2017 PENSION PLAN LEGISLATIVE CHANGES

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1 2017 PENSION PLAN LEGISLATIVE CHANGES All you need to know about 2017 legislative changes regarding your pension plan Mercer gives regular updates on must-know changes in laws and regulations relating to your pension plan. Here s an update on the most important legislative changes till April PREMIUM SCHEMES (IMPROVEMENTS) ACT (WET VERBETERDE PREMIEREGELING): THE CONSEQUENCES Employees who participate in a premium scheme (the official term for a defined contribution scheme) have been given the option of purchasing a variable pension on retirement instead of a fixed pension. Of course, combinations are also possible. In the future, a pension administrator will therefore have to offer additional investment options to members who wish to have a variable pension and will have to consider whether this option is consistent with the members risk profiles. This Act also has consequences for the pension administrator s communication policy. Uncertain factors Variable pension is a pension which may move in relation to three uncertain factors: 1. Investment results; 2. The development of life expectancy (macro longevity risk); and 3. Mortality results or, in other words, the deviation relative to the mortality assumed in the rate (micro longevity risk). It is not obligatory to include all three elements in a variable pension. Macro longevity risk, for instance, may also be insured. A variable pension may be determined at the individual level or at the group level. Due to its nature, the mortality result can only be shared within a group. There are no formal requirements with regard to the way in which these elements are processed, but compliance with general legal principles is required. Pension administrators may therefore take a different approach to these elements than their competitors, so that in future your employees may have more real options to choose from on their retirement date.

2 Pension administrators must offer the option of a variable or fixed pension Irrespective of whether your pension administrator offers a variable pension, in the accrual phase the pension administrator is required to enquire whether a (former) member wishes to have a fixed or variable pension in the future and must take this into account in its investment policy. Pension administrators have been given up until 1 January 2018 to implement this. INCREASE IN THE STANDARD RETIREMENT AGE AND THE COMMENCEMENT AGE OF THE STATE OLD-AGE PENSION (AOW) The General Old-Age Pensions Act (Algemene ouderdomswet or AOW) contains a formula for the adjustment of the commencement age of the state old-age pension from 2022 onwards. The adjustment is calculated on the basis of macro average life expectancy at the age of 65, as calculated by Statistics Netherlands (CBS). On 1 January 2022 the commencement age of the state old-age pension (the AOW benefit) will increase to 67 years and three months. How does this work? An increase of 0.25 years or more means an adjustment of three months. An increase of 0.25 years or less will not result in an adjustment. More or less the same method applies to the fiscal rules in relation to pensions, but adjustments only occur if the increase in life expectancy amounts to one year or more. In this case, an adjustment must be announced at least one year in advance, which also took place at the end of As a result, the standard retirement age for fiscal purposes will increase to 68 years on 1 January DRAFT PENSIONS (SMALL PENSIONS ASSET TRANSFER) BILL (WETSVOORSTEL WET WAARDEOVERDRACHT KLEIN PENSIOEN): THE MOST IMPORTANT AMENDMENTS The draft Bill, which is now available for consultation, contains two important topics: 1. Replacement of the pension administrator s right to surrender small pensions by a statutory right of the pension administrator to transfer small pensions; and 2. The option of converting the accrued pensions on a group basis to a new fiscal standard retirement age without the beneficiary s consent, subject to conditions. In accordance with the Bill, very small pensions (less than 2 per annum) will lapse on the termination of membership, unless the former member emigrates to a different Member State and has informed the pension administrator of this (this is obligatory in relation to provisions of EU law). The transitional arrangements also offer the possibility of doing so in the case of existing very small pensions of inactive members, subject to conditions.

3 Surrendering of small pensions will change after the Bill comes into force The present rules will remain more or less in force with regard to the surrender of a small pension. The same applies to the small pensions of persons who became former members more than two years prior to the moment at which the Bill becomes law. New rules will apply to those who become former members after the Bill enters into law or in the period of two years prior to this. In this case, the pension administrator has the right (not the obligation) to transfer the value of a small pension to the pension administrator of the new employer. The new pension administrator is obliged to cooperate in this. Individual actuarial equivalence based on the same bases applies to the transfer and no fees may be charged to the (former) member. The right to surrender small pensions ceases to apply to this group. The pension register will be adjusted in such a way that the pension administrator can ascertain whether an asset transfer is possible on the basis of the data in the register. Amendment to facilitate group asset transfers The draft bill also contains an amendment to Section 83 of the Pensions Act to allow for the possibility of group asset transfers. At present, an individual person with an entitlement to a pension is still able to object to this. It is proposed that this should not apply under conditions where the aim of the asset transfer is to convert pension entitlements in line with a new fiscal standard retirement age. In addition to the employer, the parties who have agreed to the pension plan may now also request an asset transfer. The following conditions apply in this regard (in addition to the requirement that this is only permitted in the case of conversion to a new fiscal standard retirement age): 1. The pension entitlements are recalculated on a group basis and on the basis of actuarial equivalence; 2. The pension plan makes it possible to amend the commencement date to the commencement date prior to the amendment. Even if the conditions applicable to swaps are amended at a later stage (of course, on the basis of the administrator s recent bases), the new statutory option may still be applied.

4 PHASING OUT OF SELF-MANAGED PENSION AN OTHER FISCAL PENSION MEASURES BILL HAS BEEN TABLED Phasing out of self-managed pension an other fiscal pension measures bill has been tabled The Bill was adopted on 7 March 2017 by the Upper House of the Dutch Parliament and will come into force retrospectively on 1 January The most important amendments are as follows. Conditions with regard to the commencement of the retirement pension simplified At present, the law contains a fairly complex system of conditions with regard to the final date on which a retirement pension may commence (deferment). This will be simplified considerably. The only condition which will be included is that the pension may not commence later than five years after commencement of the state old-age pension (AOW). In this regard, the fiscal standard retirement age will be set at the first day of the month in which the age of 67 is attained. As a consequence, it will be explicitly stated that the former practice, to which the Tax Department objected, will once again be permitted. 100% On the retirement pension no longer applies The 100% ceiling on the retirement pension will no longer apply. This will result in a considerable simplification with regard to practical implementation. The corresponding 70% ceiling and 14% ceiling for the partner s or, alternatively, orphans pensions will also cease to apply as a result. In the event of a pension swap in which a retirement pension is swapped for a partner s pension, the 70% ceiling will also cease to apply. Partner s, orphans and survivors bridging pensions may commence earlier At the end of 2015, the State Secretary of Finance announced that the partner s, orphans and survivors bridging pensions could not commence prior to death. Most pension administrators, however, adhere to the first day of the month in which the death occurs. This Bill will once again make this possible. It is also explicitly stated that the pension may not commence later than the first day of the month following the death (or following the first day of the month following the end of a benefit in accordance with the General Surviving Dependants Act (ANW)).

5 UPDATED DECISION ON DEFINED CONTRIBUTION SCHEMES, PREMIUM AND CAPITAL-SUM AGREEMENTS, AND NET PENSION SCHEMES The decree, commonly known as the Defined Contribution Decree (staffelbesluit), was amended by a decree of 20 January This decree is an update of the decree of 17 February 2014 and, insofar as this is relevant for pension funds, includes the following amendments. It is possible to base a defined contribution scale on the pension administrator s average-pay rate. The assessment of the average-pay rate has now been determined more clearly. In this regard, the pension administrator must assume the purchase price of a fiscal maximum nominal average-pay pension, as applicable on the commencement of the contract with the employer, for a period not exceeding five years. The purchase price must then be revised at the end of each contractual period, even if this is less than five years. The moments at which the so-called event test specified in Addenda IV (3% defined contribution scale) and V (defined contribution scale based on the purchase price of an average-pay pension) are carried out are described more generally. The test may be limited to the moment at which the assets accrued through the pension scheme are no longer subject in full or in part to the regime of Addenda IV or V of this decree, but at the latest on the commencement date of the pension. Insofar as the pension commences partially, the test may be limited to the respective part. In other words, the test only has to be carried out when the pension capital is used or transferred, which is a welcome improvement. Determining the maximum, however, may be more complicated for a pension administrator. In the future, if it emerges that too much premium has been paid when the event test specified in Addenda IV (3% defined contribution scale) and V (defined contribution scale based on the average-pay rate) is carried out, the excess may revert not only to the pension administrator, but also to the employer.