Dutch Pension Reform Act – What HR professionals should know about pension choice guidance and education

The Dutch Pension Reform Act (Wet Toekomst Pensioenen, WTP), which came into effect on July 1, 2023, represents a significant overhaul of the Dutch pension system. HR professionals and employers face the challenge of translating these complex changes into practice and properly informing their employees. This creates opportunities to better guide and support employees with pension education and decision-making. In this blog, we will discuss how to streamline this transition while complying with the new legal requirements.

What changes with the Pension Reform Act?

1. Personal pension pots: In the new system, each employee builds up a personal pension pot. The accumulated pension depends on the contributions made and investment returns, which introduces greater uncertainty for employees. This requires a thorough understanding of pension accrual and the risks associated with investments.

2. More pension options for employees: Employees now have greater freedom in their pension choices. For example, they can opt to withdraw up to 10% of their pension savings in a lump sum upon retirement. While this might seem appealing, it comes with risks: the monthly pension payout will be lower. Financial education and guidance can help employees make these decisions in a well-informed manner.

3. Broader pension savings for freelancers and flexible workers: The new legislation also makes it easier for freelancers and flexible workers to build up pension savings, helping to close the pension gap and create a more inclusive pension system.

What does this mean for employers?

1. Responsibility during the transition: Employers must adjust their pension schemes to comply with the new law by January 1, 2028. This will require close collaboration with pension funds, pension insurers, and works councils. It's essential to develop a transition plan that must be approved by the works council. The plan should also outline any compensation measures for employees who may be disadvantaged by the transition.

2. Providing information and support: A key task for employers is to inform employees in a timely manner about the new pension rules and how these changes will affect their pension accrual. Employers can choose to offer financial education programs that make the risks of the new system and the available options clear. Well-informed employees are better equipped to make sound pension decisions.

3. Compensation and risks: Some employees may face disadvantages from the switch to the new system, such as lower pension payouts. Employers must inform these employees and possibly provide compensation. Additionally, in the new system, investment risk falls more on employees, which makes extra pension education essential.

How can employers offer pension education and choice guidance?

1. Workshops: Offering workshops focused on general pension knowledge can help employees understand the impact of their decisions. These can range from understanding personal pension pots to the risks of different investment strategies.

2. Pension choice guidance: You can support employees in understanding their pension options, such as providing scenario analyses that illustrate the consequences of decisions like early retirement or withdrawing 10% of their pension in one go. Ideally, you offer this choice guidance by engaging an independent party to ensure the best advice is provided in the employee's best interest.

3. Independent education programs: Employers can partner with external parties to integrate financial education within the company. This can be through collaboration with a financial service provider or pension advisor. Again, it's smart to work with an independent party that doesn’t have other financial incentives (for example, by selling financial products), to ensure employees receive the best possible help tailored to their individual situations. This way, employees gain easy access to reliable information about their pension accrual and the available pension options, without being sold a financial product.

How does Equip help with pension choice guidance and education?

As an employer, you want to support your employees in making the right pension decisions. Equip offers a flexible solution that combines both pension choice guidance and financial education. Our approach enables employees to:

• Gain insight into their pension build-up: Through scenario analyses, employees can better understand how their pension pot grows and how their decisions affect the final amount.

• Make informed decisions: Equip helps employees make pension choices by informing them about the options and risks.

• Relieve the burden on employers: We work closely with HR teams to provide tailored education programs that prepare employees for the implications of the Pension Reform Act.

Take action

The Pension Reform Act calls for action from employers. By offering independent pension education and choice guidance, you not only support your employees but also contribute to their financial well-being. With the right approach, you ensure a smooth transition to the new pension system while simultaneously enhancing employee engagement and satisfaction.

Curious how Equip can support your organization? Contact us for more information about our solutions for independent pension education and choice guidance.