Controversy over early retirement and life-span leave

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In autumn 2003, as part of a deal that included a pay freeze for 2004-5, the Dutch government and social partners agreed to talks over the former's proposals for new arrangements for early retirement and a 'life-span regulation', enabling workers greater scope to save and manage periods of time off over their careers. Consensus over such a scheme was regarded as a prerequisite for maintaining the pay freeze. However, after lengthy and difficult negotiations, no agreement was reached at a tripartite meeting on 18 May 2004. A key sticking point is the extent to which early retirement leave arrangements should be collective or individual.

In early 2003, the Dutch government came up with proposals on the issue of a 'life-span regulation' (levensloopregeling). The aim was to increase the rate of labour market participation among older people by half, in the light of the ageing of the population, and provide more leeway for individual choice and personal responsibility over the management of periods of work and leave over the course of people's lives. The government's plans, expressed in its 2004 tax plan (Lower Chamber 2003-4, 29 210, nos. 1-2) and a legislative proposal on a 'life-span regulation' (Lower Chamber 2003-4, 29 208, nos. 1-2), involved:

  • terminating tax advantages for early retirement schemes (NL9912175F); and
  • establishing a tax-effective individual arrangement for employees to save up leave, with a maximum annual contribution of the equivalent of 12% of gross pay. The leave saved could be taken during the career and then topped up again, but maximum leave credit that could be built up by the end of this 'life-span regulation' would amount to 2.1 years (or the equivalent of 150% of the last year's pay). If taken directly preceding retirement, this leave would have to be taken in the form of half-time working hours.

These proposals would not have ruled out early retirement, as such schemes are based on collective agreements, but would end the current tax breaks for such arrangements.

Debate and compromise proposal

In November 2003, the government and the social partners reached a 'social agreement' for 2004 (NL0310103F), which included a freeze in collectively agreed pay in 2004-5. One element of the deal was that there would be further consultations over the proposed life-span regulation proposals between the government and the social partners represented on the bipartite Labour Foundation (Stichting van de Arbeid, STAR). The STAR stated that it considered reaching consensus on a new system of early retirement and life-span leave arrangements a prerequisite for recommending that the social partners maintain the pay freeze during 2004 and 2005. Agreement was to have been reached by April 2004.

Within the context of the negotiations, the government put forward a proposal for a compromise on 8 April 2004, containing the following main points:

  • maintaining tax-effective early retirement from the age of 63.5;
  • making it possible to use sums saved in life-span leave arrangements to retire earlier than this - ie, with the maximum 2.1 years saved, a worker's effective retirement age could be as low as 61.4; and
  • allowing for freedom of choice for individual employees over whether or not to participate in the various tax-effective early retirement and life-span leave arrangements. In the event of non-participation, the employee would be paid out the premium, including the employer’s contribution.

This last point in particular was a major stumbling block in the subsequent negotiations.

Social partners' views

The initial responses of the social partners to the original government plans indicated a broad range of potential options for early retirement and life-span leave arrangements. The most significant points of difference between the various proposals relate to:

  • the percentage of annual pay that can be saved in a tax-advantageous way within the scope of early retirement and/or life-span leave arrangements;
  • the emphasis to be placed on retiring early or on taking leave during the career, and especially the time at which saved periods of time off might be taken; and
  • the balance between collective arrangements and individual freedom of choice concerning participation in schemes.

There are also disagreements about how the arrangements are to be financed, about the bodies responsible for implementing the arrangements and about transitional measures.

On one side of the debate, the largest central employers’ organisation, the Confederation of Netherlands Industry and Employers (Verbond van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW), in broad terms supported the government’s proposals. On the other side, the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) is in favour a collective arrangement for combined early retirement and life-span, worth up to 350% of the employee's last year's pay (thus allowing five years' retirement/leave at 70% of the last-earned wage). The Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) and the Federation of Managerial and Professional Staff Unions (Vakcentrale voor Middengroepen en Hoger Personeel, MHP) are calling for a collective early retirement scheme worth up 210% of the employee's last year's pay (enabling three years of retirement at 70% of pay) and an individual life-span leave arrangement worth up to 150% of a year's pay (allowing a total of 2.1 years to be taken off at 70% of pay).

The Dutch Federation of Small and Medium-sized Enterprises (Midden- en Kleinbedrijf Nederland, MKB-Nederland) appears to be cautiously in favour of a 'no-frills' life-span leave arrangement, limited to a maximum credit level of three months, intended to cover incidental, short-term needs for days off. The arrangement should be of an individual nature. MKB argues that a substantial collective early retirement scheme should be kept intact, worth 280% of a year's pay, which could be used from the age of 60. The Dutch Confederation of Agriculture and Horticulture (Land- en Tuinbouworganisatie Nederland, LTO-Nederland) also supports maintaining a collective early retirement scheme worth 280%.

Negotiations

The next set of negotiations were tough and several proposals for compromise were tabled by a range of coalitions. Finally, five of the six social partner organisations represented on the STAR (FNV, CNV, MHP, MKB and LTO) reached an agreement. However, VNO-NCW did not support this proposed compromise. Nevertheless, the compromise was in a sense helpful to the government, in that it did not oppose the option of individuals opting out from an early retirement scheme, though it did provide that the money released by opting would have to be spent on pensions, long-term leave or employee savings schemes.

In a letter sent to the Lower House of parliament on 3 May 2004, the minister responsible stated that, given developments, he now felt entitled to take whatever direction he chose over early retirement and life-span leave arrangements and largely return to his original plans. Nonetheless, negotiations continued until the traditional tripartite 'spring consultation' (voorjaarsoverleg) on 18 May. At the last minute, on 17 May, the three employers’ organisations submitted their own proposal for a compromise - involving the saving the equivalent of up to 175% of a year's pay for early retirement, and 100% for life-span leave during the career - which included the option of employees opting out unconditionally. At the talks on 18 May, the government tabled a compromise that corresponded with this proposal in broad terms. The employers agreed to this 'final offer', though MKB and LTO said that that this was due to there being no better alternative. The unions have yet to agree to the proposal and have put it to a membership ballot, with an emphatic recommendation to reject it. The government is threatening to return to its original proposal if the unions fail to agree to the proposal for compromise. Herman Wijffels, the chair of the tripartite Social and Economic Council (Sociaal Economische Raad, SER), called at the end of May for a central agreement on the issue, given the negative effect of the absence of such as deal - eg union resistance against longer working lives and higher transaction costs of the new arrangements.

Individual versus collective

The various proposals for compromise showed that there was room to negotiate, for the government and social partners alike, about the age at which early retirement may be taken. However, the breaking point in the negotiations was the question of the extent to which the system of early retirement should have a collective or individual character.

The FNV, CNV, MHP, MKB and LTO representatives on the STAR had great difficulty with the possibility put forward by the government of employees opting out of early retirement schemes, because this would jeopardise the affordability of such schemes and as a result their continued existence. The chances of a significant number of young people (20% to 25%) not participating in an optional early retirement arrangement are though to be high. As a result, the average early retirement premium would rise sharply. Based on the findings of a study commissioned by FNV from Bureau Berenschot Pensioenadvies, a pension service consultancy, there would be a 30% price difference between collective early retirement and leave accrual arrangements on the one hand and the lower cost of individual insurance on the other. Such price rises, it is though, would make collective arrangements less attractive and therefore lead to their demise.

Commentary

The troubled negotiations regarding early retirement and life-span leave have put pressure on the traditional Dutch model of consensus. They may mark a turning point in Dutch industrial relations, whereby a new balance must be found between collective and individual freedom of choice within the social security system.

The government, and in its wake VNO-NCW, accuse the trade union movement of being conservative and of making a one-sided choice in favour of the interests of its older members by opting for a collective basis for the system of early retirement. The proposal put forward by the FNV, CNV, MHP, MKB and LTO representatives on the STAR to include a conditional opt-out clause in early retirement schemes can be seen as assisting the government by moving in the direction of freedom of choice for younger employees. The trade unions accuse the government of deliberately undermining the entire early retirement system since, at least in the form envisaged by the government, it will in future become unaffordable and, as a result, untenable.

The deadlocked negotiations on early retirement and life-span leave arrangements not only represent a missed opportunity for sound early retirement arrangements to be kept intact, but will also have far-reaching consequences. Polarisation of viewpoints will not shore up consensus. Not only will the conflict surrounding early retirement persist - perhaps supplemented by wage demands - at the negotiating table within companies and sectors, but the tone has been set for negotiations at a central level concerning other important aspects of the social security system such as the Occupational Disability Insurance Act (Wet op de Arbeidsongeschiktheid, WAO) and Unemployment Insurance Act (Werkloosheidswet, WW) . If the debate really turns out to be as difficult as it seems to be at present, the negotiating climate is at risk of becoming decidedly chilly for years to come. (Marian Schaapman, HSI)

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