Taking time out, not off
With the words “better a time-out than a burn-out” the Minister of Social Affairs and Employment, Aart-Jan de Geus, closed out an address which he held on 14 September 2005 during a seminar about the levensloop scheme (life-course savings scheme). During this seminar, the minister announced that the cabinet had decided in favour of the definitive introduction of the levensloop scheme a few days earlier.
The levensloop scheme came about because the government wished to offer employees, during their career, the chance to alternate their work with periods of care, study or recreation. Periods of rest can prevent employees from becoming burned out, unfit for work or unemployed. They can also ensure that employees enjoy their work for a longer time. The minister refers to this as ‘concerned precaution’. He also foresees a gradual change from the Dutch social security system of institutionalised aftercare to concerned precaution. With the change from aftercare to precaution the primary concern shifts from benefit payments to the prevention of incapacity for work or unemployment.
The minister wants to achieve the situation whereby people do everything in order to keep working and to avoid absence due to the above-named causes. Employers will have to keep paying salary for a longer period during sickness, and employees will be expected to do everything in their power to return to or stay at work. It also provides social contacts, development possibilities and chances to progress.
According to the government, the levensloop scheme provides a greater choice to do justice to the present-day variation in living and working patterns. The financial responsibility which comes with this sharpens people in the making of choices and reduces the risks for the authorities. This is also a way by which the social security system can remain affordable in the long term. According to De Geus it is a modern system for the situation whereby people are genuinely unsuccessful in staying in or returning to work.
The minister also stated that he expected that a generation of fifty-plus-year-olds would use the levensloop scheme in order to be able to stop working earlier. He wants to ensure that this is not taken advantage of on a large scale, as that would be contrary to the policy to keep people at work for longer. De Geus is however not frightened of this, because he expects that in the future the interim leave forms in particular will gain popularity. Young people will, according to him, make use of the levensloop scheme in order to fit it in during their career.
It was noteworthy, said a minister, that on 1 January 2005 (a year prior to the implementation of the levensloop scheme) agreements were already made in 20 of the 64 collective labour agreements with regard to the levensloop scheme.
Since October 2005 the government has conducted a multimedia campaign to bring the levensloop scheme to the attention of the people. During the last months of that year the various providers (in particular banks and insurers) came up with major campaigns to promote their levensloop product. That those parties see possibilities here is clear from the interest rates which are offered on the savings balances in the levensloop scheme. These are substantially higher than the interest rates which, for instance, are offered for internet saving.
There are parties on the market who, in the coming years, see the levensloop scheme deteriorating into a personal employment insurance. Why, for example, could the employee’s premiums for social security not be paid into the levensloop scheme as a personal insurance against incapacity for work or unemployment? At a later age the remaining balance could, for instance, then be used to allow the employee to accept a quieter (less well-paid) job, or to stop work earlier, or to supplement an old-age pension. The social security system could then become a last resort.
With the levensloop scheme, employees can set aside a part of their gross salary in order to finance a period of unpaid leave in the future. The types of leave for which the scheme can be applied are unlimited. It could, amongst other things, be a sabbatical, parental leave, care leave or a leave period prior to the pension date, such that in fact the no longer fiscally supported early retirement can be replaced.
An amount is withheld from the gross salary by the employer. The social security premiums are still payable, but the amount can be paid without deduction of income tax into a levensloop account. This account may be held by a bank, an insurer, subsidiary of a pension fund, or the administrator of an investment institution. Other (accumulated) leave allowances such as lieu days, extra non-statutory holidays, overtime hours or days in lieu of shorter working hours may be converted into money and thereafter paid into the levensloop account. The tax authorities stimulate this method of saving by allowing a levensloop leave discount of €183 (this amount will be indexed annually) against the income tax for every year that the employee takes part. Implementation of the discount takes place at the time of withdrawal of the money from the levensloop account for the purpose of taking unpaid leave. The applicable discount is then deducted from the income tax payable thereover (but can not be more than the amount payable).
An employee may transfer a maximum of 12% of his gross salary per year into the levensloop account. It is in the employer’s interests to be alert with regard to changes in that salary, for example if employees start to work part time, as the 12% applies to the salary earned in that year. Only those employees who were between the ages of 51 and 55 inclusive on 31 December 2005 are exempt from this restriction. They may invest more than 12% of their annual salary.
No employee however may save more than 210% of his salary. This rule will lead to a great deal of creativity. The reference date for this 210% is 31 December. If the balance on the levensloop account at that time is 210% or higher, no further savings may be made in the following year. On the other hand, if the balance is 209% for instance, up to the full 12% may still be saved in the following year (even though the 210% will then be exceeded). The maximum of 210% only means that no more may be invested. However, growth of that percentage to a level higher than the 210%, due for example to the addition of interest on the savings balance, is permissible.
If the employee uses the balance or a part of it in order to take a period of unpaid leave, and the balance is reduced to below the 210%, then he may start to invest again.
What the employers are or will be confronted with in particular, is that employees may themselves determine whether or not they take part in the levensloop scheme. If the employer offers an employer’s contribution, then he must give this to all his employees, also to those employees who do not take part in the levensloop scheme. In fact all employees would then get an extra amount of disposable income. The employee himself may also choose his own executor for the levensloop scheme. The employer will - if only because of staff turnover - be confronted in the future with many different executors and their associated procedures and forms, which will increase the administrative burden tremendously. Also the fiscal controls, for which the employers are responsible, will not become easier with the passing of the years.
The taking of leave can also give rise to various issues. Employees have the legal right to parental leave and care leave. Consent of the employer is not necessary for this. In the case of a sabbatical for example, this consent is required. The employer however must adopt a reasonable attitude, and the question arises as to whether the employer may later refuse such leave now that the applicable law is directed at facilitating such unpaid leave!
Levensloop will therefore have a substantial impact on the activities of the human resources staff, and hopefully the minister’s adage (“better a time-out than a burn-out”) will be applicable there also.
Eric Oostveen is pensions and life consultant at Aon Consulting