New rules for pensions
This autumn, the draft Future Pensions Act (Wet Toekomst Pensioenen) was discussed in the House of Representatives. You may therefore have heard or seen a lot about the subject recently. If this law is passed, pensions in the Netherlands will look different than they do now. For example, all participants of pension funds receive their own 'pension pot' from which their pension is paid. And that pension will, more than now, move along with the waves of the economy. But also in the future, income will be arranged within your pension scheme for after your retirement, in the event of incapacity for work and for any surviving dependents after your death.
What does it mean to you?
What exactly it will mean for you should become clear in the coming years. If the law is passed, it will be up to employers, together with the trade unions, to make pension choices. Philips Pensioenfonds supports them in this and also has the role of testing the feasibility of the new scheme. This includes assessing whether the new scheme is fair and explainable to all stakeholders.
Questions and answers
In November 2022 we organized a number of flash webinars about the new pension rules from the Future Pensions Act. All questions asked during these sessions can be found on this page with answers. The law is currently being discussed in the House of Representatives. This also means that information on this page is subject to change.
What are the main principles of the National Pension Agreement?
The National Pension Agreement primarily involves a fundamental overhaul of the pensions that employees accrue with their employers within the Dutch pension system, for example your pension with Philips Pensioenfonds.
The National Pension Agreement provides for two types of pension plan. Employers and unions can agree on one of these options. Under each of those pension plans, you accrue pension savings that are yours alone. The first option is similar to defined contribution plans that already exist, and involves accruing an individual pension capital (the so-called flexible premium plan). In the second option, which is entirely new, the pension savings represent a share in a collectively invested pension capital (the so-called solidarity contribution plan). Besides plans in which you accrue individual pension savings (known as defined contribution plans), other plans currently exist under which members receive a commitment for pension entitlements. At Philips and Signify, this is done on the basis of a fixed contribution paid by the companies. If this contribution is sufficient to award the aspired pension accrual, it is granted. If not, the accrual percentage will be reduced. Pension plans such as these no longer exist within the new pension system, which instead will only feature the following types of pension plan:
- Flexible premium plan (an individual defined contribution plans): under these plans, members do not accrue pension entitlements, but rather an individual pension capital. The pension capital is invested according to an age-dependent life cycle in which young people invest more in risky categories than older people because the young people have a longer investment horizon. Generally, members may decide for themselves (within a set of defined parameters) how that capital should be invested and what risks they are willing to take. When you retire, you will draw your pension benefits from your own individual capital. Similar pension plans already exist in the current system.
- Solidary contribution plan (previously referred to as 'New pension contract'): these are also defined contribution plans. Members accrue pension capital as individual savings. Unlike option 1, however, your pension savings are collectively invested in the pension fund, together with the pension capital of other members. Your pension savings consist of a share in that collectively invested capital. The returns generated by the various asset classes are divided among the members, according to their age: following a strong investment year, the pension savings of younger members will grow proportionately more than those of older members, and vice versa after a poor investment year. The thought process behind this setup is that younger members have more time than older members to recover from a poor investment year, and so can afford to take greater investment risks. This is a new type of pension plan, which has no equivalent under the existing pension system.
A key aspect of the National Pension Agreement is a new way of accruing pension rights, and the pension premium that is paid for it. Currently, every employee who earns the same salary accrues the same amount of pension every year, regardless of age. Given that the premiums contributed by younger members will generate returns over a longer period than the premiums of older members, the pension accruals of those younger members are cheaper. This is taken into account at Philips Pensioenfonds and employers also pay less premiums for young people than for older people*. However, this is not the case with a lot of pension funds and the same premium is charged for all members, regardless of their age. Both with Philips Pensioenfonds and with those other funds, the pension accrual is the same for everyone. Given that pension accrual is cheaper for younger members, the Cabinet, employers’ organisations and unions believe that it is fairer for them to pay lower premiums to accrue the same amount of pension with all pension funds (like they do now with Philips Pensioenfonds) - or to accrue more pension for the same premiums, which is the option chosen in the National Pension Agreement. Under the new system, all members of a particular pension plan will have access to the same premiums. Younger members will then accrue more pension, while older members accrue less.
In itself there seems to be something to say that this is fairer than the current system, but this switch does create a transition problem. All existing pension accruals will be disadvantaged by the switch to the new system. This applies most to the group of participants aged around 45. After all, they will accrue less pension in the future, without having had a higher pension accrual in the past. According to the government and the social partners, this disadvantage must be compensated.
This can involve significant costs. You can find more information about compensation in the question "Will disadvantaged members be compensated?"
* If all the contributions paid by the employers are added up and this total amount is expressed as a percentage of the pension base sum (the pension base is the salary over which pension is built up), this results in 29.4% for the flex scheme. This is the total contribution percentage owed, which can also be found in the pension regulations. This percentage applies for a period agreed between employers and pension fund. Employees pay a personal contribution of 2% (Philips) or 5% (Signify), which is part of the mentioned 29,4%.
Which pension funds will fall under the new pension system?
After transition to the new system, the new rules will in any case directly apply to new pension accrual. The following applies to the pensions of active members, pension recipients and non-contributory policyholders already accrued at the time of transition to the new system. The basic principle is that the new rules will also apply to the accrued pension rights, if the social partners ask for that. In pension jargon, this is called ‘entitlement conversion’. However, this basic rule will not necessarily apply if it disproportionately disadvantages certain groups of members. It is uncertain at this time whether Philips Pensioenfonds will convert the existing pension entitlements: this will be decided further down the road. No decision can be made at this time, as it is unclear how the employers and the unions will structure the new pension plan, and the rules for entitlement conversion have not yet been detailed. If Philips Pensioenfonds converts existing entitlements, all accrued pension rights will be converted into an individual capital for each member - including the pensions that members are already drawing. Those members will then withdraw an amount in pension from that capital every year.
According to the current draft texts with regard to the new pension system, a decision by the pension fund board to enter is binding for all members of the fund. There is no individual right of appeal. The Accountability Body must, however, provide advice on entry.
Do I need to do anything myself?
No action is required on your part. The Dutch Cabinet is working with the employers’ organisations and the unions to finalise the details of the National Pension Agreement. Philips, Signify and the unions will decide what the future will be of the pension plans at Philips Pensioenfonds. Also, the Board of Trustees of Philips Pensioenfonds will need to make decisions. These steps will take time, so it might be a while before it becomes clear how you personally will be affected by the National Pension Agreement.
Is it true that no-one will be disadvantaged by the new system?
No, unfortunately that is not true. Since pension values will be affected more directly by economic fluctuations, some members will have a lower pension under the new pension system than under the existing rules - even if they are compensated. Although the pensions might be higher than under the present system, they could also be lower. As soon as it is clear exactly how the new Philips and Signify pension plans will be structured, we can run calculations to see how high our members may expect their pensions to be. However, those calculations must necessarily be based on various assumptions regarding investment returns and movements in interest rates over multiple years. It will be unsure therefore whether those predictions will be accurate, even allowing for a margin of error.
What we do know, however, is that the possibility is very real that a particular group of members will lose out (without compensation): mainly active members in the middle age bracket. Members in this group will accrue less pension in the future, without having benefited from a higher pension accrual when they were younger. The premise in the National Pension Agreement is that this group will have to be compensated properly if it is established that they will lose out.
What does it mean that pensions will follow economic developments? Does this mean that the investment yields will determine how much pension I get?
That is correct. Under the new system, you will accrue a personal pension capital that is invested. The value of your pension capital will fluctuate over time. You will be able to see how much pension capital you have at a particular moment. You will also be able to see what developments have affected it, either increasing its value (contributions and investment gains, for example) or decreasing its value (such as benefits that you have drawn or investment losses).
How much pension you can draw from your pension capital after you retire will not be predetermined: instead, it will depend on factors such as future investment yields and the interest rates when you retire. Those yields will depend on your age: while you are young, more of your pension capital will be invested in equities (shares) and its value will fluctuate more strongly than when you are older and it is invested more conservatively.
When the new system is introduced, your pension will also be affected more strongly by economic fluctuations: it will be more likely to go up in times of prosperity, but also more likely to go down when the economy is struggling. It also important to remember that under the new pension system your pension will not be indexed in the way that it is now.
Under the new pension rules, will I still be able to bring forward my retirement and run the calculations in the Pension Planner?
Under the new pension system, you will still be able to bring your retirement forward or push it back. It will also offer possibilities to add flexibility, similar to the existing arrangements, for example a high-low plan. The Pension Planner will be updated, and once it is ready you will be able to run your own calculations just as you can now.
Will solidarity between younger and older pension fund members still be a feature of the new system?
Yes, solidarity between younger and older members is expected to still exist in most pension schemes, but less than in the current system. The so-called longevity risk (see question 22) and the death and disability risks continue to be borne jointly. In addition, the longevity risk in a flexible contribution scheme probably cannot be borne by all participants together, but between the mutual pension recipients on the one hand and the mutual pension accruers and non-contributory policyholders on the other. In view of the size of our Fund, this is not an insurmountable objection.
From now on, however, there is no longer any question of age solidarity with regard to pension accrual. From now on, every participant with the same salary will receive the same premium paid into his pension pot. A young person can accrue more pension with this premium than an older colleague. In the current pension system, both young and old accrue the same pension. In fact, a young person contributes to the pension accrual of his or her older colleague with most pension funds. That is no longer the case in the new pension system.
In the new pension system, the investment return directly benefits the participant through his or her personal pension pot. The pension therefore becomes more personal. More personal means that there is less solidarity on this point as well. And because there is less solidarity, pensions will also move more directly with the economy. Whether or not you see this as a positive development depends on how much you value certainty about your pension benefit. Incidentally, there is the option of dampening the movement of a pension that has commenced in line with the economy by spreading financial windfalls and setbacks over a maximum of 10 years. In fact, this can also be seen as a form of solidarity between generations.
If the solidarity contribution scheme is opted for by employers (for information about this type of scheme, see the question 'What are the main features of the Pension Agreement?'), the solidarity between generations that remains in the new system will also take shape via the so-called solidarity reserve. This reserve may differ per pension fund and may (in the long term) not exceed 15% of the total assets. At high returns, part of this can be added to this reserve. If things go wrong, the low return can be supplemented from this. The higher the reserve, the more solidarity remains in the new system. And the more solidarity, the more stable the benefits.
If the choice is not made for the solidary contribution scheme, but for a flexible contribution scheme, a choice can be made to form a risk-sharing reserve. This reserve probably offers fewer opportunities for solidarity between generations than the solidarity reserve within a solidarity contribution scheme. For example, the risk-sharing reserve may not be used to directly compensate for disappointing investment results.
Under the new system, who will bear the risk of poor investment returns?
In the new system, the investment risk lies with the participant. This is in fact already the case in the current scheme of Philips Pensioenfonds. However, in the new system you will see the investment results more directly in your pension pot or in the amount of your benefit. Your pension will move more directly with the economy. This gives you the chance of a higher pension (if investment returns are positive), but you also run the risk of a lower pension (in the event of disappointing investment returns). Your pension will therefore become less certain. Incidentally, when choosing the solidary contribution scheme (and therefore not a flexible contribution scheme), a so-called solidarity reserve is also formed. This reserve may differ per pension fund and may (in the long turn) not exceed 15% of the total assets. At high returns, part of this can be added to this reserve. If things go wrong, the low return can be supplemented from this. The benefits will therefore become slightly more stable, but still less stable than in the current system. A risk-sharing reserve can be created in the flexible premium scheme, but its effectiveness in absorbing disappointing investment results appears to be limited.
The stability of the benefits can also be increased in both schemes by spreading the financial results (both positive and negative) over a number of years.
Surely the pension fund’s assets already belong to its members?
In the present situation, the assets belong collectively to all the members together. The Board of Trustees manages the collective assets, and makes sure that everything is balanced properly, including all the various interests. You are not entitled to a portion of those assets: instead, you have an entitlement to pension benefits.
The basic premise in the new pension system is that this will become more personalised: every member will have a personal pension capital.
What will happen with the indexation deficit when the new pension system is adopted?
Will it be compensated first or will it be lost forever as a result of the transition?
It is not clear yet what will be done with the indexation deficit when the new pension system is adopted. That will depend on various factors, for example whether or not the existing pensions will be converted under the new pension plan (for more information about entitlement conversion, see ‘What pension funds will fall under the new pension system?’). If Philips Pensioenfonds converts existing entitlements, all accrued pensions, including those that have already started, will be converted into a personal pension capital: your personal pension pot.
The calculation of your personal pension capital will factor in, in so far the reserves of the fund are sufficient, the indexation deficit, although precisely how will partly depend on the conversion method that is adopted. It is currently unclear what that method will be. And of course it is also very important for the amount that ends up in the participants' personal pension pots, how large the Fund's buffer is at the time of entry. The higher the amounts in the personal pension pots, the higher the pension. Although there will formally be no question of making up for indexation arrears upon arrival, it is therefore possible (but not certain) that the pensions will be higher immediately after the transition to the new system than before. And if the economy subsequently develops favourably, it is also possible that this will lead to an increase in your pension, which under the current system would only have been possible through catch-up indexation. This could be seen as catching up on indexation arrears. For the record, it should be noted that it is of course not certain that the pensions will increase after the transition to the new system, because this depends on developments in the financial markets and the consequences thereof for the value of the investments in your personal pension pot.
If Philips Pensioenfonds does not convert existing entitlements, then the current rules regarding (catch-up) indexation will in principle continue to apply to the pensions that have not yet been converted. In principle, because the Minister has indicated that it will still be considered whether these rules will be amended.
Will I have the option of staying with the existing system?
The basic principle is that the rules of the new system will also apply to pensions that have already been accrued, if the employers and unions request this. In pension jargon, this is called ‘entitlement conversion’.
However, this basic principle will not necessarily apply if it would create a disproportionate disadvantage for certain groups of members. It is unclear at this time whether Philips Pensioenfonds will convert existing pensions: the employers and unions will decide this further down the road. That decision will then, in principle, apply to all accrued pensions under the existing system. Individual members will not be able to choose between switching to the new pension rules and staying with the existing system: either all Philips Pensioenfonds pensions will be converted, or none of them.
Will my employer have the option of staying with the existing system?
Under the new system, all pension plans will have to be compliant with the pension rules of the Future of Pensions Act. This means that employers, together with the unions, will have to make arrangements about a pension plan that is compliant with the new law. Those rules will apply to your future pension accrual. Whether or not previously accrued pensions will be converted to the new pension rules is a question that will be decided later. The basic principle is that the new rules will also apply to pensions that active members, pension beneficiaries and non-contributory policyholders have already accrued when the new system is adopted, if the employers and unions request this. In pension jargon, this is called ‘entitlement conversion’. However, this basic principle will not necessarily apply if it would create a disproportionate disadvantage for certain groups of members. It is unclear at this time whether Philips Pensioenfonds will convert the existing pension entitlements: this will be decided further down the road.
If I take a job with another employer, will I be able to take my personal pension capital with me?
Under the new pension system you will still have the right to ‘value transfer’, i.e. the right to take your pension capital with you if you move to another employer. Because you will accrue a personal pension capital, that means that your own pension savings will go with you to your new employer’s pension administrator, which will then start investing those savings for you.
Under the new system, will I be able to choose my own investments?
This will depend on what type of pension plan is chosen by the employers and unions. If they decide on a solidarity-based contribution plan, you will not be able to choose your own investments. Even though you will have your own pension capital, that capital will still be invested collectively, just as in the present set-up. In other words, the pension fund will invest the total pension capital of all its members together. You will not have the option to choose how it is invested.
Under a flexible contribution plan, which is the other type of plan, you will be able to make choices about the investments. For example, you can choose an investment mix that carries a greater or a lesser degree of risk. The investment options available to you will be based on a choice of different investment funds: you will not be able to choose specific investments in a particular company or asset class.
Will I have the possibility to choose a risk-free plan?
No pension plan is ever entirely risk-free: neither the existing pension plan nor the new plans. Depending on what type of pension plan is chosen by the employers and unions, however, you might have some input on the degree of risk.
In the case of a flexible contribution plan, you will have the opportunity to make choices about the investment: within certain parameters, you can choose an investment mix that carries a greater or lesser degree of risk. With a flexible contribution plan, when you retire you will also have the choice between a fixed or a variable pension. A fixed pension will not carry any further risk after you retire, or only a minor degree of risk. A variable pension, as the name suggests, is variable, and it can go up or down after your retirement.
With a solidarity-based contribution plan, you will not be able to make any investment decisions of your own. When you retire, by default you will have a variable pension. Even though you will have your own pension capital, that capital will still be invested collectively, just as in the present set-up. In other words, the pension fund will invest the total pension capital of all its members together. You will not have the option to choose how it is invested.
A solidarity-based contribution plan will also include a mandatory reserve to minimise the likelihood of pension cuts; under a flexible contribution plan, that reserve is optional. Of course the possibilities for minimising the need to cut pension benefits will depend on how much money is in the reserve.
Can I increase my contributions toward my pension?
At this point in time, that option is not available. The possibility is being considered of adding this option under the future pension plan, but nothing has been decided for now.
To what extent do members of Philips Pensioenfonds influence decisions taken by the Board of Trustees?
Participants can influence decision-making by applying for membership of the board or the Accountability Body. Our board consists of 3 representatives on behalf of the employees (pension builders) and 2 on behalf of the pension beneficiaries (pension recipients). The Accountability Body, which consists of 6 people, has 4 representatives on behalf of the pension beneficiaries and 1 representative on behalf of the employees. In addition, we regularly ask for the opinion of participants on relevant pension or investment topics, such as, for example, socially responsible investment or risk appetite. Finally, you can always approach the Board with your questions, suggestions and comments via the mailbox of the Board of Trustees (email@example.com).
Why is the pension system being reformed?
The memo that Social Affairs and Employment Minister Wouter Koolmees sent to the Dutch House of Representatives on 22 June 2020, setting out the basic outline of the practical details of the National Pension Agreement, contains the following description of the purposes and parameters of a new system:
'In the National Pension Agreement that was adopted in 2019, the following have been agreed as the purposes that the new pension system must fulfil:
- The new pension system must offer a greater probability that pensions will retain their purchasing power. Pensions will be more likely to go up in good years, but more likely to go down in lean times.
- The system must become more transparent and more personalised
- The system must better reflect developments in society and on the labour market.
The National Pension Agreement also contains a series of parameters:
- Retirement pensions must be paid for life.
- The reform should not be used to economise. Sufficient opportunity should exist to realise the current targets for projected pensions.
- The premiums and pension benefits should be as stable as possible.
- The transition should have a balanced impact on everyone involved and across all generations.
- Anyone who is disadvantaged by the transition must be properly compensated.
- Wherever possible, existing pension entitlements and pension benefits must carry over to the new pension contract selected.
- Pension administrators must have sufficient possibilities to record returns on the investments.
- The transition must be practicable and financially viable.'
The new system clearly satisfies a number of these purposes and parameters: for example, it is evident that pensions based on individual savings will be more personalised, and that the new system will lead to greater stability in pension premiums.
However, it is already apparent that the new system will almost definitely not satisfy other points, or not offer any improvement. This applies, for example, to the stability of pension benefits. For still other elements, it is impossible to predict at this point whether they can be fulfilled: that will not become clear until it is established precisely what shape the country's various pension plans will take. This will require numerous decisions, both at the political level and by employers, unions and pension fund boards. This is illustrated by the purpose that members who are disadvantaged as a result of the transition to an equal premium percentage for all participants, regardless of age, must be properly compensated.
Some of the issues that are clearly not met or of which it remains to be seen whether or not they will be met because further decision-making is required, will be discussed below in this Q&A.
Some of the issues of which it is unclear whether they will be fulfilled are addressed in this Q&A.
Will pensions become more transparent under the new system?
Under the new system, each member will have their own personal savings. Each member will be able to see what the value of those savings is at any given moment and what factors cause that value to go up (such as the premiums contributed and investment gains) or down (including the benefits withdrawn and investment losses). In that sense, pensions will be transparent under the new system. What will be unclear however is what benefits members should expect to receive in the end from their pension savings: those benefits will depend on uncertain future developments, for example what returns the investments will generate. Given that investment returns will have a more immediate impact on the value of individual members’ pensions under the new system, this means less certainty regarding the benefits. In that sense, therefore, pensions will not be any more transparent under the new system.
In short: the new system is more transparent about what is in the individual pension savings of the members at some point, but not about the level of the pensions to be paid.
Will these new rules apply only to Philips, or to the whole of the Netherlands?
The new pension rules are laid down in the Dutch Future of Pensions Act (Wet Toekomst Pensioenen). These rules are law and they apply to all pension plans in the Netherlands, and not just Philips Pensioenfonds’s pensions.
Is the pension scheme feasible in the new pension system?
The new pension system is certainly feasible. There are two variants. The so-called flexible premium plan (or the individual defined contribution scheme as this scheme is referred to above) is easier to implement than the solidary contribution plan.
What role will the Board of Trustees play in the decisions about adopting the new pension system?
According to the memo describing the main principles for the practical details of the National Pension Agreement, employers and unions will make arrangements about their new pension plan (flexible premium plan or solidary contribution plan), about proper compensation of active members for a possible disadvantage, about entitlement conversion and about when the new pension system will be adopted. By law, employers will be obliged to record all these choices, and the considerations and calculations underlying them, in a transition plan. The pension fund's board will take that transition plan into advisement in its decision on accepting the contract. Pension funds will be obliged to draw up a plan of implementation for the transition, describing what preparations they will make and what actions they will take to administer the new pension plan. The implementation plan must support their ability to administer the new pension plan, bearing in mind a balanced consideration of the interests involved and the laws on equal treatment.
The initiative for making arrangements about the new pension plan, entitlement conversion and compensation of active members formally rests with the employers and the unions. However, it will only be possible to administer that pension plan if the pension fund accepts the contract to administer it. The pension fund's Board of Trustees can only accept that contract if it believes that the interests of all the various groups of members have been given balanced consideration. Given the requirement that the pension fund's board must agree, in practice the employers and unions would do well to involve their pension funds in an early stage of their planning. This is of course also advisable with a view to efficiently drawing on the pension funds’ expertise. Philips and Signify have a long-standing tradition of involving Philips Pensioenfonds early on in the development of new pension plans, and will do so again in this case.
How does the board intend to inform the participants about the transition and about the choices to be made by the participants later?
It's still too early to say anything about that. In general, pension funds are required by law to communicate correctly, clearly, timely and balanced. The latter means, among other things, that a complete picture is sketched and, in addition to the advantages of a particular choice, the disadvantages are also highlighted.
Specifically for the transition, pension fund boards must draw up a so-called implementation plan. Part of this is the communication plan, which must be submitted to the AFM for review. The communication plan must include, among other things, how the pension fund makes it clear to the participants what consequences the transition has for the amount of the pension. Furthermore, pension accruers and holders of non-contributory policies must gain insight into the amount of the pension they could expect before the switch and the expected pension after the transition. They are informed about this using the so-called navigation metaphor. This navigation metaphor shows the amount of the old-age pension in an expected, pessimistic and optimistic scenario. Retired members are also given insight into the level of pensions before and after the transition. The pension fund also informs all participants about the agreements that have been made about compensation for active members who are disadvantaged by the transition to the new system and the financing thereof.
Is the situation at Philips Pensioenfonds comparable to the situation at other pension funds?
The situation at Philips Pensioenfonds is different from many other pension funds: a relatively high proportion of Philips Pensioenfonds’s members are already drawing their pensions. In addition, the level of the funding ratio, and therefore of the buffer, is in general different for each pension fund. Both these points could be relevant in the discussions (both among the Board of Trustees and with Philips, Signify and the unions) about issues such as entitlement conversion, compensation of active members and the size and form of the solidarity or risk-sharing reserve, and will therefore be expressly addressed in those discussions. It will be very important to consider all the relevant facts and circumstances in relation to each other. Only once it is decided precisely how the pension plan will be given shape and financed can we calculate how it could impact the various groups of members and assess whether everything is balanced.
How will the new rules affect someone who no longer works for Philips or Signify but still has a pension with Philips Pensioenfonds?
In the event of entitlement conversion, non-contributory policyholders will also have their own pension capital that is governed by the new rules. The pensions of non-contributory policyholders will also follow economic developments more strongly. The only difference compared with active members is that no more contributions will be made to the individual’s personal pension capital.
Under the current scheme, the intended pension is approximately 70% of the average wage. Does the new pension also have such an intended level? If so, what level is that?
Formally, it is the companies and the trade unions that jointly determine the level of ambition of the pension scheme. The pension premium must be sufficiently high to realize the desired pension, given the risks that the Fund (after consultation with the participants) considers acceptable in the investment policy. If the same premium is paid as at present, the pension is expected to be quite similar on average.
Will my employer contribute less under the new system?
How much your employer contributes toward your pension is determined in the CLA negotiations between the employers and the unions. That is the rule now, and it will not change under the new pension system. This means that the contributions might go down, but it also means that they could go up.
Under the new system, my income will fluctuate over time. What will this mean if I want to take out a mortgage, for example?
If you want to take out a mortgage, your financial adviser will ask for data about your current and future income. Your pension information shows not only what your personal pension capital is, but also what your future income will be in a variety of scenarios. Your financial adviser will examine that information and use it to advise you on what mortgage product is the best match for your situation and how much you can borrow.
Will the new system include a buffer to cover risks of pension cuts?
Future pension plan rules may include arrangements about setting up a reserve. That reserve can then be used to cover the risk of pension cuts. The employers and unions may ask the pension fund to set up such a reserve in the new pension plan rules. The pension fund will then decide whether it is advisable to finance the reserve using the pension fund’s existing assets when the new pension rules are adopted. If so, the reserve can then be used to cover the risk of pension cuts. However, any amount from the pension fund’s assets that is put into the reserve cannot be used for the personal pension savings of members.
When will Philips Pensioenfonds adopt these new pension rules?
First the legislation has to be passed. Then it is the turn of the employers and unions. According to the latest information, a pension plan based on the new law needs to be in place by 1 January 2027 at the latest. So it might be a while yet before you notice any concrete effects.
When will I receive information about how the change affects me personally?
Before Philips Pensioenfonds adopts the future pension plan under the new pension rules, you will receive information explaining what this will mean for you personally. However, it will first have to be clear what shape the new pension plan will take. According to the latest information, the new pension plan will start applying to you by 1 January 2027 at the latest. Your information will become more and more personalised as the moment of the switch approaches. Until we can tell you how you personally will be affected, however, we will keep you updated about the process and the latest developments regarding the new pension rules.
The moment of adoption keeps being pushed back. What are your thoughts on this?
It is vital to take as much care as possible with the new pension rules. The new rules represent one of the most significant changes to the pension system in recent times, and this is a process that should not be rushed.
At the same time, the new pension rules have been studied at great length over the past few years. Philips Pensioenfonds has also been working hard to prepare for the new system and to examine the various possibilities available under the new law. To us, knowing precisely when the Future of Pensions Act comes into force is not as important as knowing what the situation under the new law will be.
What is likely to change when the current CLA arrangements expire at the end of 2024?
The employers and unions will make arrangements that cover the period from 1 January 2025 until a new pension plan is introduced under the new pension system. As it will not be long until the new pension plan comes into effect, it is unlikely that any major changes will be agreed.
Will the pension plans of Philips and Signify remain unchanged until the new pension system comes into effect?
The current pension agreements between Philips and Signify on the one hand and the trade unions on the other will run until January 1, 2025 at the latest. Until then, the current pension scheme will remain unchanged. If Philips, Signify and the unions do not reach agreements in time about a pension scheme under the new pension system, they will still have to make agreements about what the pension scheme will look like from 1 January 2025 to 1 January 2027 at the latest under the current pension system.
What decisions still have to be made that will impact my personal pension?
Several matters still need to be decided, including the type of pension plan (solidarity-based or flexible contribution plan), whether existing pension accruals will be converted, and further details of the new pension plan, for example survivor’s pensions and disability pensions.
The Dutch House of Representatives is currently reviewing the draft legislation. Once that is done, the employers and unions will have to decide how to structure the new pension plan. Before Philips Pensioenfonds adopts the future pension plan under the new pension rules, you will receive information explaining what this will mean for you personally. Your information will become more and more personalised as the moment of the switch approaches. Until we reach the point where we can provide that personalised information, we will keep you updated about the process and the latest developments regarding the new pension rules.
How do interest rates affect the purchase of a pension from the personal pension capital?
How much pension you can draw from your pension capital after you retire will not be predetermined: it depends not only on your pension capital when you retire, but also on interest rates. Interest is a key factor in determining how much money you need in order to draw a lifelong pension. The higher the interest, the more pension your pension capital will provide, and vice versa.
If your pension capital yields more returns than the interest after you retire, it might be possible to raise your pension after you have started drawing it. The opposite is also true, however: if the returns go down, your pension could also be lowered.
Before your retirement, the investment risk will be lowered gradually, and your pension capital will be invested in safe investments such as government bonds. Those investments provide protection against fluctuating interest rates. This way, as your retirement date comes closer, you will have protection against the risks of purchasing a pension on your retirement date.
Will interest rates still be a factor after I start drawing my pension, or only when my retirement starts?
Your annual pension benefits will be updated regularly based on the market conditions at the time. Even after you start drawing your pension, interest rates will be a key factor in determining how much you can draw from your personal pension capital.
After your retirement, part of your pension capital will be invested in safe investments such as government bonds. Those investments provide protection against fluctuating interest rates.
What interest rate will be used for purchasing a pension from my personal pension capital?
At this moment it is unclear what interest rate will be used for purchasing a pension from your personal pension capital. In the new law, this is referred to as the ‘projected return’: the risk-free interest rate with a margin added or deducted.
If the projected return is higher than the risk-free interest rate, your pension benefits will initially be quite high, but the risk will also be greater that the results will go down. Additionally, if the investments start yielding less, your pension benefits will need to be reduced by more.
If the projected return is lower, your initial pension benefits will also be lower, but you will be more likely to see the returns go up and your benefits increase. Additionally, if the investments start yielding less, moreover, your pension benefits will then not need to be reduced as often or by as much.
Interest rates change over time. Will this not create inequality, depending on when people start drawing their pension?
The future pension plan will be more personalised, with your own contributions and your own returns that affect your pension capital. The future interest and returns are two uncertain factors under the future pension plan. The system will make allowance for those uncertainties, for example by gradually phasing out the investment risks as your retirement date comes nearer. This offers our members protection against those risks. It is also possible that arrangements will be made about forming a reserve, which can then be used to cover the risk of pension cuts, for example, in the event of investment losses. The employers and unions can ask for such a reserve to be formed in the new pension plan. The pension fund will then decide whether it is advisable to finance the reserve using the pension fund’s existing assets when the new pension rules are adopted. However, any amount from the pension fund’s assets that is put into the reserve cannot be used for the personal pension savings of members.
How will the changes affect anyone who is already retired? Will they have any certainty about how much pension they will have?
The assumption is that all pensions that have already been accrued will fall under the new rules. This includes pensions of people who are already retired. In pension jargon, this is called ‘entitlement conversion’. However, this basic principle will not necessarily apply if it would create a disproportionate disadvantage for certain groups of members. It is uncertain at this time whether Philips Pensioenfonds will convert the existing pension entitlements: this will be decided further down the road. That decision will essentially apply to all pensions that have been accrued under the existing system. Members will not have a choice between switching to the new pension rules and staying with the existing system.
In the event of entitlement conversion, the expectation is that Philips Pensioenfonds will implement measures to minimise any fluctuations in benefits from year to year. Nevertheless, it will be impossible to entirely rule out drops, and even small income fluctuations can cause great difficulties for certain groups of members.
Can my personal pension capital run out?
No, you will receive a pension as long as you live. You don't have to worry about that.
At the date of your retirement, your annual pension will be calculated based on your life expectancy. This is the pension that you can draw every year from your own pension capital. This implies that each member’s pension savings will run out as soon as they reach the age of their projected death. If they grow older than originally expected, they would stop receiving a pension then, which is of course not the idea.
The National Pension Agreement (Pensioenakkoord) includes arrangements about covering this ‘long life risk’, to provide for a pension income for anyone who passes their life expectancy. The pension capital of any member who dies sooner than projected will be divided among members who live longer. This means that additions to your pension capital as you grow older are made annually and gradually, instead of when you pass your projected life expectancy.
It is also important to note that the long life risk will not be covered entirely if fewer members die than projected. However, it is also possible that part of the ‘solidarity’ or ‘risk-sharing’ reserve will be used to cover the entire long life risk.
Will it make any difference if you retire shortly before or after the new pension rules are introduced?
Essentially, it should not make any difference. In both situations, the new pension rules will apply to any new pension accruals after the new rules are introduced. With pensions that members have accrued or started drawing before the new pension rules are introduced, the situation will depend on whether or not the possibility of ‘entitlement conversion’ is used. If the employers, unions and Philips Pensioenfonds decide to make use of the possibility of entitlement conversion, the new pension rules will also apply to pensions that members have accrued or started drawing before the switch to the new pension rules.
How will the new rules impact my pension if I move my retirement forward?
The effect will be the same as under the existing pension plan: if you move your retirement forward, you will receive a smaller pension every year, based on a combination of two reasons. The first is that you will stop accruing pension earlier, namely as soon as you retire, and so your pension will be smaller. The second is that you will start drawing your pension sooner, and so it will have to be spread over a longer period. As a result, you will receive a smaller amount per year.
If I have a fixed pension, will it stay fixed for as long as I draw my pension?
This will depend on the type of pension agreement administered by the pension fund. Under the new pension rules, the pension fund can administer fixed or variable pension benefits. A pension with fixed benefits is largely similar to the existing system. Philips Pensioenfonds will maintain buffers to continue paying the pension with a high degree of certainty. If the investments perform well, it will be possible for the benefits to go up. If they perform very poorly, however, and the buffers run out, the pensions might need to be cut.
If the pension fund administers a flexible contribution plan with variable benefits, at the time of their retirement members may also choose to have an insurer pay out fixed benefits. The insurer will then guarantee the fixed benefits, meaning that they cannot be cut. At the same time, this also means that they cannot be increased after you start drawing them.
Once I am retired, can I choose my own investments?
Once you start drawing your pension, you will not have any freedom to choose the investments, either under a solidarity-based contribution plan or under a flexible contribution plan. The funds will be invested collectively in accordance with a shared investment policy, similar to the existing situation
Once I am retired, will I be able to continue to invest part of the capital that I have accrued, and wait before converting it into a pension?
The basic assumption under the new pension system is that your pension capital will continue to be invested after you retire. This arrangement is called a ‘variable pension’. The portion of your pension capital that is still invested will continue to generate returns after you retire, which can be used to raise your pension.
Why were younger people unable to benefit from the old system?
Under the existing pension system, the same amount is contributed for every member. At Philips and Signify, this is almost 30% of the pension base. However, the contributions that are needed for accruing a pension are lower for younger employees, and higher for older employees, since any amount that is contributed for a younger employee will be invested and so yield returns for longer. In concrete terms, this means that the rate of 30% is too much for a younger employee and too little for an older employee. But because the system is based on collective pension arrangements, the extra amount that is contributed for the younger employee now goes toward accruing the older employee’s pension. This is the way almost every pension plan works at the moment. As long as you work, you might pay too much at the start of your career, but later on you will benefit from your then younger colleagues’ contributions. This will change under the new pension rules: the amount contributed to each member’s pension capital will be the same. So employees around the age of 45 have been unable to benefit from the old system, and under the new system the amount contributed to their pensions will be no higher than the contributions for their younger colleagues. This is why possibilities are being explored for compensating this group.
Who falls in the ‘middle age bracket’ that will be disadvantaged by the change to the new system?
This group refers to employees around the age of 45. Effectively, the disadvantaged group is much greater (particularly between the ages of 40 and 60), but members around the age of 45 will suffer the greatest impact.
What will the compensation arrangements involve for middle-aged members?
Under the new pension rules, members who are now in the middle age bracket and are still accruing a pension with Philips Pensioenfonds might find themselves in a less favourable situation when the new system is adopted. They are not old enough to have benefited optimally from the pension accrual rules under the existing system, but not young enough to benefit optimally from the new system. It will need to be considered whether this group will be disadvantaged, and whether that will then need to be compensated. This will have to be initiated by the employers and unions.
Who will pay for the compensation for middle-aged members?
As matters stand, that remains unclear. It will need to be decided by the employers and unions. They can ask Philips Pensioenfonds for a contribution toward the costs of the compensation.
Will disadvantaged members be compensated?
The possibility is very real that in particular middle-aged active members will be disadvantaged by the National Pension Agreement. This was acknowledged when the Agreement was signed, together with the need for a proper compensation plan. It is unclear, however, who will finance that compensation. According to the National Pension Agreement, the compensation must be cost-neutral for both employers and members. The possibility of the pension funds paying the compensation is explicitly being considered: an option is being created under the law that will make it possible for pension funds to cover the costs of the compensation, at least in part. That would mean that some or all of the compensation would be paid from the pension funds’ assets. It remains to be seen whether Philips Pensioenfonds will go this route. If it does, it will be important to make sure that this takes place in a balanced manner. It will be impossible to determine until all the details of the new pension plan and how it will be funded have been decided. The Board of Trustees will need to weigh and balance all the interests that are at stake. However, even if proper compensation is provided for active members who are disadvantaged by the implementation of the new pension system, it still cannot be guaranteed that no-one will lose out under the new pension system. Most likely, the compensation will be based on a scenario of economic neutrality: if the economy then suffers a downturn, the compensation will not be enough to prevent the disadvantage.
Incidentally, there is only a positive compensation. Those who do not need compensation, nothing is taken away.
What is entitlement conversion?
The following applies to the pensions of active members, pension recipients and non-contributory policyholders already accrued at the time of transition to the new system. The basic principle is that the new rules will also apply to the accrued pension rights, if the social partners ask for that. In pension jargon, this is called ‘entitlement conversion’. However, this basic rule will not necessarily apply if it disproportionately disadvantages certain groups of members. It is uncertain at this time whether Philips Pensioenfonds will convert the existing pension entitlements: this will be decided further down the road. No decision can be made at this time, as it is unclear how the employers and the unions will structure the new pension plan, and the rules for entitlement conversion have not yet been detailed. If Philips Pensioenfonds converts existing entitlements, all accrued pension rights will be converted into an individual capital for each member - including the pensions that members are already drawing. Those members will then withdraw an amount in pension from that capital every year.
According to the current draft texts with regard to the new pension system, a decision by the pension fund board to enter is binding for all members of the fund. There is no individual right of appeal. The Accountability Body must, however, provide advice on entry.
What will be the process for converting pensions to personal pension savings?
As matters stand, no decisions have been made for how the pensions will be transferred to our members’ personal pension capitals. Several possibilities are available. You will receive personalised information when your pension is converted. According to the rules of the Future of Pensions Act, you will be able to see how your existing pension has been converted into a personal pension capital.
In what situation will conversion be to my advantage or disadvantage?
It is impossible to say precisely how adopting the new system will impact the various groups of members until it becomes clear exactly what shape the pension plan will take at Philips Pensioenfonds and what the rules for conversion will be. This will hinge on the pension fund’s financial position at the time of the transition, but also on other factors, including for example:
- Which of the two types of pension plan is chosen
- Depending on the type of pension plan: how large the solidarity reserve or risk-sharing reserve is, and how it is financed (i.e. whether any of the current buffer will be used)
- If active members in the middle age bracket are to receive compensation: how much that compensation will be and how it is financed.
Only once all the details are known of how the pension plan will work and how it will be financed will we be able to calculate how the pension plan is likely to affect individual members and groups of members, and to assess whether everything is properly balanced, with or without conversion.
Will members lose any of their capital during the entitlement conversion?
No: the law will provide rules for calculating the conversion. One of the conditions is that all members must be assigned at least the same value as their accrued entitlement, assuming that the pension fund’s funding ratio is sufficient (100%). Precisely how to divide the buffer to ensure the proper balance will need to be examined separately.
Do I have the option of not converting?
The basic principle is that the rules of the new system will also apply to pensions that have already been accrued, if the employers and unions request this. In pension jargon, this is called ‘entitlement conversion’.
However, this basic principle will not necessarily apply if it would create a disproportionate disadvantage for certain groups of members. It is uncertain at this time whether Philips Pensioenfonds will convert the existing pension entitlements: this will be decided further down the road. That decision will essentially apply to all pensions that have been accrued under the existing system. Members will not have a choice between switching to the new pension rules and staying with the existing system.
It appears that, after conversion to a flexible pension, retired members will be given the opportunity (but only once) to change their pension for a fixed pension with an external insurer, if Philips Pensioenfonds only offers the possibility of variable (i.e. not fixed) pension benefits. Under a solidarity-based pension plan, they will not have this choice: by definition the variable benefits will be the only option.
Is entitlement conversion legally allowed?
The new pension system must of course be compliant with the relevant laws and regulations. That includes European regulations - and in this case specifically the European Convention on Human Rights and Fundamental Freedoms (ECHR), which states that every person is entitled to the peaceful enjoyment of his or her possessions. At a minimum, this covers the pensions that employees and retired members have previously accrued. EU Member States have the authority to deprive persons of their possessions or to control property if this is required for reasons of public interest. The ECHR lists a series of criteria for determining whether the deprivation of possessions or control of property is legitimate. Ultimately, the European Court of Human Rights will have to decide whether those criteria are satisfied. In the memo that Social Affairs and Employment Minister Wouter Koolmees presented to the Dutch House of Representatives on 22 June 2020, describing the main principles for the practical details of the National Pension Agreement, it is assumed that the likelihood that the European Court will rule, if asked, that these criteria are not met, is small: ’Potential risks of an unjustified infringement of the right to own property will be (...) very minor.’
Will older/retired members by definition be disadvantaged by entitlement conversion?
No, they will not by definition suffer any disadvantage. It is impossible to say precisely how adopting the new system will impact the various groups of members until it becomes clear exactly what shape the pension plan will take at Philips Pensioenfonds and what the rules regarding entry will look like.
This will hinge on the pension fund's financial position at the time of the transition, but also on other factors, including for example:
- Which of the two regulation types is chosen;
- Depending on the choice of plan: how large the solidarity buffer or risk-sharing reserve is and how it is filled (is part of the current buffer used for this?);
- If compensation for middle-aged active members is the case: How much compensation will be needed, and how will it be financed?
- What figure will be used for the projected returns? The projected returns represent the returns that are used at a member's retirement date to estimate the future pension benefits. The lower the projected returns are, the lower the monthly pension will be, and vice versa. You can find more information about the projection yield in the question "Will actuarial interest rates lose their relevance under the new pension system?"
Only once all the details of how the pension plan will work and how it will be financed will we be able to calculate how the pension plan is likely to affect individual members and groups of members, and to assess whether everything (with or without entitlement conversion) is properly balanced.
Are premium refunds made to the employer in the past also taken into account when entering the ship?
No. The available power at the time of entry is available. The companies are not obliged to make additional deposits.
What will be the arrangements for a survivor’s pension before retirement?
Everyone’s survivor’s pension will be calculated in the same way under the new rules, regardless of pension administrator. If you are not retired, the survivor’s pension will be a fixed percentage of your salary. Instead of accruing a survivor’s pension, it will now be a ‘risk insurance’, and as a rule you will no longer be covered by this survivor’s pension insurance when your employment ends. However, you will be given the option of continuing it afterwards, as long as you pay for it yourself (the first 3 months will be free).
What will be the arrangements for a survivor’s pension after retirement?
When you retire, you will decide whether you want to use your personal pension capital to purchase a survivor’s pension as well. If you decide not to, your partner will also need to sign the decision.
What will be the arrangements for a survivor’s pension if my employment ends before I retire?
After your employment ends, your survivor’s pension insurance with your former employer will continue for 3 more months. If you do not enter into a new employment contract, and you are entitled to unemployment benefits, the insurance will continue beyond that. If your unemployment benefits end, or if you do not enter into employment elsewhere for some other reason (for example because you are self-employed), you will be given the option of continuing the survivor’s pension insurance voluntarily. The premiums will be paid from your personal pension capital. You will not have to pay any premiums during the first 3 months, or for as long as you receive unemployment benefits.
Will the survivor’s pension be for different amounts while I am employed and after my employment ends?
If your employment ends but you continue the survivor’s pension, it will be based on your salary immediately before your employment ended. As a rule, the insurance will stop after 3 months unless you are still unemployed after that, in which case you may voluntarily choose to continue the survivor’s pension insurance by paying the premiums yourself.
What will be the arrangements for a survivor’s pension if I bring my retirement forward?
As soon as you retire the risk insurance covering the survivor’s pension will stop. You may then decide whether you wish to use your personal pension capital to purchase a survivor’s pension as well. If you decide not to, your partner will also need to sign the decision.
Do I also have the option of not having a survivor’s pension?
As long as you have an employment contract, your survivor’s pension will automatically be insured. You cannot opt out of this arrangement. This changes when you retire: you may then decide whether you want to use your personal pension capital to also purchase a survivor’s pension. If you decide not to purchase a survivor’s pension, you will need your partner’s consent. Instead, your retirement pension will be higher.
How will the arrangements regarding disability pensions change under the new rules?
The precise details are unclear: the specifics (for disability pensions, but also for contributions and survivor’s pensions) will need to be decided by the employers and unions. In general terms, however, we can say that, just as it is now, a disability pension will be available under the new pension rules.