Social partners agree on retirement age and pension schemes

In June 2010, the Dutch social partners agreed on new regulations governing the retirement age under the General Old-Age Pensions Act and pension schemes. In 2020, the retirement age and eligibility for company pension schemes will rise by one year to the age of 66 in line with increasing life expectancy. Pension schemes will become more flexible, so those wishing to stop working could opt for retirement at 65 years of age, but with benefit levels 6.5% lower.

Retirement age increases in line with life expectancy

In June 2010, the social partners in the Netherlands agreed on new regulations governing the retirement age under the General Old-Age Pensions Act (Algemene Ouderdomswet, AOW) and pension schemes. The Confederation of Netherlands Industry and Employers (VNO-NCW), the Dutch Federation of Small and Medium-Sized Enterprises (MKB-Nederland), the Dutch Confederation of Agriculture and Horticulture (LTO Nederland), the Dutch Trade Union Federation (FNV), the Christian Trade Union Federation (CNV) and the Federation of Managerial and Professional Staff Unions (MHP) reached an agreement on a more flexible arrangement. After previous attempts to come to an agreement failed in October 2009, the Dutch cabinet took responsibility for the issue, tabling its own plan to increase the retirement age to 66 years with effect from 2020 (NL0910019I). The government proposed enforcing a statutory increase in retirement age. The social partners are now also proposing that the commencement age for both the standard old-age pension and the supplementary company pension be raised from 65 to 66 years in 2020. With effect from 2015, an assessment will be made every five years, based on current life expectancy statistics, to ascertain whether another age adjustment may be required in 10 years’ time. According to the social partners, linking the increase to life expectancy provides a structural solution.

Affordable retirement benefits and flexible pension schemes

Increasing the retirement age is intended to ensure that retirement benefits remain affordable. At present, four employees are required to foot the bill for a single state retirement pension. It is estimated that by 2050, four people will be covering just two retired employees. In order to stabilise pension costs, pension contracts will require further adjustment to compensate for the effect of increasing life expectancy. Additionally, pension schemes will become more flexible so that those wishing to stop working could opt to retire at 65 years of age, with benefit levels 6.5% lower. Opting to work for longer will be rewarded accordingly by higher benefits.

Inflation-proof retirement benefits

The unions did not achieve their aim of sparing employees who carry out heavy work or receive low pay from an increased retirement age. Instead, whether employees are eligible for full retirement benefits will be determined on the basis of a minimum number of active years of service, say 45 years. In other words, starting work at a younger age will mean having the choice of stopping work earlier. Retirement benefits will also be linked to wage trends under collective labour agreements, thus guaranteeing they remain inflation-proof. This should offer some security to retired people who are dependent on their occupational pensions.

By increasing the retirement age, company pension schemes are complying with the firm condition set by employers that pension premiums cannot be increased further. Increasing life expectancy is making pensions more expensive, which until recently led to ever-increasing premiums. Under the new agreement, people work for a longer period of time while enjoying a pension for a shorter time. Employers previously feared that declining retirement benefits would be recovered from them by the unions through supplementary company pension schemes. In exchange for a more flexible retirement arrangement, the unions have agreed to refrain from doing this. This means that the state retirement pension can be utilised earlier, albeit at a lower benefit level.

Premiums will be frozen at their 2010 level, and pension schemes will be amended in 2011 in line with increasing life expectancy. With effect from 2012 and assuming a stable premium, pension contracts will be updated to keep pace with financial developments. The social partners hope to reach an agreement with the government at the start of 2011 about amending the legislation to this effect.

It will be possible to deviate from these agreements during collective bargaining at a sector-wide level, although this would be at the expense of the margin for wage increases.

Agreement awaits cabinet approval

The agreement now awaits approval at cabinet level, because FNV and VNO-NCW tabled the plan shortly after the collapse of the Balkenende 4 cabinet (so called because it was the fourth cabinet established by former Dutch prime minister Jan Peter Balkenende). Once formed, the new cabinet will have to take account of an agreement put forward by the most important employer and employee organisations.

Marianne Grünell, Hugo Sinzheimer Institute (HSI)