The Dutch government has announced that the current uniform cross-generational pension accrual system must be replaced with ‘degressive’ accrual – where younger employees accrue proportionately more pension rights than older workers – by 2020.

In a long-awaited update on the government’s plans for a new, sustainable pensions system, Jetta Klijnsma, state secretary for social affairs, said participants would be compensated if they missed out on rights accrual during the transition.

The Cabinet previously indicated that it wanted an alternative that would be fair for all generations and maintain support for younger workers in a collective pensions system.

Under the current average premium – a fixed percentage of salary – younger workers pay proportionally more, as their contribution is to generate a bigger return over time.

In its latest update, presented to Parliament on Friday, the government said it expected the transition process to take up to 25 years and cost as much as €40bn in tax revenues.

Klijnsma said an additional survey would establish whether the transition term could be shortened to 10 years.

The government emphasised, however, that transition periods would vary for each individual pension fund.

It said it would further explore two pension contracts with collective buffers – the ‘target contract’ based on risk-free interest rates, and individual pensions accrual with the accrual of financial buffers made dependent on investment returns.

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