Dutch Senate approves historic pension reform

The Dutch Senate has given its approval to the largest-ever pension reform in the Netherlands, marking a significant shift from defined benefit (DB) pensions to a defined contribution (DC) system. The new law will take effect on July 1, 2023, and pension schemes will be required to complete the transition to DC by January 1, 2028, following a four-and-a-half-year transition period. 

The Dutch Senate has given its approval to the largest-ever pension reform in the Netherlands, marking a significant shift from defined benefit (DB) pensions to a defined contribution (DC) system. The new law will take effect on July 1, 2023, and pension schemes will be required to complete the transition to DC by January 1, 2028, following a four-and-a-half-year transition period. 

The Senate’s vote, which occurred after an extended period of deliberations, resulted in 46 in favor, 27 against, and two absentees. The outcome was expected, as the parties supporting the switch to DC held a comfortable majority in both the Senate and the country’s Second Chamber. The government was determined to push for the vote before the newly elected Senate, which was less supportive of the pension changes, took office following the March provincial elections. Nevertheless, the parties in favor of the pension reform maintained their majority in the new Senate. 

To address concerns from senators, Pensions Minister Carola Schouten had already promised to extend the deadline for pension funds to complete the transition by one year, until January 1, 2028. Despite opposition senators believing they had found a way to block the switch to DC by claiming a two-thirds majority was required, the law ultimately passed. 

The passing of the law concludes a 15-year-long debate about the future of the Netherlands’ pension system, which is ranked the second-best globally by Mercer and represents the largest pension sector in the EU in terms of assets under management (€1.4 trillion in 2022). The need for reform was initially recognized as funding ratios hit record lows in the aftermath of the 2008 financial crisis. With interest rates failing to recover to pre-crisis levels, most Dutch pensioners experienced a decade-long period without indexation. 

The reform faced opposition from political parties that feared increased fluctuations in pension benefits under the new DC system, despite one of the contract types including a solidarity buffer to absorb financial market shocks. However, the Dutch central bank, pension regulator DNB, supported the changes, considering them necessary to resolve the inherent intergenerational conflict in the current system, where pension fund liabilities depend on interest rates. This conflict resulted in funds having to cut pensions or transfer funds from younger to older generations due to interest rate fluctuations. 

Pension providers in the country, including APG, welcomed the passing of the new pension law, emphasizing its ability to make the system more future-proof and better suited to the evolving labor market, where job changes are frequent. The Dutch pension federation expressed satisfaction with the reform’s approval in both Chambers of Parliament, highlighting the necessity of renewal as the previous law was no longer fit for purpose, and the new law is better suited to the demands of the 21st century. 

Read more: https://www.ipe.com/news/senate-passes-dutch-dc-switch-after-15-year-debate/10066928.article