Lower accruals age adds 100,000s to pension fund member tally

Hundreds of thousands of new members will join Dutch pension funds after the age at which workers start accruing a pension will be lowered from 21 to 18 as of 1 January 2024, according to analysis by IPE and its Dutch sister publication Pensioen Pro.

Last December, the Dutch parliament adopted an amendment to the new Dutch pension law stipulating that workers will start accruing a pension at 18. The change mostly impacts a select number of pension funds active in sectors with a high share of young workers.

Stipp, the fund for temporary workers, expects the largest increase in membership, with 170,000 workers expected to join the fund next year, according to the fund’s president Erwin Bosman.

This would be a rise of more than 50% in the number of active members, though the majority of those (100,000) stem from the abolition of the mandatory eight-week waiting time for workers in the sector. Stipp is the only pension fund that has a waiting time for pension accruals.

In terms of new membership, the lowering of the pension vesting rights age has most impact on Pensioenfonds Horeca & Catering, the fund for the hospitality industry. It expects 140,000 new members, an increase of 46% in its active membership.

Retail industry fund Pensioenfonds Detailhandel (with tens of thousands of new members joining), cleaners fund Bpf Schoonmaak (with 4,500 new members) and the fund for hairdressers Bpf Kappers (with another 4,100 members) complete the top five in terms of expected new members.

Especially for Kappers, the impact is large as the fund does not have a salary threshold for pension accruals. “As a result, members accrue a pension for every euro of their salary,” according to the fund’s president Gerard van de Kuilen.

Pensioenfonds Levensmiddelen, the fund for supermarket workers, is in a reverse situation: it has a salary threshold of €16,464 a year. “A part of 18-21 year-olds will not be eligible for pension accruals because their salary does not exceed the threshold,” said the fund’s president José Suarez Menendez.

The same goes for members of Pensioenfonds Detailhandel, which has a salary threshold of €16,265 per annum.

Smaller sector funds such as the fund for the tyre production industry Banden en Wielen (324 new members), the fund for wholesalers Nederlandse Groothandel (60 new members) and the scheme for the meat processing industry VLEP (very few new members) expect a lower number of new members.

Large company pension schemes also see little impact. Pensioenfonds PostNL, with 20,000 active members, expects only 250-300 new members while the pension fund of the country’s largest supermarket chain Albert Heijn, Pensioenfonds AholdDelhaize, is waiting for the legislation to become final “before we look into its effects”, the fund’s president Renate Pijst said.

The new Dutch pension law, which cements a change from defined benefit (DB) to defined contribution (DC), is currently pending in the country’s Senate.

Costs

In general, pension funds are happy with the decrease in pensionable age. “I’m happy with the increase in membership,” said Van de Kuilen. More members with the same number of employers means that costs can be shared across more people, resulting in lower costs per member,” he said.

Pensioenfonds Horeca & Catering also expects lower costs. Due to its “automated and digitalised processing” the fund expects costs to rise only marginally. “Costs will be shared by an increasing number of members, benefitting everyone,” a spokesperson for the fund said.

But an increase in membership also has its downsides, noted René van der Kieft, president of Pensioenfonds PostNL, as the amount made available by the employer for pensions will remain unchanged. “Because there will be more people to accrue pensions, accruals per member will come down somewhat,” he added.

But not all funds expect a cost reduction, such as Banden en Wielen. “This is currently hard to say,” according to president Wim van den Brink. It depends on the question whether new members will continue to pay into the fund for a sustained period.

“If they don’t, administrative costs can become a burden to the fund,” he said. Pensioenfonds Detailhandel does not expect lower costs per member either, but declined to explain why.

This article appeared originally in Pensioen Pro, IPE’s Dutch sister publication. It has been translated and adapted for IPE by Tjibbe Hoekstra.