Part of employee wellbeing in the Netherlands has to do with the pension system. The knowledge that there is income when one’s active work life ends puts the minds of many at ease. And it should!
This system has three pillars; a State Pension, an employer related participation in a pension fund and voluntary pension insurance policies. The second pillar (the employer related capital accumulation) has been the subject of many years of debate. The initial products were extremely generously supported with both healthy returns inside the funds and a tax shield over the unused part of the “pension pot”. With market rates dropping significantly many schemes were impossible to maintain unchanged so over time that generosity reduced but it was still interesting for the employee to participate.
The pension subject is not very sexy for both employees and employers when discussing employment terms. The embedded tax relief requires fiscal restraints which make pension language hard to master for professionals but generally impossible to comprehend for employees, let alone deciding what to do with that pot.
More than 10 years of public debate tried to tackle an issue lying at the very roots of the system: it is based on solidarity between the younger and the older and a pension contribution based on a certain ratio between the active (i.e. working) participants and the pensioners. This ratio is changing over time and the expectancy in demography statistics is that the young cannot finance the pensioners at some point. Finally, a solution was found which will become effective from 2023. Although making the transition can be delayed until 2027, several elements become available for employees from this 31st December.
Did your team prepare to deal with communicating the change? Can you explain what the new system means for your employees in different age groups? Because there are differences, and sizable ones at that.
As an employer you should first of all consider whether you would like to limit your involvement in just “informing” participating staff. Some employers elect to give personalized information (“you are now anticipating a capital of € a when you retire which will mean an income expectancy of €b as long as you live and this will now become € x and € y respectively and here is the list of options you will have to personalize your pension). Several employers seize the opportunity to strengthen their bond with employees who are hard to come by and hard to retain these days. These employers ensure not only personalized information but also provide qualified advice support for those who want/need it in a longer or second meeting.
We advise employers to seize the opportunity to really help the employees make, or prepare for making, financial decisions of this magnitude. We argue that most may consider their mortgage their single most largest financial decision but we can prove that for almost anybody participating in a pension scheme, it is the pension. Helping making financially sound decisions is wat we advisers do all the time and it creates a bond worth far more than the investment in such a process.
Setting up the information (and advice) project will require seamless cooperation between your HR-team, the pension fund/administrator and the advisor team. Please do not wait too long setting it up. It will become busier than ever.