Brans Brief number 1, year 9, January 2006

In this issue of the Brans Brief:
 

	Non-contributory accrual does not need to be modified in line with VPL Act
	New Obligatory Occupational Pension Scheme Act enters into force
	Legislative proposal for the implementation of the Pension Fund Directive passed in the Upper House
	Update on the Pensions Act

Non-contributory accrual does not need to be modified in line with VPL Act

During the debate in the Upper House of the Dutch Parliament on the supplementary transitional entitlement under the Early Retirement (Adjustment of Tax Treatment) and Life-Course Savings Scheme Act (Wet aanpassing fiscale behandeling VUT / prepensioen en introductie levensloopregeling (Wet VPL), hereinafter referred to as the ‘VPL Act’), State Secretary Wijn stated that if pensions continue to be accrued on a non-contributory basis because of occupational disability, the pension scheme for the persons concerned does not need to be modified in line with the starting points of the VPL Act. This means that the more generous pension accrual for occupationally disabled participants will remain. The intense lobbying from those implementing the schemes has finally produced a result after all.

This commitment will be incorporated in a policy decision. The additional requirements that will be attached to this continued accrual will probably largely correspond to the requirements as contained in the decision of 9 January 2004, no. CPP2003/1821M. This Decision permitted continued accrual based on the pre-Witteveen regime even after 1 June 2004, based on a collective instruction.

The main conditions under the Witteveen regime were:

• continued accrual is determined by the continuation of agreed premium payments;

• if the degree of occupational disability is reduced at a later date, approval will only apply for the entitlements to be reduced accordingly together with the associated premium exemption;

• in the case of a later increase in the degree of occupational disability and the related increase in premium exemption, the increase must indeed be based on the current, modified pension scheme.

By maintaining the old tax regime, the discussion does not arise as to whether it is possible to change the pension scheme unilaterally.

However, where the degree of occupational disability is increased, the pension fund manager will in fact be faced with managing two schemes for occupationally disabled participants. The Decision describing the definitive conditions has to date not been published. We will keep you informed of developments.

For more information contact: Eric Heemskerk.

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New Obligatory Occupational Pension Scheme Act enters into force

The decree implementing the new Obligatory Occupational Pension Scheme Act (Wet verplichte beroepspensioenregeling) was published just before the end of 2005. On 1 January this year the Act entered into force as the successor to the Occupational Pension Scheme (Obligatory Participation) Act (Wet betreffende verplichte deelneming in een beroepspensioenregeling (Bpr Act)).

Obligatory participation was at the core of the Bpr Act. This obligation remains in the new Act, but more stringent conditions are laid down for it. There must be sufficient support and solidarity among the professional colleagues in order to maintain the obligatory participation.

For this purpose an occupational pension association will have to be set up to apply for obligatory participation. It must be set up especially with a view to the implementation of an occupational pension scheme, so that based on the number of members in the association it will be possible to check whether there is indeed enough support for the scheme. Under the Bpr Act, an organisation of independent professionals could still apply to the Minister of Social Affairs and Employment for obligatory participation, as a result of which the level of support was a lot more difficult to measure.

The new Act also lays down that a flat-rate premium must be adopted for occupational pension schemes. This means that all participants, regardless of age, gender or health, pay the same premium percentage. The requirement that the premium must be set regardless of age does not apply to voluntary pension provisions and to available premium schemes that may form part of an occupational pension scheme. This element is a fundamental change compared to current practice and has been the subject of the most criticism throughout the entire legislative process. This is because virtually all current occupational pension schemes are characterised by a fixed purchase sum that is used to purchase a retirement and surviving dependant’s pension. Such a scheme is no longer possible under the new Act.

The rules for value transfers, as under the Pensions and Savings Funds Act (Pensioen- en spaarfondsenwet (PSW Act)), will also apply to occupational pension schemes. This means that independent professionals have six months in which to decide whether or not they want to transfer their pension entitlements to the new pension scheme, and that information will have to be given about the option of transferring the value.

Finally, medical admission examinations will be prohibited for occupational pensions as well. These examinations are still possible based on the current Act, whereby a negative result may then lead to (partial) exclusion or a higher premium. This will no longer be possible under the new Act.

It has been a deliberate decision to have a separate Act alongside the PSW Act. Therefore the new Obligatory Occupational Pension Schemes Act can in principle remain unchanged with the introduction of the Pensions Act. Only at a detailed level may small amendments to the Pensions Act be required, depending on the legislative process.

For more information contact: Rick Crauwels.

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Importance of communication and the use of disclaimers with 15-year financing

Under the Decree Implementing Pension Aspects of the 2004 Social Agreement, it will be possible to give a pension commitment, whereby the funding of the promised entitlements can be completed within a maximum period of 15 years. This is possible if fewer pension entitlements were accrued in the past than were permitted under Chapter IIB of the 1964 Wages and Salaries Tax Act (Wet op de Loonbelasting 1964). The permitted maximum period of funding, incidentally, is shorter if the retirement date falls within the period of 15 years. In that case the pension to be bought in respect of years of service completed must have been fully funded at the latest on the day prior to the pension commencement date.

If the option of 15-year financing is used, account will need to be taken of the strict regulations imposed on communication in this regard. Since this form of financing constitutes an exception to the basic rule laid down by the PSW Act, namely an annual, prorated financing of promised pension entitlements, extra requirements apply concerning communication with (former) participants.

The pension fund manager must inform the (former) participants in the first written information provided of the fact that this entitlement will be financed in a different manner. The Implementation Decree stipulates a disclaimer for this purpose, which must be used in the communication with the (former) participants. As well as with the first written information provided, this disclaimer must also be included in the annual information on the financing that must be sent to the participant during the period that the entitlements are not yet (fully) financed. In addition, the disclaimer must be used if the (former) participant requests information on the pension commitment concerned.

Proper communication with (former) participants is extremely important because if the pension fund manager does not communicate, or does not communicate properly about the method of financing the pension purchase in respect of the number of years of service completed, the alternative financing option described above will no longer be applicable. The basic rule of the PSW Act will then come into force again, with the result that the commitment will have to be funded immediately..

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Legislative proposal for the implementation of the Pension Fund Directive passed in the Upper House

On 17 January 2006, the Upper House of the Dutch Parliament passed the 'Legislative Proposal for Amendments to the PSW Act and several other Acts in relation to the Implementation of Directive 2003/41/EC'. Dutch companies will be given the opportunity to place their pension commitments with a pension institution in another member state of the European Union. In addition, Dutch pension institutions may implement pension commitments of companies from other EU member states. Another change brought about by the legislative proposal is that a declaration of investment principles must be included in the actuarial and technical business report. This declaration must cover at least the following subjects: the weighting methods applied for investment risks, the risk management procedures and the strategic allocation of assets in light of the nature and term of the pension commitments. The declaration of investment principles must be provided on request, separate from the actuarial and technical business report. We already provided you with information on this legislative proposal in our Brans Brief of June and August 2005. There you will find a further explanation of the legislative proposal and an overview of a number of other amendments arising from it. The Act will be published shortly in the Bulletin of Acts, Orders and Decrees and will enter into force one day after the date of publication.

For more information contact: Harmen Pullen.

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Update on the Pensions Act

On 20 December 2005, Minister De Geus of Social Affairs and Employment submitted the legislative proposal for the Pensions Act. The Government aims to implement the new Act by 1 January 2007 at the latest.

Watson Wyatt will keep you regularly informed throughout 2006 about the latest developments relating to the Pensions Act. You will find all the parliamentary papers and other official documents relating to the new Pensions Act at www.pensioenwetactueel.nl. Soon we will also be publishing the Pensioenwet Actueel Nieuwsbrief (Pensions Act Update Newsletter), in which we will inform you about developments in the market in relation to the Pensions Act.

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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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