The possibility of exchanging your partner's pension for a higher retirement pension, and vice versa, will continue to be available after the transition to the new pension scheme.

The following changes are a result of the Future Pensions Act:

• the method used to the establish the level of the partner’s pension, and
• the method of providing coverage for the risk of death before the retirement date, and
• a standardised definition of ‘partner’ has been introduced.

Under the current scheme, a small part of the partner’s pension is accrued for each year of service. Should you pass away before you reach your retirement age, the accrued partner’s pension is paid to your surviving partner. This is supplemented by the partner’s pension that could have been accrued if you had continued to work until your pension age. While this future part of your partner’s pension has not yet been accrued, it is insured on a risk basis. This means that no value is accrued for that part of the partner’s pension. However, in the event of death, the additional entitlement is covered by the risk premiums paid for that purpose.

Under the new pension scheme, the level of the partner’s pension is no longer determined on the basis of the number of years during which you accrue pension. A percentage of the pensionable salary is insured for everyone, regardless of whether you have been employed for just a single day or 40 years. This percentage is 35%, but for the first few years a rate of 30% has been agreed; we’ll explain why below. The new Pensions Act stipulates that existing accrued partner’s pension entitlements will be retained for a partner’s pension even after the transition to the new system. In effect, a double payment is therefore disbursed under the new system. The partner of an employee who dies before his/her pension age receives both the existing accrued partner’s pension entitlements, as well as the newly insured coverage. Because everyone at the Pensioenfonds PDN currently accrues a partner’s pension, the total partner’s pension will be relatively high in the first few years following the transition. This is why the social partners agreed to start off coverage at 30% under the new pension scheme. Thereafter, the proportion of existing accrued entitlements will decrease and the level of cover will be increased to the target 35%. It is not yet known exactly when this will be.

The partner’s pension in the event of death before the retirement date is covered on a risk basis. Only if the member dies while a member – or during a period he/she is receiving an unemployment benefit – is the partner entitled to a partner’s pension and, subject to certain conditions, are the children entitled to an orphan’s pension.

If a member so desires, the partner’s pension will continue to be insured after the member’s retirement date. As a member of the fund, you accrue pension capital. On the retirement date, if the member has a partner at that time, that capital will be converted into a retirement pension and a partner’s pension amounting to 70% of the retirement pension. Members may choose to deviate from this 70%, or opt not to have a partner’s pension insured at all.

Finally, the definition of the term ‘partner’ will be changed. Under current legislation and regulations, the term ‘partner’ is defined as: a) a spouse; b) a registered partner; or c) a partner within the meaning of the Pension Agreement. This final category gives the social partners the freedom to decide whether – and, if so, under what conditions – they wish to make unmarried cohabiting partners eligible for a partner’s pension. The result is considerable variation in how the concept of ‘partner’ is defined under each pension scheme.

The Future Pensions Act has introduced the following standard definition of a partner:

• spouse;
• registered partner; or
• partner in the sense of the Pension Agreement being the person of legal age who runs a joint household with the employee or former employee, unless this concerns a first-degree blood relative, a second-degree blood relative in the direct line, an adult stepchild or an adult former foster child.

The criterion for eligibility for a partner’s pension as an unmarried cohabiting couple without a notarised cohabitation agreement is that they run a joint household.

The surviving dependents' pension consists of the following components:

• Partner's pension in the event of death prior to the retirement date.
• Partner's pension in the event of death after the retirement date; and
• Orphan’s pension.

Just like the partner’s pension, the orphan’s pension is no longer dependent on the number of years of service. For each surviving child, 20% of the deceased’s pensionable salary is insured. The total orphan’s pension amount is limited to three orphans, in other words to a maximum of 3 x 20% = 60%. If there are more than three orphans, the 60% is divided among them.

If you are already retired on the transition date, the partner’s pension will, in principle, remain unchanged. However, it is possible that pensions already in payment may be increased at the time of the transition if the funding level is sufficiently high. In that case, the co-insured partner’s pensions will also benefit from that increase.

The social partners wish to use the solidarity reserve for the following purposes:

• If there is a risk that pensions already in payment may be reduced in any given year, the solidarity reserve will make up the shortfall in that year. The aim is to achieve nominal stability.
• If and to the extent that the annual excess return falls below -15%, the negative return below this -15% will be topped up to -15% from the solidarity reserve.
• Protection against the longevity risk, to ensure that the pension account cannot run dry because someone lives longer than was originally anticipated.

Maintaining a solidarity reserve allows the pension scheme to be better optimised to ensure the stability of pension payments and to manage towards the expected pension outcome. Financial and economic risks can be shared across generations by building up the solidarity reserve in good times and drawing on it in bad times.

In principle, the solidarity reserve is created by all members, and in principle, all members can benefit from it. If you opt to transfer your pension rights to another pension provider, you will not be able to transfer any portion of the solidarity reserve. With the new administrator, you will be covered by the pension scheme in force there, which may also include a solidarity reserve (depending on how that pension scheme is structured). However, you are not obliged to transfer your pension. It is also possible to leave the pension capital in the fund. In that case the solidarity reserve will continue to apply in that fund.

Upon retirement, the pension capital is converted into a pension payment.

The pension fund will structure its investment policy in such a way that no major surprises can occur in the run-up to retirement.

The transition plan was posted on Pensioenfonds PDN’s website in the middle of October. The plan shows how the expected pensions under the new system compare to the expected pensions under the old system. This has been elaborated for different member age groups and categories.

On the transition date, your accrued entitlements will be converted into a capital amount. This conversion is cost-neutral.

In principle, it makes no difference whether the decision is made before or after the transition date.

You cannot decide for yourself how much risk you wish to take in investing your contributions and pension capital. The pension fund is responsible for the investment policy. However, the fund will carry out a so-called risk preference study from time to time. The results of that study will show what level of risk members consider acceptable. The investment policy will be structured accordingly at a collective level.

At present, all employers pay the same contribution to Pensioenfonds PDN. It is too early to say whether this could change in the future.

The social partners have agreed that the contribution will remain unchanged as part of the transition to the new pension scheme. In other words, it will continue to be 24.17% of the pensionable salary. However, after the transition date, the contribution will be expressed as a percentage of the pension base. The pension base is that part of the salary on which pension is accrued. Because part of your income after retirement comes from your state pension (AOW) you do not need to accrue pension on your full salary. Expressed as a percentage of the pension base, the contribution amounts to 30%.

If, at the moment of transition, the funding level is higher than 109%, the excess beyond this will be distributed to the personal pension capital. This allocation is on a one-to-one basis, so if there is a 10% surplus, everyone’s personal pension capital or their current pension in payment will be increased by 10%. This could be regarded as an additional allowance. The transition plan provides additional details in this regard.

If, at the moment of transition, the funding level is higher than 109%, the excess beyond this will be distributed to the personal pension capital. If the transition were not to take place, the buffer would have been used for future indexations and to mitigate risks in leaner times. The buffer would then be drawn upon very gradually over the years to come.

When distributing the buffer at the moment of transition, the law allows for the original intention – that the buffer would only become available gradually – to be taken into account. The term spreading period was introduced for this purpose. The statutory default for the spreading period is 10 years. If this were to be applied, a calculation would be made to determine what proportion of the buffer a person would receive if it were to be paid out gradually over 10 years. Life expectancy plays an important role in that calculation. The oldest group of members would then receive a smaller share than the youngest group. The amounts calculated this way will, however, be made available in a single payment at the time of the transition.

The social partners have opted for a one-year spreading period for a number of reasons (see the transition plan for further details).

In principle, the choice of a new pension scheme applies to the accrual of new pension entitlements. The transition means that existing pension entitlements and rights will also be transferred to the new pension scheme.

Under the new system, smaller buffers can be maintained. This makes it possible to increase pension entitlements and benefits at an earlier stage, as there is no need to build up the full buffer first. Furthermore, increases will no longer be capped at the maximum rate of price or wage inflation, as is currently the case. The downside is that this does make the pension scheme slightly riskier, but this can be mitigated by spreading the impact of shocks and making targeted use of the solidarity reserve. Calculations show that opting into the new pension scheme is expected to work out better for members, deferred members and pensioners than not opting in.

The minimum desired target funding level has been set at 109% At that level, we can make the transition to the new system as envisaged by the social partners (as set out in the transition plan). At higher funding levels, the transition becomes more profitable because funds then become available to increase individual pension capital.

If the funding level is between 107% and 109%, the transition is also possible, but then the solidarity reserve cannot be fully replenished. That further replenishment will then have to take place in the years following the transition.

If the funding level is below 107% at the time of the transition, the social partners will want to reassess the situation and make additional agreements. This also applies to a very high funding level, which the social partners have set at over 130%.

Abandoning the average pension contribution system could put certain member groups at a disadvantage. In their younger years, they paid contributions that helped build up the pension system for the older generation, on the assumption that this system would also apply when they themselves grew older. From the transition date, however, members will pay a contribution earmarked for their own personal pension capital, and the solidarity of the average pension contribution system will cease to exist. Abandoning this system therefore puts older members at a disadvantage. The Pensions Act provides scope to compensate the members concerned for this. The disadvantage relates to future pension accrual. For this reason, compensation is only available to members and those with non-contributory pension accrual due to incapacity for work. Deferred members are legally excluded from compensation as they are no longer accruing pension entitlements within the pension fund.

For all age groups, the amount of pension accrual that would still take place from the transition date onwards has been determined on the basis of the current accrual rate of 1.738% (retirement pension at the current pension age of 67). In addition, the pension accrual has also been determined on the basis of the new age-independent contribution. This calculation was carried out on the basis of the yield curve as at the end of 2023.  The difference in value between these two projections will be determined by age. If the current projection is higher than the new projection, this difference is expressed as a percentage of the pension base. During the transition, this amount will be added as a one-off payment to the personal pension capital of members who are eligible for compensation. This prevents members from being bound by transitional provisions for years on end. If there is a change of pension provider (possibly as a result of a change of job), this approach may prove advantageous if the new pension provider, by contrast, provides a long-term compensation scheme (up to a maximum of 10 years). On the other hand, this does mean that members who join the pension scheme shortly after the transition will no longer receive any compensation.

The Act provides various options for financing the compensation. This can be done using the fund’s assets, by making an additional contribution on a temporary basis, or outside the pension scheme. The social partners have agreed that, provided the funding level is sufficiently high at the time of transition, the compensation will be financed from the fund’s assets. At that point, a one-off contribution will be made to the personal pension capital. In total, this will be at the expense of approximately two percentage points of the funding level.

In principle, pensions are variable and are adjusted on the basis of the investment returns achieved. This does not necessarily have to correspond to annual price trends (investment returns and price trends will often diverge). The social partners are aiming for a situation that keeps pace with average price inflation over the long term. As this level cannot be guaranteed, the social partners have set a minimum threshold of at least 70% of price inflation in this regard. This means that if, in its calculations, Pensioenfonds PDN determines that the 70% threshold is not expected to be met in the long term, the social partners will need to reach a new agreement on how to achieve the indexation target.