Dutch employers, unions and the government unexpectedly reached an agreement in principle on elements of pension system reform last night, with concrete decision made on the state retirement age and retirement options for workers in physically demanding jobs.

The parties also agreed to create a dedicated steering group to flesh out a new pensions contract, as well as how the current average pensions accrual method was to be replaced by a degressive method.

In addition, Wouter Koolmees, the minister for social affairs, said in a letter to parliament that he would temporarily ease the rules for pension benefit cuts by reducing the minimum required funding ratio for pension schemes from 104.2% to 100%. He said that the adjustment of the rules would significantly reduce the prospect of cuts.

It means that, during the transition to a new pensions system, only pension funds with a coverage ratio of less than 100% for the past five years will have to apply unconditional benefit cuts to improve their funding level to 100%.

The two large metal and engineering sector schemes PMT and PME, which both have funding levels just hovering above 100%, were among the pension funds that were facing rights discounts next year before Koolmees’ decision.

Retirement age

The pension negotiators agreed to slow down the increase of the retirement age for the state pension (AOW) by three years, to reach 67 in 2024.

The current AOW retirement age of 66 years and four months is to be fixed for two years.

In addition, the government’s plan to raise the retirement age by one year for every year of additional longevity after 2024 is to be reduced to eight months for every year of extra life expectancy.

The decision carried an annual price tag of €5bn for the government, said Koolmees.

The government also promised that workers in physically demanding jobs would be allowed to retire up to three years earlier, and the current tax burden for employers that allowed workers to take early retirement would be eased temporarily.

In his letter, the minister said that the individual sectors must establish which occupations would be subject to the option of early retirement, and that schemes must be financed by employers.

Pensions accrual for self-employed workers would not be made mandatory, but made easier.

FNV, the Netherlands’ largest trade union, said it would put the negotiation results to its members, who can have their final say on 15 June.

In the past, negotiation results have been rejected by unions’ members. Pensioners and port workers in particular have already made it clear that they do not support the draft decision.

Pension contract

The negotiators have not agreed on reforms to the Netherlands’ second pillar, but have set up a steering group with representatives of the government and the social partners to develop two options for a new pensions contract.

In his letter to parliament, Koolmees said that one option would focus on individual pensions accrual combined with a collective benefits phase – the option favoured by the Dutch government.

The other would aim for a collective defined contribution accrual method without financial buffers or nominal guarantees, he said.

The new contracts, however, would only be completed once all variable factors were established, including assumptions for future returns for pension funds and the discount rate for liabilities.

A dedicated committee – chaired by former finance minister Jeroen Dijsselbloem – has already started looking at the possibility of an adjustment of the discount rate for liabilities, which currently stands at 2.3%. The committee is also expected to come up with new return parameters.

Degressive accrual

The new steering group will also seek to ensure that workers who are negatively affected by the move from average to degressive pensions accrual are compensated.

As the government has made clear that it will not contribute to the transition costs, the redistribution issue must be solved within individual pension funds, according to Tuur Elzinga, the FNV’s lead negotiator.

The costs of transition have been estimated to range from €25bn to €100bn, depending on the degree of compensation.

Part of the pensions agreement would also allow workers to take out a lump sum of up to 10% at retirement to help pay off a mortgage, according to the ministry for social affairs.

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