Pension agreement: harmonization or respectful effect?

Fixed percentage of accrual of retirement pension: what about again?

Several factors play a role in determining this percentage. Employers and Works Councils are guided by:

• The intended ambition level of the scheme: what pension income is being sought?
• The available budget;
• The profile of the “new hires”;
• What does the market expect to do? The so-called market conformity;
• What is expected to do by the peer group?

We continuously monitor developments with regard to this expected market compliance and, where possible, with a focus on the “peer group”. By the way, we do this not only with regard to the fixed available contribution rate intended for accruing retirement pensions, but also with regard to the newly determined fixed percentages intended to determine the amount of the partner's and orphan's pension to be insured. We build our data not only from our clients' files, but also by interviewing pension administrators about this. And of course, we'll keep you informed where relevant.

Note: Do not hesitate to agree on a time in time to evaluate the chosen fixed percentages. Are there reasons to make adjustments? Without a doubt, plenty: don't start with too high percentages at the start; adjusting down (terms of employment) is difficult.

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Fixed percentage of retirement pension accrual tailored to the “new hires” profile

The starting point is often that existing employees should continue to have the right to participate in the existing pension scheme. After all, this employment condition was agreed upon upon commencement of employment and the new pension legislation offers this option. This is also known as a respectful effect. Many works councils take this as a position in their consultation with the employer.

With this in mind, the new pension scheme to be designed is in principle intended for new employees who become employed on/after the date on which this pension scheme comes into force.

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Fixed percentage of retirement pension accrual determined and then?

Once the amount of the fixed percentage intended for accruing retirement pensions has been determined, the following questions will arise:

• What is recommended: respect for the functioning of the existing scheme or harmonisation with the newly designed pension scheme?
• And if harmonisation is desired, is this feasible and/or realistic?

Harmonization: principles and concerns

Below is a brief list of positive points that call for harmonization:

• An important goal of harmonization is that employees, existing and new hires, participate in one and the same pension scheme. From the point of view of employment conditions, there is no distinction.
• Managing a scheme is, of course, easier than multiple arrangements.

However, the road to harmonization is not an easy one. In many cases, the existing scheme is of a higher level of ambition than the new scheme to be designed. The approval of the Works Council and/or the employees involved is only expected if the pension damage (read: the lower employer contribution under the existing scheme compared to the newly designed scheme) is compensated.

A compensation measure can be arranged in various ways and is ultimately the result of mutual consultation and agreement between the employer and the Works Council. Important points of attention are:

• Does compensation take place in the pension sphere or within the salary sphere?
• How are affected employees informed about the content of the compensation measure and the impact on their own pension file and guided in the options (if any) available?
• On the basis of which key figures is the pension damage determined in the first year, but certainly also in the following years?
• What is the length of the compensation period? Is this period temporary and, if so, how temporary? Or to retire?
• How is the compensation scheme administered in your own systems and who owns it?

Broadly speaking, the employer's share of the pension costs for 'younger' employees will increase. This is not recouped by the lower employer's share of the pension costs of the 'older' employees. After all, these 'older' employees should be compensated for this lower employer share. In short, harmonisation leads to higher burdens, not only in the first year but also in the following years.

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Respective effect: principles and concerns

As indicated above, the starting point is often that existing employees remain entitled to participate in the existing pension scheme. This is an acquired employment condition upon employment and applies until retirement.

A complex consultation about a compensation measure to be drawn up will also be avoided and the higher harmonization costs predicted for this will be avoided. In addition, the fact that the law offers this option, respectful effect is obvious.

Although it is difficult to place that young employees under the existing pension scheme are likely to receive a lower employer contribution than the new employees under the newly designed scheme. This smacks of unwanted age discrimination and may be difficult to explain to the existing young employees involved. Measures are possible to combat this uneven playing field. This includes offering the young employees involved the opportunity to switch from the existing scheme to the new one based on their own choice. Or by compensating the young employees involved for the difference. Perhaps in abundance: both scenarios mentioned above lead to higher pension costs for the employer.

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Our advice

The law offers the possibility to postpone the “Project Impact Pension Agreement on your own pension building”. The end of the transition period is set for 1 January 2028, but don't wait that long. It is good to start working today. Get informed about the financial impact of the various Pension Agreement scenarios on your own pension file. Budget these burdens and don't be surprised!

In future editions of our newsletter, we will further inform you. If you have any questions in the meantime, we are of course available for consultation: pensioenvragen@krollerboom.nl.