Social partners divided over government plan to raise retirement age

The social partners have given a divided response to the Dutch cabinet’s plans to raise the retirement age – first to 66 years in 2020 and then to 67 years in 2025. This also applies to the age at which company pension schemes will be paid out. The trade unions argue that poorly paid workers who carry out heavy tasks will be unjustly burdened by these measures. Employer representatives, on the other hand, are satisfied with the proposed cutbacks on company pension schemes.

Proposals for raising retirement age

In mid-October 2009, the Dutch cabinet announced that the government coalition parties had reached agreement on raising the retirement age. Although it came as a surprise that the cabinet should table such a controversial issue at a time of economic crisis, it is now definite that the government proposal will be put before the House of Representatives by the winter of 2009. The three government parties unanimously proposed raising the retirement age, with the Labour Party (Partij van de Arbeid, PvdA) also joining the fold.

Under the government’s proposal, the retirement age will be raised to 67 years in two steps: it will first be increased to 66 years of age in 2020, and then to 67 years in 2025. Consequently, workers born in or after 1955 will be required to work one year longer, while workers born in or after 1960 will be required to work two years longer. Workers currently aged 55 years will be exempt from these plans. Payments under the General Old-Age Pensions Act (Algemene Ouderdomswet, AOW) will depend on the individual’s overall employment history – this measure represents a new provision. The system will require decades of accurate registration, which is not sufficiently the case at present.

In 2020, exceptions will be made for 67 year-olds who have worked for more than 15 consecutive years prior to this date. In 2047, exceptions will only be made following 42 years of active service, in which case the person’s working life could be concluded at the age of 65 years. This will therefore concern workers who started working with a relatively limited education at a young age. However, this exception will be penalised heavily by lower benefits – reduced by 7% to 8% – which are likely to have a particularly strong impact on lower income earners.

Under the proposal, employers will also be obliged to offer workers alternative positions requiring lighter work following 30 years of hard labour. Employers that fail to adhere to this measure will be fined. In this manner, workers in this group could still retire at the age of 65 years.

In addition, in order to also raise the retirement age by two years under supplementary (individually accrued) company pension schemes, the cabinet will move forward the pension premium deductibility by two years. The pension funds can use the amount of money saved as a result of this to replenish their ailing support funds. The reserves maintained by pension funds have shrunk significantly as a result of the economic recession.

Trade unions offer alternative proposal

In March 2009, the cabinet requested advice from the Social and Economic Council (Sociaal-Economische Raad, SER) regarding a change in the retirement age. The deadline set for the SER recommendation was 1 October 2009. However, the trade union movement, including all federations, reluctantly presented an alternative plan at the end of the summer because SER failed to reach consensus on a recommendation.

The trade unions’ plan suggested raising the retirement age gradually in line with life expectancy. This would mean that all workers would have to continue working for an extra month each year, starting in 2015. The workers would be free to choose when they wish to retire – between the ages of 65 and 70 years – and pension payments would increase in line with longer length of service in employment. The trade unions hoped that the proposal would be supported by their members. They also specified supplementary requirements directed at making the AOW more sustainable and by stimulating labour market policy for older persons. However, the entire plan lost its relevance when it emerged that the social partners were in conflict over the issue of company pension schemes. Meanwhile a SER recommendation still failed to materialise, not even a divided one.

Employers’ position

In the end, the employer representatives chose to support the cabinet, claiming that its plans made the most sense. The proposals will expand the labour market and therefore stimulate wage moderation. On the other hand, agreement within the SER would have alleviated tensions in the labour market, which would have also been welcomed by the employers. The employers had hoped to agree, within the SER, that company pension schemes would follow an increase in retirement age. In so doing, they hoped to prevent a scenario whereby the trade unions would simply ‘repair’ any damage caused to pensions by the cabinet plans through collective agreements. Such dynamics have come into play in previous cases regarding social security cutbacks.

The trade unions have become increasingly opposed to such cutbacks and had hoped to soften the blow of the cabinet’s latest plans regarding the retirement age within the SER. If the cabinet’s plans are implemented without constraint, it is likely that the trade unions will try to thwart them at the pension fund level. After all, in addition to the employer representatives, employee representatives within the pension funds would also have to agree to any changes.

Strong trade union opposition to government plans

Easing of financial burden on employers

The Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) is outraged by the government’s proposal. From the FNV’s perspective, the SER was still in consultation when the government began to work on these plans openly. It also claims that employer representatives, such as the Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW), stayed away from the SER consultations. The trade unions are therefore assuming that the cabinet’s plans constitute an implied decrease in the financial burden on employers – especially since raising the retirement age to 67 years will be accompanied by a similar increase in company pension schemes to 67 years as well. This will result in a significant reduction in the financial burden for the business community, which pays two thirds of company pension schemes.

Problem of heavy tasks

In relation to workers’ interests, FNV is especially concerned about workers who carry out heavy tasks. In the government’s plans, these workers should be offered less strenuous work by their current employers when they reach an older age. If the employer fails to do so, the employee can stop work at 65 years and the employer becomes financially liable, at least partly. However, the employers argue that it will be impossible to comply with this demand. For example, transport companies mainly employ drivers who cannot automatically be transferred to more scarce administrative positions at a later stage. This requirement will be particularly problematic for smaller companies.

The fundamental issue in this context is the problem of defining a ‘heavy occupation’. A great deal of discussion and disagreement is expected in relation to this issue. The government parties therefore wish to create a framework and to develop criteria to differentiate between characteristically ‘heavy’ or ‘light’ occupations. The social partners would have to reach further agreement in this respect. Because such a distinction is difficult to draw objectively, consideration is being given to including occupational disability figures – for instance, with regard to occupations such as that of a road worker, where workers never manage to work up to the age of 65 years. FNV has serious doubts whether such a distinction can be drawn objectively. Within the scope of consultations on health and safety, the social partners have already demonstrated how drastically their views differ in relation to defining a heavy occupation.

Prejudices against older workers

In addition, the trade unions fear that an entirely different social problem could arise: employers could try to push older workers out of the company before the need to transfer them to a less demanding position arises. This would be a particularly worrying practice, given that jobseekers aged 55 years and older reportedly have about a 2% chance of finding another job in the Dutch labour market. Moreover, employers are still allegedly prejudiced against older workers, in that they are considered to be off sick more often and less productive than younger workers. Older workers are also more costly to employ.

Measures for older unemployed persons

Thus, it is argued that the cabinet should first do something to improve the job opportunities of older employees before raising the retirement age – particularly since the number of older unemployed people is undoubtedly going to increase, a reality which even the cabinet is mindful of. The government hopes to increase the number of older employees in the workforce by means of financial and tax incentives. Older unemployed people will also be catered for. Accordingly, should a worker become unemployed at the age of 65 years, the employer can seek recourse to a separate arrangement that pays out the same level of remuneration as the pension scheme. The worker will then be exempt from the ‘means test’ and will not have to use their savings or assets as the first source of income before becoming eligible for benefits, as is currently the case.

Commentary

The cabinet’s proposal to raise the retirement age is a socially charged issue, especially at a time of economic recession. Under such circumstances, consensus between the cabinet and the social partners is of prime importance. It is likely that the legislative process and its potential implementation in this respect will be fraught with conflict, making it questionable whether such discord would be worth it.

The proposal’s feasibility in terms of implementation, especially regarding the number of years worked, is highly questionable. While the cabinet hopes to achieve cutbacks and expand the labour market, the proposal has been viewed negatively in both respects. The cutbacks will only take effect in 10 years’ time, as the current generation aged 55 years and over will be exempt from its provisions.

It is argued that taxation of the AOW and company pension schemes would have delivered direct financial gains without discriminating against younger workers. The envisaged labour market expansion is also under heavy pressure through the proposal, since unfeasible demands are being made in relation to heavy occupations. Employers have already asserted that this demand is impracticable, while employees at the bottom end of the salary scale will be hit the hardest. As a result, labour market participation among people aged 60 years and older is more likely to decrease. The big difference in relation to the retirement issue is between people with lower incomes, low education levels and a weaker position in the labour market, on the one hand, and well-educated employees with good working conditions and lots of choice on the other. Some experts consider it a missed opportunity that the cabinet has failed to find a solution by making the AOW more flexible and basing it on taxation, thus provisionally finding a less controversial answer to the problems of an ageing population with fewer younger workers.

Marianne Grünell, Hugo Sinzheimer Institute (HSI)

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