Dutch pension funds are currently working hard on the transition to the new pension system. In essence, nearly all DB pension accruals will be converted to DC capital. The new Pension Act came into effect on 1 July 2023 for this purpose. The aim of the new system is to make pensions for participants more balanced, flexible, personal and transparent.

Choice of two types of DC schemes

Social partners decide on the design of the pension scheme. Going forward, they can choose between two types of DC schemes if the pension scheme is placed with a pension fund. However, both schemes contain collective elements; they are not pure DC schemes. The solidarity scheme: In this agreement, the premium is invested collectively in the accrual and decumulation phase. The returns and risks are allocated to age cohorts. Retirees will receive a variable annuity, which will fluctuate with economic developments. However, there will be a collective buffer to dampen the impact of financial shocks on annuities. The flexibility scheme: In this agreement, the premium is managed collectively, but invested individually according to a life cycle. The pension fund can offer more choice to the participant, such as investment options and the choice between a variable annuity or a fixed annuity.

Conversion of accruals

The Dutch choice to collectively convert the accrued pension rights to the new DC scheme is unique, to the best of our knowledge. The aim is to keep the old and new pension accruals together in one system. This ensures lower administration costs and enables pension funds to compensate certain groups where necessary. However, it must be examined whether the conversion is balanced for all participants. If this is not the case, the old rights can remain in the DB system. We anticipate that most accruals will be converted.

The transition to the new pension system

The social partners are the first to act. They must choose one of the two new DC schemes by 1 January 2025 and draw up a transition plan where they must substantiate how to execute the conversion of accruals in a manner that is equitable and fair. The pension fund must draw up an implementation plan by 1 July 2025 at the latest, which must be submitted to the Central Bank for assessment. In this plan, the pension fund accounts for, among other things, the financial substantiation, feasibility, risks and control measures. Pension funds then have until 1 January 2028 to implement the transition.

Progress

All Dutch pension funds are fully engaged in the transition and pension administrators are working hard to adjust all administration systems. There is a lot of work to be done within tight deadlines. Pension funds may decide when they will switch to the new system, provided that it is before 1 January 2028. Around 150 pension funds will have to switch to the new system. Several pension funds are leading the way and want to switch on 1 January 2025. This is expected to be around 10 pension funds. About 74 pension funds expect to switch in 2026 and it is expected that five funds will switch on 1 January 2028. To monitor the progress of the transition, the government has appointed a special commissioner, who issued an initial monitoring report. This shows that the pension fund sector is making rapid progress with the transition and that it must continue to make efforts in the coming years to achieve the milestones.

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