Netherlands: Reform delayed

The four-party coalition government has postponed reform in the face of fierce criticism from the pensions sector 

Key points

• Four political parties have agreed on a government programme, including a new pensions system
• However, employers and unions disagree with the government’s plans, so pensions reform will be delayed
• The government has decided to switch from average pensions accrual to a degressive one
• Parliament has rejected legislation proposed by MPs to raise the current discount rate for liabilities to at least 2%
• The bill enabling mandatory sector schemes to merge has been withdrawn, as it was deemed unworkable
• Pension funds can now automatically transfer small pensions to new providers rather than force members to buy off these rights

The coalition government has decided that current average pensions accrual (doorsneeopbouw) is to be replaced by a degressive one, which enables younger participants to proportionally accrue more pension rights than their older colleagues. 

However, the hurdles invoved in the transition, including compensation for affected workers, remain. Depending on the degree of compensation, costs are estimated at €25bn-€100bn. But no public discussion on how to finance such a project has taken place. The current average pensions contribution (doorsneepremie) is staying.

The new cabinet has withdrawn a bill, proposed by the previous government, that would have allowed mandatory, sector-wide pension funds to merge for the benefit of scale, even if their funding differed considerably. To protect the pension rights of participants in schemes with the highest coverage ratio, the new legislation (Wetsvoorstel fuserende bedrijfstakpensioenfondsen) was meant to allow the merger partners to keep their assets separated for up to five years. During this period the partners could have gradually reduced any gap between their coverage ratios.

The withdrawal of the merger bill came in the wake of fierce criticism from the pensions sector and parliament, with both arguing that the legislation would have made mergers needlessly complicated. Parliament pointed to the stringent conditions attached to a merger, including the rules that partners with assets above €25bn were excluded.

The centrist coalition partner D66 has tabled a bill aimed at increasing participants’ say in their pension fund’s responsible investment policy (Zeggenschap verantwoord beleggingsbeleid). The legislation proposed by parliamentarians would have provided a right of advice for responsible investment, as well as a right of approval for exclusion from investment. This means pension funds could only exclude companies with the approval of their accountability body (VO).

Parliament has adopted legislation (Wet overdracht klein pensioen) enabling workers to combine small pension rights at different pension funds and insurers to a single retirement destination. The new rules allow pension funds and insurers to automatically transfer annual pension rights of up to €474 to a new provider after a participant has changed jobs and moved to a new pension fund. Participants cannot appeal a transfer decision and cannot withdraw the money. 

Until now pension providers could force employees to buy off annual pension rights of less than €468 to avoid the relatively high administration costs of these small pensions. The legislation, which will come into force in January, was the result of agreement between pension funds, insurers, and the social partners of employers and unions. 

Through an additional bill (Verzamelwet Pensioenen 2017), the government has introduced the option of gradually raising benefits in drawdown arrangements to higher payments at a higher age, albeit from an lower initial level. The new legislation also provides for extending the period over which the effect on benefits from economic headwinds or tailwinds can be smoothed out, from five to 10 years. The new rules follow legislation adopted in 2016 allowing variable benefits in defined contribution arrangements. 


Parliament has rejected a bill – proposed by the party for the elderly (50PLUS) – to temporary set the discount rate for pension fund liabilities at no less than 2%. The current discount rate – linked to the market rate, with the application of an ultimate forward rate (UFR) – is about 2.4%, but is gradually decreasing. 

The aim of the proposal was to raise the discount rate for a maximum of five years, to cushion the negative effects of the European Central Bank’s (ECB) quantitative easing policy on pension fund liabilities, and to reduce the chances of rights cuts. The application of the UFR boosts pension funds’ coverage ratio by 2 percentage points on average.

Both social affairs’ minister Wouter Koolmees and pensions supervisor DNB have indicated they wanted to stick to a risk-free discount rate for nominal liabilities, arguing that a higher rate would benefit pensioners and older workers at the expense of younger colleagues. 

Parliament has approved an implementation order (Algemene Maatregel van Bestuur or AMvB) from previous finance minister Jeroen Dijsselbloem to earmark pension funds with assets of more than €10bn as organisations of public importance (Organisaties van Openbaar Belang or OOB). The measure is meant to reinforce the schemes’ audit regime and includes the introduction of an audit committee. 

It is not clear when the AMvB will come into force. As the large pension funds have objected to the envisaged composition of the audit committee, Wopke Hoekstra, the current finance minister, indicated he was considering a special regime for pension funds, comprising at least one independent member. The Pensions Federation said it wanted to avoid the OOB status affecting pension funds’ existing governance structure or the composition of existing audit committees.

In February, legislation came into force making a permanent supervisory board (Raad van Toezicht or RvT) compulsory for company pension funds with assets of more than €1bn, in order to improve internal supervision. 

The RvT replaces the visitation committees which screened pension funds once a year. An RvT is mandatory for sector schemes with boards based on equal representation or alternatively comprising external trustees.

New pensions system delayed

While the Dutch Social and Economic Council (SER) has been deliberating on a new and sustainable pensions contract for almost four years, the new coalition  government has come to an agreement on several pension issues.

However, the four partners – the liberals (VVD), Christian Democrats (CDA), centrist (D66) and religious right-wing party (CU) – have omitted plans for individual choice of tailor-made pensions. The agreement also lacks proposals for part-time workers and plans for mandatory pensions accrual for one million self-employed workers. 

At time of writing, SER was still assessing a combination of individual pensions accrual and defined benefit after retirement, including a degree of collective risk-sharing between participants. This is also the option favoured by the government.

However, a ‘concept agreement’ between employers and workers – concluded separately from the SER – suggested that the social partners had abandoned the concept of individual pensions accrual in favour of a pensions contract expressed in real terms. 

The SER’s slow progress has been attributed to union members, who are reluctant to agree to new arrangements. They fear losing the traditional principles of collectivism, solidarity and mandatory participation if individual accrual were to be adopted. 

Another deadline set for April by social affairs minister Wouter Koolmees passed without a result. The cabinet’s target – to introduce a new pensions system in 2020 – is now likely to be missed. 

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