Netherlands: Pensions advice to clear up confusion

Conflicting laws in the Netherlands have led to confusion over how much influence works councils can have on company pension arrangements. The Social and Economic Council (SER) suggested ways of clarifying this in June, after being asked for its advice by the Deputy Minister of Social Affairs and Employment Jetta Klijnsma.

Dutch pension system

As in many other Member States, Dutch pension arrangements consist of three pillars:

• the state pension (AOW), covering all inhabitants of the Netherlands;
• occupational pensions, covering only employees;
• individual arrangements.

In the Netherlands, more than 90% of employees are covered by an occupational pension scheme, which itself can take three forms:

• sectoral arrangements;
• company arrangements;
• insurance arrangements.

Social partners’ strong position

These three occupational schemes are all, directly or indirectly, governed by employers and employees. Sectoral funds, which are the most popular, are run equally by employers’ organisations and unions. The same is more or less true for company funds; the employer (an individual company) and representatives of the employees (in many cases appointed by the works council) govern the funds. Insurance arrangements are run by insurance companies, based on a contract between the insurance company and the employer.

Employees can influence these arrangements through works councils, which have the right to veto any decisions. The employer has to ask for the consent of the works council when intending to initiate, change or abolish a pension which is run by an insurance company. Since 7 August 2013, works councils also have the right of consent when the employer intends to either initiate or abolish a pension arrangement linked to company funds and, in some exceptional cases, a sector fund.

Lack of clarity

Although this system seems clear (at least on the shared responsibility of employers and employees), in practice there have been many unanswered questions, especially about company fund pension schemes. Successive government cabinets have made contradictory statements about the scope of works councils’ rights to influence company schemes, including whether they apply only to the arrangements between the employer and the employee (about, for example, contributions , pension levels or indexation clauses), or also cover arrangements between the employer and the pension fund implementing the agreement (covering issues such as investing the money and hedging risks).

This lack of clarity, plus a court ruling on pension arrangements at Shell, led the Deputy Minister of Social Affairs and Employment Jetta Klijnsma to ask the Social and Economic Council (SER) for advice. The SER comprises an equal number of representatives from employers, union federations and independent experts, (known as ‘crown members’). It is the main government advisory body on social and economic affairs.

SER issues advice

The SER, which established an ad hoc committee to consider the issues, gave its advice on 20 June 2014.

• It felt the most logical solution to clearing up the confusion was to stick to the basic idea that works councils have a right of consent on a list of so-called secondary terms of employment (duration of working hours and amount of wages are considered primary terms of employment). This meant that works council rights apply to the pension contract between the employer and the employees, independent from the body that executes this arrangement (a sector fund, a company fund or an insurance company).
• It acknowledged that the contract between the employer and the pension fund contained sections that influenced the pension contract between employer and employee. The SER therefore proposed that works councils are granted a right to information about any changes in this contract, making it possible for works councils to claim the right of consent on those elements that have a major impact on the pension contract itself.

If laws are passed using this advice there will be, at least, some clarification. However, the proposals will not affect the sector funds, because employee rights here rest with the unions, not the works councils. As for insurance arrangements, the proposals will clarify the rights of works councils, especially concerning the pension contract and those parts of the execution contract that have a major impact on the pension contract itself.

The changes will have the largest impact on the company funds. The number of these funds is decreasing rapidly, down from more than 650 in 2006 to 323 in 2012 (with over 650,000 participants). The rights of the works councils in these funds would be extended, after the first extension in 2013 (see above).

The SER acknowledges that its advice is somewhat restricted because of the major changes currently being made to the Dutch occupational pension system, and these changes may also influence the rights of works councils. One example is the new structure of the funds introduced on 1 July 2014, changing the relative position of employer, employees and pensioners, and the way funds are supervised. The SER also mentions that fact that some employers have delegated the right to change pension contracts unilaterally to the fund or insurance company implementing the contracts. In these cases, works council rights are (and remain) rather limited. However, the SER did not feel free to address these issues, given the strictly defined questions posed by the deputy minister.

Commentary

The pension landscape in the Netherlands is changing rapidly, but the strong position and involvement of the social partners in the occupational pension system remains stable. Although, at first glance, the system seemed clear, there was actually some considerable confusion on the scope of works council rights. The suggestions made in the SER’s advisory report can be considered a step in the right direction.