Inspiration Session – January 19, 2023: New Pension System – Take Action!

Within a few years, all companies will have to make the switch to a new pension plan. “There are a lot of decisions to make, and that requires action from companies. So start early,” warns Miriam Morshuis.

If the “Future of Pensions Act” passes the Senate in March, it will come into force on July 1 of this year. Companies affiliated with a pension fund must have a transition plan ready by the end of 2024. If your pension is with an insurer or a PPI (Premium Pension Institution), the plan must be finalized at least three months before implementation on January 1, 2027. “If you don’t take action yourself, your provider will come up with a plan for you,” Morshuis cautions.

Even ahead of the new legislation, companies—especially those with pensions managed by a PPI or insurer—must make choices. Should you keep the current age-based contribution scale for existing employees? This is easy to explain and temporarily keeps costs lower. The downside is that new, younger employees will already fall under the age-independent premium, which is often much higher than for the young employees already on board. In the current system, contributions start low and increase with age, whereas under the new system, everyone receives the same contribution—a so-called "flat rate."

The alternative is to switch all employees, including current ones, to the flat rate. This is disadvantageous for employees around the age of forty and up, so employers will need to offer compensation. You can determine the flat rate yourself, up to a maximum of 30%, meaning quite a few calculations are needed. Since younger employees receive more contributions under this system, this option will initially be more expensive.

The survivor’s pension also requires attention. In the new system, this becomes an insurance policy that can pay up to 50% of the employee’s income to their partner in the event of early death. The amount of the payout is no longer tied to how long the employee has been enrolled in the pension plan—whether that’s two years or twenty. Employers must also determine the coverage percentage here. “A serious issue,” says Morshuis. “This new approach can significantly increase costs.”

There are certainly advantages to the new pension system, according to Morshuis. In addition to offering simplicity and flexibility for participants, it will be much easier for prospective employees to compare pension schemes. “Thanks to the increased transparency, people will be able to clearly see how much employers are contributing to pensions—something that is currently quite opaque.” As a result, companies with attractive pension offerings can better present themselves as desirable employers—an important edge in times of severe labor shortages.