension age
From the outset, the trade union movement has opposed the political desire to increase the state pension age to 67 in eight years and then link it to the development of life expectancy. Initially, the intention was that every year of living longer would automatically lead to one year of working longer.
It has now been agreed that the state pension age will be delayed to 67 years and will continue to rise more slowly thereafter.
- In 2020 and 2021, the state pension age will remain at 66 years and four months
- After that, the state pension age will rise to 2022 years and seven months in 66 and to 2023 years and ten months in 66
- From 2024, the state pension age will be 67 years
Graph: Increase of the state pension age more slowly later and more slowly
In addition, under pressure from the trade unions, the government has decided not to make a one-to-one link between the state pension age and life expectancy from 2025, but to limit it to two-thirds. In other words, according to the calculations of Statistics Netherlands, if we live on average one year longer in the future, this will eventually lead to an increase in the state pension age of eight months instead of twelve. FNV negotiator Tuur Elzinga says: 'An important decision, which the cabinet was not yet prepared to make in November 2018. Freezing the state pension age and allowing it to rise less quickly will cost the state a one-off sum of seven billion euros. After that, the annual costs will be four billion.'
Early retirement plans
Over the past fifteen years, politicians have discouraged agreements on early retirement schemes in collective labor agreements as much as possible, in particular by introducing a tax penalty of 52 percent on top of the 'early retirement amount'. As a result, these schemes have become unaffordable in many cases.
The cabinet and the social partners have agreed that this must change. The trade unions and employers must again be given the necessary financial leeway to offer employees the prospect of early retirement through collective labor agreements. A structural solution will be worked out for this in the coming years. The new pension agreement includes agreements on this and a transitional arrangement to offer the current over-XNUMXs the option of early retirement in the meantime.
Transitional arrangement
From 2021 onwards, the government will relax the fine for five years in favor of people over 19.000 who have difficulty in continuing their (hard) work until the state pension age has risen. The relaxation means that employers can pay these employees XNUMX thousand euros gross per year for three years as income in the event of early retirement and not be fined for this. As mentioned, this is a temporary arrangement for five years. The exemption is only granted for the three years of service before an employee reaches the state pension age.
The government is allocating 800 million euros to support employers in financing this early retirement option. The transitional arrangement will only take effect from 2021 because the exact details still have to be arranged - for example, how professional sectors can make use of the available subsidy of 800 million euros. The amount of early retirement pension that is allocated for the colleagues in question can also be more than 19 euros per year, but the employer must then pay the RVU levy on the excess. Education staff could also supplement that 19 euros by using the ABP Optional Pension.
Structural arrangements
At the insistence of the unions, the cabinet has agreed to structurally expand the number of hours that employees may save tax-free leave, if this is agreed in the collective labor agreement. The current maximum of 50 weeks of tax-free savings will be doubled to 100 weeks. By making optimal use of this option, employees would then be able to stop working more than two years before their state pension age. Naturally, collective agreements must first be made with the employer about this.
The FNV wants to make it possible to offer people who started working at a responsible time the financial space to stop earlier. The cabinet has agreed to investigate, together with the unions and employers, whether it is possible to automatically entitle employees to a state pension after they have completed, for example, 45 years of service. The aim is to complete this study in 2020.
Finally, the cabinet and the social partners have agreed to investigate how allowances for irregularities and overtime, for example, can be converted into individual voluntary pension accrual. This could provide an extra capital provision, which gives employees more (financial) room at the end of their career to stop working earlier, if desired.
Social support / solidarity
The Dutch pension system is based on solidarity. The sustainability of this will be undermined if more and more employees do not accrue pension. That is not good for themselves and not for the system. After all, they do not contribute to the two plus points of collective pension accrual, where a lot of money can be invested for a long time than all small individual pension pots. Hence the strict demand from the unions that flex workers and self-employed workers must also be able to accrue pension in the new pension system.
In November, the cabinet was not yet ready to take measures in this area. The pension agreement of 5 June makes it clear that this has changed. It will not be an obligation yet, but the cabinet will make it as simple as possible for self-employed people to join a pension fund. However, they are obliged to insure themselves against incapacity for work.
The cabinet has also let go of the ambition to thoroughly individualise the pension system. In his pension letter to the House of Representatives in February, Minister Koolmees of Social Affairs discussed the possibility of switching to a pension contract with personal pension assets. In the agreement that is now on the table, it has been agreed that the pension will remain regulated in a solidarity-based premium contract. We therefore continue to collectively share the risks during pension accrual. However, it must be made clearer along the way what pension participants have already built up individually.
Curious about the entire pension agreement? click on this link. The FNV holds information meetings throughout the country. Do you want to be there? Find out when there is a meeting nearby.
