Brans Brief number 1, year 8, January 2005

In this issue of the Brans Brief:
 

	New rulings from the Equal Treatment Commission
	Regulation of pension communications
	Pension signals

New rulings from the Equal Treatment Commission

Since the implementation of the Dutch Equal Treatment Act (WGB) regarding age in employment as of 1 May 2004, the Dutch Equal Treatment Commission (Commissie Gelijke Behandeling, or CGB) has addressed many of the issues relevant to this legislation. In our ‘BransBrief’ of May 2004, number 5, we have already dealt with rulings 46, 51 and 52. We will now deal with some of its recent rulings below.

Defined contribution in a levelled scale
The CGB has ruled that if the defined contribution is a percentage set on the basis of a levelled scale, this constitutes a prohibited distinction on the basis of age (ruling 2004-142). A levelled scale means a scale in which the premium, expressed as a percentage of the pensionable base, increases in a straight line for each five-year age group rather than progressively in line with the maximum scale under fiscal legislation. The CGB has made this ruling now that it has concluded that there is an alternative to the levelled scale, which does not involve a prohibited distinction on the basis of age and has no disproportionate effects for employers or employees. In the Commission’s view therefore, the levelled scale is not necessary to achieve the desired objective.

Voluntary contribution
The CGB has also ruled that a voluntary defined contribution scheme in which employees can add to the defined contribution up to a maximised scale is in conflict with the WGB (2004-102). The Commission argues that this supplementary scheme is in fact intended to allow the effects of a scheme in which a maximised scale is used to continue to exist. The Commission therefore takes the view that the supplementary scheme does not qualify as having a non-discriminatory objective. The distinction made by the supplementary scheme can therefore, according to the CGB, not be objectively justified.

In a later ruling (2004-174), the CGB stated that a voluntary supplementary defined contribution scheme in which employees are offered the option of adding to the defined contribution in the basic scheme up to 100% of the maximum scale under tax legislation is not in conflict with the WGB. The CGB states that the purpose of the distinction is to allow employees sufficient possibility to accumulate an adequate pension by means of voluntary savings as they get older. In the opinion of the CGB, this can only be achieved by using an age-related premium. Moreover, it appears that there is no alternative means whereby no or less distinction can be made which would achieve the same objective. The method is considered to be necessary on this basis, and in the CGB’s view can therefore be objectively justified.

Employee’s contribution
Regarding obligatory defined contribution schemes in which the employee contribution is 40% of the scaled premium, the Commission could not find any objective justification and such schemes are in the opinion of the CGB therefore in conflict with the WGB (ruling 2004-174). A defined contribution scheme in which a defined contribution is set of 4% of the pensionable base is on the contrary, in line with ruling 2004-52, not in conflict with the WGB (ruling 2004-102).

Employer’s contribution
In the case of pension schemes in which the employer’s contribution to the pension premium rises as the employee’s service increases, the CGB has ruled that this constitutes an indirect distinction on the grounds of age (ruling 2004-141). The CGB has determined that such employer’s contribution schemes are particularly disadvantageous to younger employees. The purpose of an employer’s contribution scheme is to reward the continued commitment and involvement of employees. Since this can be achieved by other means involving no or less discrimination, the CGB has ruled that the distinction cannot be objectively justified.

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Regulation of pension communications

As announced in Het Financieele Dagblad on 17 January 2005, the Authority for the Financial Markets (Autoriteit Financiële Markten, or AFM) will, as well as the Dutch central bank (De Nederlandsche Bank, or DNB), regulate the way in which pension administrators communicate with their participants. This is a development, which the pension funds find ‘most unfortunate’, as Het Financieele Dagblad reports. Whether one is pleased to see this development or not, it means that a definite policy regarding communication on pensions by pension administrators and employers is now no longer an unnecessary luxury.

Pension funds and insurers are being forced from various quarters to pay more attention to explanation and communication regarding pensions. Pension administrators (and employers as well) have a lot to communicate in the near future. To mention a few issues: the provisions regarding explanation arising from the new Dutch Pensions Act, the required transparency regarding intentions for indexation as part of the new financial regulatory framework (Financieel toetsingskader, or FTK), and the ‘constructive obligations’ that can arise from negligent communications as part of the new financial reporting rules (IFRS).

Of course, the requirement to communicate regarding pensions is a necessary development: the Dutch working population has little or no understanding of the subject, as revealed by a recent survey which showed that the majority of Dutch workers could not form an opinion as to whether they should take additional measures on the basis of the information they had received.

The momentum to formulate a definite policy and a clear vision regarding communication looks as though it is now appropriate. There are indeed many changes coming in the Dutch pensions industry, including the developments concerning collective early retirement schemes (VUT and prepensioen), and ‘life cycle’ (levensloop). All these changes have to be communicated, under the regulation of the AFM.

Let us hope that the AFM will understand that such communication in practice should strike a balance between the desire to produce texts, which are correct on legal and actuarial grounds, and the desire to make such texts understandable and readable by the average participant.

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Pension signals

Equal treatment of men and women in defined contribution schemes
From 1 January 2005, defined contribution schemes must also meet the requirements for the equal treatment of men and women. This has applied to salary/years of service schemes since 1 January 2002. There are two ways in which defined contribution schemes can meet these requirements:

1. the conversion of the defined contribution capital (accumulated since 1 January 2005) on the conversion date should be carried out so that men and women receive equal benefit, or

2. a differentiated employer’s premium should be set which can produce equal benefit for men and women on conversion on the retirement date.

Policy Rule for outsourcing of pension funds
The Policy Rule for the outsourcing of pension funds came into effect on 1 February 2004. We already dealt with this in our ‘BransBrief’ of March 2004, number 3. The aim of the rule is to guarantee adequate management of the risks involved in the outsourcing of activities by a pension fund. For pension funds in existence on 1 February 2004, a transition period applied of one year, therefore until 1 February 2005, during which existing outsourcing agreements were to be adjusted. Any revision of the actuarial and corporation note will have to take place before 1 January 2006.

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Questions or Remarks?

If you have any questions or remarks concerning this issue of the BransBrief, please let us know.

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