The Future Pensions Act (Wet toekomst pensioenen) entered into force on 1 July. The new Act offers both participants and employers opportunities to deal differently with their pension scheme. Pension specialist Roos van der Velden sheds light on the main changes and has one key piece of advice: ‘HR really needs further pensions training.’
As Van der Velden holds a master’s degree in Pensions and is a board member of Pensioenorde, the Dutch body for pension professionals, she’s well-versed in the topic. But as she argues, that can’t be said of many HR professionals. As far as she’s concerned, this immediately identifies the main priority: brush up your knowledge! ‘In practice, HR professionals have too little understanding of their pension scheme, which prevents them from playing the role they should. That role is to be employees’ first point of contact. You need to know who administers the pension scheme and exactly what it involves. You have to be able to list the pros and cons. It’s good to attend regular training for this purpose. And as an employee yourself, it’s good to know what an employee portal looks like, what choices you can make, and what impact they have. After all, you’ll also want to make those choices yourself.’
Van der Velden adds that you can also get that knowledge from pension providers and advisers. ‘Pension funds have employer advisers who can provide more information and an insurer and a premium pension institution (PPI) always have a pension adviser. In my opinion, the pension adviser should always provide basic training and regular updates. You don’t need to become a specialist, but you do have to be able to name the main elements and know how they work.’ The transition to the Future Pensions Act is an excellent opportunity to make a case to your board for expanding HR’s knowledge.
Change 1: a defined contribution scheme for everyone
With the above knowledge gap in mind, it’s good to go back to basics for a moment. So what are the main changes happening under the Future Pensions Act? As Van der Velden points out, the changes are twofold. ‘The basic premise of the new Act is that all Dutch employees will have a pension scheme in which they bear the investment risk themselves: a defined contribution scheme. The contribution in this scheme is fixed and your pension amount depends on the investment results. Although insurers and PPIs already offer such schemes, most pension funds don’t yet. As your pension accrual does not yet depend directly on investment results in those pension funds, this change mainly affects pension fund participants.’
Change 2: an age-independent contribution
The second key element in the Future Pensions Act is that everyone has the same percentage of their pension basis as their pension contribution, regardless of their age. ‘To date, we’ve always used an average contribution: everyone pays the same contribution for pension accrual, while one euro of pension is much cheaper for a younger than an older employee. In fact, part of the younger employees’ contribution was used to finance the pension accrual of the older employees. Now, a ‘flat’ contribution is becoming compulsory: everyone pays the same percentage and the contribution you pay is also put directly into your pension savings account or ‘pot’. Young people can make much higher returns from this because they still have a longer period in which to accrue a pension.’
When must you take action as HR?
The Future Pensions Act need not be a reason for every HR department to immediately start working overtime. First, it’s important to distinguish between companies affiliated with a pension fund and those affiliated with an insurer or PPI. ‘You have much less influence as HR with a pension fund anyway,’ says Van der Velden. ‘You’re dependent on what the social partners – namely the employer and employee representatives – agree. Your role as HR is to ensure you have enough information to act as the first point of contact in your organisation.’
Solidarity-based and flexible pension schemes
So can you sit back as HR if your pension scheme is placed with a pension fund? Not quite, because the Act provides for two types of pension fund contracts: the solidarity-based contract and the flexible contract. The solidarity-based contract effectively follows the same pattern as far as investments are concerned. It does not offer the employee any choice. ‘Your role in a solidarity-based scheme is purely informative,’ explains Van der Velden. ‘But if the fund offers a flexible scheme, the employee has choices. Pension providers will have to ensure that participants are given tools to make those choices. HR then needs to make sure they understand how things work properly. Look in depth at such a scheme as a participant yourself.’
Some pension funds also allow employers to choose between a solidarity-based and flexible scheme. In a flexible scheme, there is also the choice between a fixed benefit, as is also the case now, or a variable benefit. This is subject to the restriction that you cannot choose another party for payment of the pension if a pension fund offers both choices.
Employees will start comparing
An important reason for HR to put energy into the Future Pensions Act is that pensions will become a greater means of attracting and retaining employees. ‘If everyone starts to pay a flat contribution soon, it will be easy to compare between employers,’ Van der Velden points out. ‘A job with a slightly lower net salary but a much higher pension contribution can therefore be attractive. I think employees will really start looking at that, provided HR pays attention to it. Pension is as complicated as a black box for everyone now, but soon it will become very simple to compare.’