Brans Brief number 4, year 8, april 2005

In this issue of the Brans Brief:
 

	New calculation and procedural rules for value transfers
	Bill on Employment and Income according to Capacity for Work (WIA)

New calculation and procedural rules for value transfers

On 30 March 2005, the new ‘Order on calculation and procedural rules for value transfers’ and the ‘Regulations on calculation rules for value transfers’ came into operation. At the same time, the previous Order and Regulations were superseded. Both (new) instruments form a more detailed realisation of the individual right to value transfer as defined in Section 32b of the Pensions and Savings Funds Act. The most striking changes will be reviewed here.

Non-regular schemes
The new Order pays more attention to the phenomenon of ‘non-regular schemes’. What this means is a pension scheme where the claims are expressed in investment units. In the past, there was a lack of clarity with such schemes as to how the buy-out price ought to be calculated and who bore the risk of a fluctuation in the investment value during the period when the procedure for value transfer was ongoing. The new Order now makes it clear that an assumption must be made for the buy-out value of the value of the investment units on the date when the investments are converted to cash. In this context, the statement that is issued in the first instance is also regarded as a ‘provisional statement’. The value of the investment units can, after all, fluctuate in the period between preparation of the statement and the actual payment date.

Risk accordingly remains with whoever is contemplating the value transfer until the point at which actual payment occurs. By contrast, there can only be ten days between the time when the interested party has indicated agreement to the value transfer - by signing and returning the statement - and the point of actual payment. This time limit used to be 3 months. This is how the (investment) risks are limited as far as possible for the interested party.

There is also a provision that, on the transfer from a non-regular to a regular scheme, an interest component must be calculated. This is left out of the reckoning when calculating the claims that can be purchased on the transfer date with the buy-out amount. The size of the interest component is established by means of the calculation rules included in the new Regulations on calculation rules for value transfers.

FVP contribution (Finance for continued pension insurance)
If a value transfer procedure has been set in motion before the FVP contribution is established or paid, then, under the new Order, the amount of the contribution is included in the application for value transfer. Also, the time limits normally applicable to value transfers do not apply to the FVP contribution. In such cases the time limits for value transfer coincide with those applicable to the FVP contribution.

Notional surviving dependents’ pension
The obligation to determine a notional transfer value has been abolished. This notional transfer value was formerly established in cases where the partner did not agree with the value transfer, a former partner held rights to a special survivers pension with the ‘old’ pension company or there was a so-called ‘defined partner system’. The abolition of this obligation is expected to herald a (considerable) administrative simplification for implementing companies. One consequence of this is that there might be a shift in the claims to be acquired.

Time limit for request for a value transfer statement
In addition to a change in the time limits mentioned above, the time limit within which the beneficiary has to indicate that he wants to take advantage of the statutory right to a value transfer has been extended from 2 months to 6 months.

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Bill on Employment and Income according to Capacity for Work (WIA)

On 14 March 2005, the Bill on “Employment and Income according to Capacity for Work” (WIA) was lodged with the Lower House of the Dutch Parliament. The Bill will probably replace the Employment Disability Insurance Act as from 1 January 2006 (see also the Brans Brief from December 2004).

The WIA distinguishes between “complete and permanent employment disability (80-100% permanent employment disablement)” and “partially able for employment (at least 35% employment disability but not complete and permanent)”. The Bill is split up into two sets of Regulations: 1. The Regulations on provision of income on complete employment disability (IVA); and 2. The Regulations on resumption of work for those partially able to work (WGA).

The IVA applies to those who are completely unfit for employment and who have no chance or a very limited chance of recovery. The IVA only covers an earnings -related benefit of 70% of the (maximum) daily pay. There is no further income regression. The Employment Disability Insurance Act (WAO) gap is abolished. The IVA benefit payment will be paid, in principle, until the 65th birthday. IVA employees with a slim chance of recovery are examined annually for the first five years to check for any prospects of recovery.

The WGA applies to those who are partially employment disabled and to those completely disabled but who might be likely to recover. The WGA consists of an earnings-related benefit payment followed by a follow-on benefit or a salary supplement. The earnings-related benefit is 70% of (maximum) daily pay if not working and, when working, 70% of the difference between the (maximum) daily pay and the pay earned at work. How long the benefits continue depends on employment history and varies from 6 months to 5 years.

Once the earnings-related benefit has run its course, there is a right to a follow-on benefit if less than 50% of the remaining earnings capacity is being used (insufficient employment). If, after the end of the earnings-related benefit, at least 50% of remaining earnings capacity is being used (sufficient employment) then there is a right to a salary supplement. The level of the WGA benefit is a percentage of statutory minimum wage or - if daily pay is lower than the statutory minimum wage - a percentage of daily pay. This percentage reduces in proportion to the individual’s reducing employment incapacity.

The level of the WGA salary supplement - with an income equivalent to the remaining earnings capacity - is 70% of the difference between the (maximum) daily pay and the pay earned from employment. For incomes where between 50% - 100% of remaining earnings capacity is being used, the level of the salary supplement is 70% of the difference between the (maximum) daily pay and the remaining earnings capacity. Under the WGA, the earnings-related benefit and the salary supplement can never be less than the follow-on benefit. An individual with partial earnings capacity has, in principle, a right to follow-on payment or salary supplement until his/her 65th birthday. There is a monthly review of which benefit the individual is entitled to. If the (family) income of the individual with partial employment capacity is lower than the social minimum applicable to him/her, he/she will receive a supplement up to that minimum under the Supplementary Benefits Act.

Employees who are less than 35% able for work do not fall within the scope of the WIA. If they remain in employment, they will only receive continued salary payments. They can make a claim, subject to certain conditions, for a WW (Unemployment Benefits Act) benefit payment and, on permanent unemployment, for income support.

The amended system of implementation and financing starts for the IVA in 2008. The IVA benefits will be dealt with publicly by the UWV (Employee Insurance Implementation Body) in the transitional period (2006 en 2007). As regards implementation of the WGA, employers have the choice, from 2006 , to bear the risk of partial employment disability themselves (self-insured basis) - insured privately or otherwise - or to arrange public insurance. The financing system contemplated for the WGA starts in 2007.

For more information on the WIA and its consequences for pensions/pension schemes, we would refer you to a report shortly to appear on our website. We will keep you aware of developments.

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