Brans Brief number 12, year 8, December 2005

In this issue of the Brans Brief:
 

	Summary of changes to legislation and regulations
	Pensions and the Healthcare Insurance Act (ZvW)
	Christmas and New Year greetings

Summary of changes to legislation and regulations

Much of the legislation relating to pensions has recently been amended or is scheduled for amendment in the near future. In this edition of Brans Brief, we have set out the most important amendments of recent times, in addition to the changes that lie before us in the not too distant future. In this regard, the Early Retirement, Pre-pension and Life-Course Savings Scheme Act (Wet VUT, Prepensioen en introductie Levensloop, hereinafter referred to as the “VPL Act”) came into effect on 1 January 2005, whilst the Pensions Act (Pensioenwet) is scheduled to take effect as of 1 January 2007.

The VPL Act has limited the taxation frameworks with regard to the accrual of a pension. The accrual of an old-age pension must in principle be aligned to a retirement age of 65 years and a maximum accrual of 2% per year of employment in a final-salary scheme and 2.25% per year of employment in an average-salary scheme. In this regard, it is of course essential to take account of the minimum permitted franchise. It is no longer possible to grant a pre-pension or transitional pension that is coupled with tax advantages. In the case of employees who were aged 55 or over before 1 January 2005, a transitional entitlement has been introduced under which existing early retirement (VUT) and pre-pension schemes that enjoy favourable tax treatment may be continued. However, this transitional entitlement is subject to a number of conditions, which will need to be included in the pension regulations before 1 January 2006. As far as the implementation of this transitional entitlement is concerned, particular attention is being paid to a possible conflict with the Equal Treatment (Age Discrimination) Act (Wet gelijke behandeling op grond van leeftijd (WGBL)).

With effect from 1 January 2006, the life-course savings scheme is being introduced, in which a maximum of 12 percent per annum of the gross annual salary (up to a maximum of 210%) can be saved in order to finance any future period of unpaid leave. The purpose of the life-course savings scheme is to release the pressure that arises in what has become known as the “high time” of life, by enabling employees to take leave for which they have already accrued savings. The balance of the life-course savings scheme can also be used to retire early from work, thereby serving as a replacement for pre-pension.

In this regard, it is important to note that in any one year, it is possible to make use either of the life-course savings scheme or the save-as-you-earn scheme. Employees are not permitted to make use of both schemes in any one year. It is possible to opt on an annual basis to take part in one scheme or the other.

With effect from 1 January 2006, the Work and Income (Ability to Work) Act (Wet werk en inkomen naar arbeidsvermogen) (hereinafter referred to as the WIA Act) will replace the current Invalidity Insurance Act (WAO) for employees whose illness commenced on or after 1 January 2004. In accordance with the WIA Act, individuals are only eligible to receive benefit once they have been deemed to be at least 35% incapable of work. The WIA Act distinguishes between those with partial occupational disability (35-80%) and full and long-term occupational disability (80%-100%). The first group falls under the Return to Work for the Partially Disabled Regulations (Regeling Werkhervatting gedeeltelijk arbeidsgeschikten (WGA)), whilst the second group comes under the Income Scheme for the Fully and Long-Term Disabled (Inkomensvoorziening voor volledig en duurzaam arbeidsongeschikten - IVA). Different arrangements apply for each group. The WIA Act makes use of different classifications of occupational disability to those of the WAO Act. This has an effect with regard to pension schemes that incorporate ongoing accrual of pension without payment of premiums whilst an individual is unfit for work. These schemes will need to be adapted in accordance with the WIA Act. Pension schemes that provide cover for a WAO shortfall or an occupational disability pension will also need to be adapted in accordance with the WIA Act.

The Pensions Act (Pensioenwet, (PW)) is expected to replace the current Pensions and Savings Schemes Act (Pensioen- en spaarfondsenwet, hereinafter referred to as 'the PSW Act') from 1 January 2007 onwards. The aim of the new Pensions Act is to make pensions legislation easier to understand, by creating a clear, legal framework that is more in keeping with the age in which we live. After all, the foundations for the PSW Act were laid as long ago as the 1950s. The purpose of the Pensions Act will, however, be no different to the core purpose of the PSW Act, namely to safeguard pension savings. An important component of the Pensions Act consists of more stringent requirements for communications by employers and the providers of pension schemes to (former) participants of pension schemes.

In consultation with the Ministry of Social Affairs and Employment, the Dutch Central Bank (de Nederlandsche Bank) has decided that the Financial Assessment Framework (Financieel Toetsingskader, hereinafter referred to as 'the FTK framework') shall only become compulsory for pension funds with effect from 1 January 2007. The FTK framework, which includes the new valuation methods for pension funds and insurance companies, is being embedded in the Pensions Act. Under the terms of the FTK framework, the current legal obligation to reinsure will be replaced by a system of supervision of solvency that takes account of the specific features of pension funds. In 2006, as in 2005, pension funds may opt to switch voluntarily to the FTK regime. An indexation matrix published this year, which will form part of the Pensions Act, contains a description of various possible forms of indexation policy and the associated conditions that must be fulfilled by pension funds. The overriding intention is that indexation policy must represent a consistent whole that consists of the expectations created, the required financial means and the actual granting of indexation.

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Pensions and the Healthcare Insurance Act (ZvW)

With effect from 1 January 2006, pension funds will be obliged to make deductions at source under the new Healthcare Insurance Act (Zorgverzekeringswet – hereinafter referred to as 'the ZvW Act'). As a rule, pension funds will be required to deduct an income-related contribution of 4.4% (reduced rate), up to a maximum of € 30,015, from all pensions paid to pension beneficiaries residing in the Netherlands. In the case of current payments from early retirement pensions (VUT) (which commenced prior to 1 January 2006) for VUT recipients insured via the Health Insurance Fund (Ziekenfonds), an income-related contribution of 6.5% will apply (ordinary rate). In addition, this latter contribution is subject to a reimbursement obligation. The Tax and Customs Administration (Belastingdienst) has indicated that pension funds are not required to take account of income from a pension or early retirement pension (VUT) that a beneficiary (resident in the Netherlands) may possibly be receiving from other providers. In addition, no account need be taken of AOW (state old-age pension) payments provided by the SVB. The reduced rate contribution must therefore be deducted from any pension payments, up to a maximum of € 30,015. This means that contributions that are higher than necessary are deducted from recipients of an AOW pension who also have an additional pension. The Tax and Customs Administration (Belastingdienst) has stated that the excess contributions deducted will be reimbursed to each individual in the form of a special reassessment.

Particular rules apply in the case of pension beneficiaries living outside of the Netherlands. The Healthcare Insurance Committee (College voor Zorgverzekeringen (CvZ)) recently informed pension funds about these rules. The CvZ Committee will provide pension funds with details of those pension beneficiaries resident in other Member States of the European Union or in other countries with which treaties have been concluded, from whom they have to deduct contributions starting from 1 April 2006. The contributions deducted must be forwarded to the CvZ Committee itself.

The contribution to be deducted consists of the following three components:

1. An income-related contribution in accordance with the Healthcare Insurance Act (ZvW Act) of 4.4% or 6.5% (reduced or standard rate applied, in accordance with the conditions for pension beneficiaries resident in the Netherlands);
2. Income-related contribution of 8.8%, in accordance with the Exceptional Medical Expenses Act (AWBZ);
3. Nominal contribution in accordance with the Healthcare Insurance Act of € 70.91 per month per person insured (partner and children over the age of 18), only from early retirement (VUT) or pre-pension payments (commencing before the age of 65). In the case of all other pension payments, the nominal contribution under the Healthcare Insurance Act will be offset against the AOW, ANW (surviving dependants) or occupational disability payment.

The Healthcare Insurance Committee (CvZ Committee) has indicated that in the case of those currently receiving an early retirement (VUT) or pre-pension payment who are insured under the Health Insurance Fund (Ziekenfonds) and on behalf of whom pension funds currently withhold the nominal premium in accordance with the Compulsory Health Insurance Act (Ziekenfondswet), pension funds will be obliged, with effect from 1 January 2006, to deduct the nominal contribution under the Healthcare Insurance Act referred to above under c. The income-related components referred to under a. and b. above will be subject to a maximum income of € 30,015. In this instance as well, it will not be necessary to take account of payments received from other pension providers or via the AOW (state old-age pension). If, as a result, the amounts deducted are too high, the beneficiary of a pension who is resident outside the Netherlands will be required to request a refund himself/herself from the CvZ Committee.

For more information about the Healthcare Insurance Act, please go to the following website: www.watsonwyatt.nl/zorgverzekeringswet

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Christmas and New Year greetings

All employees and partners of Watson Wyatt Brans & Co. would like to take this opportunity to wish you a very Merry Christmas, a Happy New Year and the very best of health in 2006. Once again, we have decided this year not to send out Christmas cards to our clients and business associates. The money saved in this way has been donated to Hulporganisatie Den Haag in support of the victims of the Pakistan earthquake.

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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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