Brans Brief number 11, year 8, November 2005

In this issue of the Brans Brief:
 

	Pension accruals to continue in the event of occupational disability
	Annual accounts: Civil Code and IAS 24 require that pensions be included in remuneration report
	No new inflow into the FVP benefits scheme after 1 January 2008
	Court of Appeal in ’s-Hertogenbosch, 8 November 2005: Deduction in the case of substantial age differences

Pension accruals to continue in the event of occupational disability

On 24 November 2005, the Lower House of Dutch Parliament adopted an amendment submitted by Members Depla (PVDA) and Koomen (CDA). That amendment allows for the possibility to lay down further rules for pensionable salaries in connection with reductions in employees’ wages as a result of illness or occupational disability on the employee’s part.

The amendment is a response to the Cabinet’s inflexible attitude to the height of pension accruals in the event of occupational disability. The Cabinet remains of the opinion that continuation of pension accruals should be based on the employee’s wages as they were immediately prior to the termination of the employment in connection with occupational disability. With the implementation of the agreement in the Social Agreement (Sociaal Akkoord) (2nd year of illness no more than 70% of the wages, or else the total wages during the two years of illness may not be more than 170%), this results in reduced pension accruals in the event of occupational disability. This will also adversely affect the height of survivors’ pensions.

Support of Depla and Koomen’s amendment by the Upper House of Dutch Parliament will open the door for ‘full’ continuation of pension accruals in the event of occupational disability. However, this change will have to be provided for in the pension schemes.
Another issue is how to handle the pension accruals of the group of disabled former employees as at 1 January 2006, since this group’s accruals are already continued in connection with occupational disability under the pension scheme prevailing before 1 January 2006. There is no tax-law regulation excluding this group. From 1 January 2006, therefore, continuations of the pre-pension or bridging pension accruals for disabled former employees born before 1 January 1950 will no longer receive preferential tax treatment. It is uncertain whether this group’s pension rights can be simply changed, as these individuals no longer have an employment relationship.

As such, various parties had requested specific attention for this issue. Minister De Geus does not believe that a statutory regulation to unilaterally adjust the existing insurance for the disabled former employees is necessary. His views are evident from a letter sent to the Lower House on 11 November 2005; his reasoning is that in some cases it already follows from the pension scheme that this group’s claims can also be adjusted. The Minister further believes that, if such is not the case, adjusting the future accruals will be in the interests of the disabled former employees, too. Although this will indeed be the case for many of the individuals concerned, there are also possible situations in which matters are not so simple. In those cases, the Cabinet will have burdened the pension manager in question with the possible legal consequences.

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Annual accounts: Civil Code and IAS 24 require that pensions be included in remuneration report

Pursuant to Section 383 of Book 2 of the Netherlands Civil Code, businesses must include a variety of information in their annual accounts concerning the remuneration of directors and former directors, as well as of members and former members of the supervisory board. The information must be presented for each individual separately, and must distinguish between periodically payable remunerations, remunerations payable in the future, payments upon termination of the employment agreement, and profit shares and bonus payments. The amounts presented must be the amounts charged to the business during the financial year in question. There are additional requirements for businesses reporting according to the International Financial Accounting Standards (IFRS). The current version of rule IAS 24 governing ‘related party disclosures’ was published in 2003, and as part of the IFRS applies to financial years from 1 January 2005 onward.

One of the matters governed by IAS 24 is the remuneration of ‘key management personnel’, viz. ‘those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity’. As a rule, this group does not only include members of the executive board and supervisory board. The personnel remunerations in question are subdivided in the manner stipulated in IAS 19, i.e. into short-term remuneration, remuneration after termination of the employment, other long-term remuneration, compensation for dismissal and remuneration in terms of equity instruments. Under IAS 24, information about the remuneration of key personnel is presented by type of remuneration and as a total rather than on an individual basis. In our view, it is reasonable to use IAS 19 and IFRS for the valuation of pensions and equity instruments, although IAS 24 lacks any explicit rules on this matter. It should also be noted that IAS 24 governs a wide range of other matters besides the remuneration report. We advise businesses to discuss all aspects of IAS 24 with their accountants.

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No new inflow into the FVP benefits scheme after 1 January 2008

Stichting Financiering Voortzetting Pensioenverzekering (the foundation for financing the continuation of pension insurance, ‘the FVP Foundation’), which since 1989 has been utilising its funds to continue the pension provisions for unemployed persons aged 40 and above, has released a press release announcing that it will cease these activities in due course. The reason for this decision is that the returns generated by the invested capital of the FVP Foundation are insufficient to counter the rising unemployment and increased pension charges.

In concrete terms, this announcement means that employees who become entitled to unemployment benefits on or after 1 January 2008 will no longer be eligible for benefits from the FVP scheme. The FVP Foundation stated that it was its intention, insofar as possible, not to change the rights to FVP benefits of employees who become entitled to unemployment benefits before 1 January 2008. The board of the FVP Foundation explicitly spoke of an intention to continue the FVP contributions, as FVP contributions are conditional in nature and as such the board is unable to issue any concrete guarantees for this group.

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Court of Appeal in ’s-Hertogenbosch, 8 November 2005: Deduction in the case of substantial age differences

On 24 March 2004, the Maastricht District Court ruled that the provision in the pension scheme of Algemeen Burgerlijk Pensioenfonds (ABP) – concerning deductions on partner pensions in the case of substantial age differences (10 years) between the participant and his or her partner – contravenes the prohibition on distinction based on sex (see Brans Brief no. 5, year 7, May 2004).

On 8 November of this year, the Court of Appeal in’s-Hertogenbosch confirmed that decision. The Court first considered that this deduction provision results in a distinction, in the sense that substantially more women than men are affected. There prove to be more cases of male participants with partners more than 10 years younger than of female participants. ABP was unable to demonstrate that its participant base shows materially otherwise. The Court then stated that as it had been established that the provision constituted an indirect distinction based on sex, it must be examined whether that distinction is justified. In the Court’s opinion, the deduction rule in the form in which ABP currently applies it ‘is has so many loopholes that not only does it not offer any guarantees that its objective, i.e. to minimise the number of deathbed marriages, can be achieved within reason, but may also result in a restriction of benefits in situations that do not involve deathbed marriages’. The Court furthermore deemed the provision in question not to be relevant for preventing unequal pressure on solidarity.

This decision again corresponds to the trend set by earlier decisions of the Dutch Equal Treatment Commission CGB. Sadly, this case did not address the fact that, even with the application of the deduction, the survivors’ pension of a participant with a young partner is worth more than the partner pension of other participants not suffering from the deduction.

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