Pensions in the Netherlands
The Dutch pension system consists of 3 pillars, in principle. The first pillar is the basic pension: the state pension (AOW). The second pillar is the supplementary pension, which is also referred to as the employees’ pension. Employees accrue this pension during the course of their working lives. In most cases, the contributions due for this pension are paid by both the employer and the employee. The third pillar is the voluntary pension, which is made up of the sources of income that individuals arrange themselves, for example, an annuity or life insurance. Besides these 3 pillars, there is an unofficial 4 pillar. The savings accumulated without fiscal benefits fall under this pillar. For example, a savings account, shares or bonds.
The Pension Agreement will pave the way for a reform of the Dutch pension system. Although widely regarded as one of the best in the world, the second pillar of this pension system (the employees’ pensions) in particular has increasingly become the subject of discussion. Debate in this respect is focused primarily on the financial and social sustainability of the current system.
The aim is for the reforms that the government has in mind to create a more future-proof pension system that is a better reflection of developments in society and on the labour market, make pensions more transparent and personal and give every generation of society a better perspective of a pension with purchasing power. Older and younger employees will pay the same contributions too.
The pension agreement
The most important agreements are as follows:
- A slower increase in the statutory retirement age
- Abolition of the average pension contribution system
- Introduction of a new pension contract
- Possibilities in respect of sustainable employability
- Withdrawal of 10% of the pension entitlement accrued on the retirement date
The statutory retirement age will be frozen at 66 years and 4 months in 2020 and 2021. It will then increase at a slower rate (from 2022 onwards).
This will result in the following statutory retirement ages:
2022: 66 years and 7 months
2023: 66 years and 10 months
2024: 67 years
2025: 67 years
Until the Pension Agreement was signed, government policy was based on a direct link between the statutory retirement age and increasing life expectancy. This has now been changed and we will have to work eight months longer if life expectancy increases by one year after 2025.
The idea behind the average pension contribution system is that all of the employees in a pension fund are treated the same. The pension contribution they pay is based on the same percentage: the average contribution. All employees accrue the same percentage of pension too: average accrual. No distinction is made between employees on the basis of age, gender or health, for example. In practice, pension accrual by young employees is (much) cheaper than the pension accrual of older employees, as young employees’ contributions can be invested longer. So, under the average pension contribution system, young employees contribute towards pension accrual by older employees too.
By applying the average pension contribution system, younger employees contribute towards the pension accrued by older employees too. This is not necessarily a negative, as younger employees eventually become older employees themselves, at which stage they benefit from the subsidy generated by the current generation of young employees.
The average pension contribution system has always worked well in the past. Traditionally, most employees worked for the same company or in the same industry for many years. However, this is no longer true for many employees. More and more employees are switching jobs or choosing to become self-employed. This means that they have subsidised older employees’ pensions in their 'younger years' but will not benefit from the same subsidy in their own ‘older years’. Added to this, the ageing population has been responsible for an increase in the number of older employees in comparison with the number of younger employees. The balance between the two has been lost. As a result, younger employees are being forced to contribute even more to pension accrual by older employees.
Developments on the labour market and the changing demography are responsible for the pressure being felt by the average pension contribution system. The government wants to abolish this system. In the future, each employee will pay a fixed contribution, which will be invested for the employee in question. Younger employees will no longer subsidise other participants.
The Netherlands will switch to a different approach to pension accrual. Each employee will start to pay a fixed contribution, which will be used solely to benefit his or her own pension accrual. This will have consequences for all employees who are currently accruing pension. Under the current average pension contribution system, younger employees contribute to the pensions accrued by older employees. By abolishing the average pension contribution system, they will no longer receive this subsidy from the future generation of younger employees. The result? A national transition issue. The government will draw up further guidelines in this respect when establishing the specifics of the Pension Agreement.
The idea behind the transition to a new form of pension accrual is to secure the sustainability of the pension system in time; however, there will be consequences for employees who are currently accruing pension or receiving a pension. The exact consequences will vary from one pension scheme and age category to another and are not clear yet.
The Pension Agreement states that the government and social partners see it as their joint responsibility to avoid participants being affected disproportionately.
The Pension Agreement contains a number of agreements on the subject of sustainable employability. One of these agreements relates to árduous occupations'. The government will introduce a number of fiscal policies/tax measures to temporarily abolish the tax penalty (the so-called ERS penalty, early retirement scheme, Regeling Vervroegde Uittreding), which may currently be imposed if an employer offers older employees the benefit of an early retirement scheme. Tax facilities for the leave savings scheme will be extended too. Employees will be able to use this leave to retire early.
A new type of pension contract in the form of a defined contribution plan will be introduced in the Netherlands. The contributions paid are key, not the amount of the ultimate pension benefit. Although the specifics of this new type of contract are still to be worked out in greater detail, the aim will be to include more elements of collectivity and solidarity than customary under existing defined contribution plans.
2020-2021: Bill to the Lower House. If approved by the Senate and the Lower House, the new Pension act will become effective. It is expected that this will be as of 1 January, 2022.
2022-2023: Employers and employees make arrangements on the basis of the new rules.
2024-2026: Period during which pension funds must start implementing the new rules and agreements made between employers and employees.
Pension accrual at Shell
Shell currently offers 3 different schemes. Individuals who entered the employment of Shell before 1 July, 2013 and whose base country is the Netherlands, are participants of the Shell Pension Fund Foundation (Stichting Shell Pensioen Fonds (SSPF)). The SSPF pension scheme is a career average plan. Each year, participants accrue pension on their pensionable salary in the year in question, up to the tax limit. This means that participants ultimately receive a pension benefit based on the average salary (up to the tax limit) they earned while employed by Shell.
Individuals who entered the employment of Shell after 1 July, 2013 and whose base country is the Netherlands, are participants of the Shell Netherlands Pension Fund Foundation (Shell Nederland Pensioenfonds Stichting (SNPS)). SNPS operates a defined contribution scheme. Participants and Shell pay a monthly contribution, the amount of which is based on a participant’s pensionable salary up to the tax limit; this contribution is used to ensure that participants accrue their own, personal pension capital. This is ultimately converted into a pension benefit (participants are free to choose a fixed or variable pension benefit).
Shell also offers employees the opportunity to participate in a voluntary net pension scheme for the part of their pensionable salary that exceeds the tax limit. The net pension scheme utilises the possibilities provided for in tax legislation. For example, the pension capital accrued under this scheme will not be subject to income tax in box 3 of the income tax return. Because participants of this scheme have already paid income tax when paying contributions, their ultimate pension benefit will be exempted from income tax with effect from the retirement date.
For more information about Shell’s current pension schemes at Where do I have a pension?.
With the Pension Agreement we will go to a system in which pension will only be accrued in a defined contributions scheme. The SSPF scheme is a defined benefit scheme. Based on what we currently know, it is very unlikely that pension accrual in a defined benefit scheme will be maintained in the future. This means that future accrual will be in another pension scheme, i.e. a defined contributions scheme. But we do not know what such a scheme will look like.
With the Pension Agreement we will go to a system in which pension will only be accrued in a defined contributions scheme. The SNPS scheme is a defined contributions scheme. Since you are already accruing pension in a defined contributions scheme, we do not think that the transfer to a new system will have such a major impact for you. Want to know more about the SNPS scheme? Listen to the podcast.
We take the Pension Agreement and its possible consequences seriously. Shell has set up an internal project team that closely monitors all developments. The elaboration of the Pension Agreement is now taking shape and direction. As a result, the consequences for the Shell pension funds are becoming more clear. Are you currently employed by Shell? Then regularly check the special information page made by HR or Shell employees.
To make sure that you understand the Pension Agreement and its potential consequences properly, it is important for you to be familiar with your current pension. See my-Shell pension to access your pension information.
The Pension Agreement is just an agreement in outline at the current time. It is now being developed further. Shell currently has no insight into the specific consequences that the Pension Agreement might have for its schemes, but has started discussions with the COR about what this means for Shell pension and about the available choices.
The statutory retirement age will be frozen as of 2020. Besides this, the present agreement is just an agreement in outline. Many matters still need to be worked out in greater detail. The government wants to have a new statutory framework in place as of 2022, after which the social partners will have to discuss the changes of the current pension schemes. This transitional period is expected to take 4 to 5 years, starting as of 1 January, 2022.
The target retirement age at Shell is 68 and is separate to the age at which you will start to receive your state pension. This means that you may not be entitled to a state pension yet when you start to receive the pension you have accrued with Shell or vice versa. This was the case before the 2019 Pension Agreement was reached too. The target retirement age is determined in line with the fiscal framework. This framework has not changed (yet), because of which there is no need to adjust the target retirement age at this stage.
We will keep you up-to-date on developments on this page. Especially for Shell employees, HR of Shell has made an information page. To make sure that you understand the Pension Agreement and its possible consequences, it is important that you are familiar with your current pension. You can access the latest information about your pension via my-Shell pension. Log in with your DigiD.
In principle, the new fiscal framework only applies to future pension accrual. So, pensions in payment would in principle not be included. However, in the context of the further elaboration of the Pension Agreement one is also looking at pensions that have already been accrued, including the pensions in payment. Accrued pension rights and pensions in payment are currently legally protected and cannot be altered freely. The Pensions Act offers guarantees for this. Although these pensions are currently protected by law, it is still unclear if this protection will continue to exist. One of the options currently being looked into is the transfer of the value of the pension rights already accrued to a new pension scheme (referred to as ‘pension integration’). In that case the value applicable at the moment of transfer will be preserved, but under a new, different type of pension scheme. Pension legislation will have to be amended for this. You can view your current data online via my-Shell pension. Log in with your DigiD. Leave your email address and cell phone number so we can keep you informed in the future.
In principle, the new fiscal framework only applies to future pension accrual. However, in the context of the further elaboration of the Pension Agreement one is also looking at pensions that have already been accrued. One of the options currently being looked into is the transfer of the value of the pension rights already accrued to a new pension scheme (referred to as ‘pension integration’). In that case the value applicable at the moment of transfer will be preserved, but under a new, different type of pension scheme. You can view your current data online via my-Shell pension. Log in with your DigiD. Leave your email address and cell phone number so we can keep you informed in the future.