The new pension scheme: this is what you choose
The new pension system will bring a lot of changes. What exactly? After intensive negotiations about the elaboration, there is now more clarity about this. This spring the AObmembers' turn.
Image: XF&M
Pensions in the Netherlands are going to change anyway, that is laid down by law. But exactly how this will work out for the employees is determined by the social partners themselves. At the end of last year the trade unions (FNV and AOb), employers and ABP pension fund have reached a provisional agreement after many information sessions and negotiations. This sets out the effect of all kinds of matters. The parties hope to have a detailed version with all the details at the end of February, which is also mandatory under the new law. The unions will submit this version to pensioners' associations at the end of March, in accordance with the law. From April the AOb for all members to vote on it.
Jar remains full
When the new pension scheme comes into effect in 2027, comparing the annual pension overviews in the staff room may yield surprises. It may then turn out that young colleagues are credited with a 10 percent pension return, while older colleagues have to settle for, for example, 5 percent. After a bad year on the stock market, it is the latter group that will achieve better results. From now on, everyone has their own pension pot, with an investment policy that is tailored to age.
Just the basics
What will the new pension system look like? While the pension fund now has one large pot of pension assets and invests it in one way, in the new system each participant gets his own pot. The advantage is that the investments are then tailored to age. This way, the money of young participants can be fully invested in riskier investments, such as shares and real estate. These usually provide higher returns and there is enough time to absorb interim stock market dips. From the age of 45, the risk is gradually reduced by adding bonds to the investment portfolio. As the time approaches when the investments must provide a pension, more certainty is needed.
Benefits
AObpolicy officer Roelf van der Ploeg sees advantages. “At the moment, the investment policy does not fit the specific needs of the different groups. Young people give up part of their returns for older people, while older people give up part of their protection. So that will change.” Another advantage of the new approach: if, after a number of years in education, you decide to start your own business, which is currently very unfavorable in terms of pension accrual, you will already have received a large part of your pension with the new scheme.
Isn't that nerve-wracking, such a constantly changing result? According to Roelf van der Ploeg who works from the AOb was involved in the negotiations, this is not so bad. As retirement age approaches, the certainty about your available pension assets increases, he explains. Every year your pension overview states how large the pot is estimated to be. For a 25-year-old, the return can fluctuate between 325 and 45 percent of income, depending on a good, normal or bad stock market scenario. But these differences decrease sharply as we get older. “We are heading for a normal scenario and aim for a pension for our members of 80 percent of their average salary with 43 years of service,” says Van der Ploeg.
By the way, that pension pot is not really yours. Suppose you were to die early, the amount saved, apart from the survivor's pension, would of course go back to the reserves of the pension fund. This makes a lifelong pension possible for people who live longer than average. So the jar never becomes empty.
Fat on the bones
On to the specific choices that the social partners have made for the educational pension at the ABP. Where possible, the emphasis remains on solidarity and security. This is evident, for example, from the substantial reserves that ABP will maintain under the current proposal. In addition to the (mandatory) equity of almost 5 billion euros, this concerns an operational reserve of approximately the same amount and a solidarity reserve of approximately 25 billion euros. This operational reserve is mainly intended to absorb temporary setbacks. Consider the unexpected outbreak of a pandemic, in which many more people suddenly die and therefore more survivor's pension must be paid out.
Then the solidarity reserve. This is used, among other things, when retirees are short of money in a bad stock market year. An example: if, due to poor investment results, only 1900 euros per month in pension is available instead of the original 2000 euros, ABP will supplement the benefit from the reserve. Suppose that the investment results are better the following year, then that amount will be withheld again. But just to be clear: if the stock market only rises, pension income will rise along with it.
Strong protection
Another certainty that the solidarity reserve offers: if the stock market really collapses, workers will also get one AObmembers extra pension assets. The loss is then limited to 30 percent. With the idea that the rest of the loss will be made up for in the following years. There is another mechanism that prevents excessive shocks: any stock market losses are spread over several years. The current agreement opts for three years. A longer period would also be allowed, but research shows that ABP participants prefer to take losses more quickly.
Furthermore, the solidarity reserve comes into play, for example, if life expectancy unexpectedly increases. In order to maintain pensions, the pots of retirees and workers are supplemented in this situation.
Image: XF&M
All in all, the solidarity reserve at ABP will be 'quite substantial', says Van der Ploeg. “During the negotiations, we gave priority to a stable pension benefit, which can be maintained for a longer period with a substantial reserve. You don't see such strong protection at all pension funds.”
This ties in nicely with the second major negotiation point on which members can vote in the spring: the amount of the pension premium. After tough negotiations with employers, it was agreed to keep it at the same level as it is now, which is somewhat higher than with most other pension funds.
According to the provisional agreement, the employer will pay a pension premium of 27,2 percent of the pensionable income (that is your income minus the state pension offset, i.e. the part on which you do not have to build up a pension). The employee pays 30 percent of this premium and the employer 70 percent. This saves a relatively large amount. It was a matter of finding the balance, Van der Ploeg explains. “With this premium you work approximately one day a week for your pension. That is also the maximum. But we often hear from retirees how happy they are that they can continue their lives as they were used to. That is worth more to them than that dormer window that they might otherwise have been able to afford at the age of thirty.”
With this premium you work approximately one day a week for your pension
A small part of the premium that is now proposed (adding up to 0,3 percentage points) is reserved for a slightly better survivor's pension in the event of death before retirement age and a slightly higher disability pension. More about that in the next episode of this series.
For discussion
A substantial solidarity reserve and ditto premium for a solid pension were chosen. Now the AObmembers will vote on this this spring and will receive an email about this in April. What if they don't agree? “Then we will look again at how to proceed,” says Van der Ploeg. “The new system itself is not up for discussion, but the choices we have made about its implementation are. For example, the amount of the survivor's pension. As long as people are aware that a reduction in the pension premium may be nice now, but will lead to a lower pension later.
