On 10 July 2012 the Dutch Upper House assented to the bill relating to an increase in the State Pension age and the target retirement age. The State Pension age will be increased gradually commencing 1 January 2013. The target retirement age for tax purposes will also be increased.
State Pension age
The first three years (2013 up to and including 2015) the State Pension age will be increased by one month. The following three years (2016 up to and including 2018) an increase of two months per year will take place. Hereafter the State Pension age will be increased each year by three months in the following five years (2019 up to and including 2023). In short: in 2019 the State Pension age will be 66 years and in 2023 it will be 67 years.
Target retirement age for tax purposes
The target retirement age for tax purposes in the second pillar will be increased in one go to 67 years with effect from 1 January 2014. In addition, the maximum accrual rates for average earnings pension schemes and final salary pension schemes (and the framework for defined contribution pension schemes) will be adjusted. This means that the maximum accrual rates for old-age, partner’s and orphan’s pensions will be lowered. The Tax and Customs Administration has confirmed that room continues to exist to assume in the pension scheme a target retirement age that is lower than 67 years, provided with due observance of the reduced maximum accrual rates. Incidentally, the pensions accrued up to 2014 will be based on the current tax framework.
The increase of the target retirement age for tax purposes compels parties to adjust their pension scheme in most cases. It should be established whether the target retirement age applied in the pension scheme is set at 67 years or lower and which accrual rates for pensions will become applicable. It is up to social partners to proceed with these adjustments of the pension scheme. Hereafter it is the pension administrators’ turn to implement the adjusted pension scheme accordingly.
Starting date for supplementary pension: flexible options
The higher State Pension age and the higher target retirement age for tax purposes do not affect the starting date of the supplementary pension (second pillar). The starting date of the supplementary pension is based on collective and other agreements between social partners and is set out in the pension agreement and/or the pension rules. Therefore, it is quite possible that next year individuals will receive a supplementary or other pension earlier than their State Pension. The expectation is that this will result in Section 63 of the Pensions Act being invoked more and more, that is to say a variation in the level of the pension benefit. This option (which is not mandatory by law) can, for instance, result in a higher pension benefit up to the date on which the party is entitled to receive the State Pension and a lower pension benefit from the same date.
Another option is that workers will decide to carry on working later (and defer the supplementary pension), specifically until the new date on which they are entitled to receive the State Pension. In some cases, however, that will require an adjustment of the employment contract by employers/social partners, specifically if the end of the employment contract is linked to the age of 65 years (instead of the state pension age).
Up to employers and employees
Employers/social partners must be alert and, if necessary, adjust the pension scheme in respect of the tax framework as well as the age/retirement age when the employment contract automatically ends. In any case, they will have to check whether the job-related discharge from service dictated by age stated in the employment contract or collective bargaining agreement is still permissible. To the extent the end of the employment contract is linked to another date instead of to the new state pension age, the ban on age discrimination makes it very doubtful whether such a clause will stand up to scrutiny from 1 January 2013.
Workers close to the state pension date would be wise to gain advice on the flexible options they have. The expectation is that the question as to whether deferment or variation (high/low structure) of the old-age pension is a desirable option will be raised more and more often.