Brans Brief number 6, year 8, June 2005

In this issue of the Brans Brief:
 

	Bill implementing the Pension Funds Directive
	Consequences of deferral Pensions Act for FTK
	Clarity on application of VPL Act
	Checklist objective ground for justification of age discrimination

Bill implementing the Pension Funds Directive

On 4 May 2005, Minister De Geus submitted the ‘Bill implementing the directive on pension institutions’ to the Lower House of the Dutch Parliament. The Bill puts into effect the Pension Funds Directive about which we informed you in the March 2005 issue of the Brans Brief. The Minister aims to implement the Bill in the Pensions and Savings Funds Act (Pensioen- en Spaarfondsenwet, PSW) by 23 September 2005. The adjustment of the PSW will be limited: only the provisions from the Directive with which the PSW does not comply will be added. The most striking aspects of the Bill are as follows:

• The introduction of a register of all (occupational) pension funds, listing the Member States in which the fund concerned administers pension schemes.
• The investment regulations from the Directive will be included in the PSW. This means that investments should be such as to guarantee the safety, quality, liquidity and return of the entire portfolio. In essence, this interpretation does not differ from the interpretation given in practice to the ‘solid investment’ criterion of Section 9b of the PSW.
• The provisions concerning the technical reserves and the equity capital will be taken over from the Directive. These provisions set out the current practice in the Netherlands and do not entail any changes with regard to content.
• The introduction of Section 17b of the PSW will extend the disclosure requirements for the pension administrators. A change in comparison with the present PSW provisions is that information (on the situation of the pension fund and the current financing level) should also be provided on request to former participants, pensioners and other persons entitled to a pension.
• Loans can only be contracted if they are temporary and are contracted for liquidity purposes. In respect of subordinated loans, further rules will be laid down by Order in Council. This Order in Council is not known yet.
• Free reserves may no longer be taken into account in calculating the maximum amount for investments in the fund’s own business. Funds will have until 23 September 2010 to comply with this provision. The possibilities of investing in the other businesses of the group will be extended, however.

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Consequences of deferral Pensions Act for FTK

By letter of 17 May 2005, Minister De Geus informed the Lower House that there was little chance of the Pensions Act being introduced on 1 January 2006.
The question is what this means for the introduction of the new financial reference framework (Financieel Toetsingskader, FTK), containing the new valuation methods for pension funds and insurance companies. After all, the FTK was to be part of the new Pensions Act.
The media have suggested that the deferral of the Pensions Act will also mean a deferral of the FTK for pension funds. At an earlier stage, it already became clear that the FTK would be deferred for insurers. However, the FTK is not inextricably linked to the Pensions Act. The original schedule of 2002 even stated that the FTK would take effect by means of a policy rule.
A deferral of the Pensions Act therefore does not necessarily mean a deferral of the FTK. The Dutch Central Bank (De Nederlandsche Bank, DNB) does not assume this either, as appears from the invitation to a meeting on 30 June 2005 which DNB sent to pension funds. This information meeting is about the main aspects of the new reporting framework for pension funds, which will take effect on 1 January 2006.
According to the invitation, the FTK will be implemented in the revised reporting system.
As yet it therefore looks as if the FTK will ‘simply’ become applicable to pension funds on 1 January 2006.

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Clarity on application of VPL Act

In a letter of 24 June 2005 to the Joint Industrial Labour Council (Stichting van de Arbeid), the Government provided clarity on the interpretation of a number of elements of the Act on Early Retirement, Pre-Pension and Life Course Planning (Wet VUT, Prepensioen en Levensloop, VPL Act). On the one hand, the VPL Act makes substantial concessions on a number of points. On the other, social partners’ wishes have not been granted. The main points are set out below:

• If past-service pension contributions are paid, pension claims accrued before 1 January 2006 on the basis of a standard pensionable age before the age of 65 need not be taken into account in determining the fiscal reserve. In other words, both pre-pension claims and claims under an integrated scheme may be disregarded here. Voluntary claims may be disregarded, too.
• In order to realise the most constant pension income possible before and after the age of 65, in applying the high/low contribution system the band width of 100:75 may be exceeded up to an amount of twice the state pension benefit for a married person whose partner is 65 or over. The tax authorities initially took the position that “only” the single benefit could be applied.
• An important issue is the handling of pension accrual in the event of occupational disability. As regards the non-contributory accrual in the event of occupational disability, the Government fully adheres to the position that also in this situation an adjustment should be made to the fiscal framework of the VPL Act.
• If pension accrual takes place during the second year of sickness, this accrual should be based on the wages actually received. Parties who gave substance to the Government’s wish to pay no more than 70% during the second year of sickness will have to reduce the pension accrual accordingly. Parties to the collective bargaining process consider this unfair. The Government does not intend to reconsider this strict position.
• Schemes for elderly employees who still work for at least 50% will never be classified as early retirement schemes. In that case, no final levy will apply.
• Social partners should be aware of the risks of age discrimination. Therefore it is not so that every decision that remains within the fiscal framework may automatically be considered objectively justified. Individual circumstances play a part in this. The Minister concludes by saying: “In this respect it is extremely important that in the decision-making process all the relevant aspects be taken into account in a transparent manner.”

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Checklist objective ground for justification of age discrimination

We fully endorse the observation of Minister De Geus as quoted in the last paragraph of the previous article. But how do you go about it? For this purpose, the Watson Wyatt pension lawyers have developed a checklist. We announced the publication of this checklist in our press release of 15 June 2005.

As soon as age criteria are used in the terms of employment, which includes incorporation of the transitional tax regulations for employees aged 55 and over in transitional provisions under the pension scheme, the Equal Treatment Act on the Basis of Age in Employment (Wet gelijke behandeling op grond van leeftijd bij de arbeid, WGBL) will be applicable. This Act provides that such transitional arrangements will only be permitted if they have an objective ground for justification. That the age discrimination results from tax legislation is insufficient justification in this context.

With the aid of our practical checklist, you can check whether the age discrimination in the intended transitional measure has an objective ground for justification. In addition, you can use the checklist in formulating the objective justification of the age discrimination. You can download the checklist from our website under ‘vaktechnisch’ [‘professional practice’].
The Watson Wyatt pension lawyers can check an objective justification formulated by social partners against the statutory criteria. In a more advisory role, the pension lawyers can assist social partners with the specific wording of the justification, based on the actual circumstances and needs of the business or the industry. An objective justification is always tailor-made; no standard solutions are available.

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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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