The Occupational Pension Schemes
The second source of pension benefit in the Netherlands is the occupational pension scheme. These pensions are legally bound by the new Pensions Law (PW) of 2007. This gives some limiting conditions which have to be fulfilled, for example requirements with regard to the funding of the scheme.
Occupational pension schemes are schemes where the employer makes a commitment, as part of the terms of employment, to provide pensions and other post-retirement benefits to employees in retirement. The occupational pension schemes can be sponsored by a single employer or through industry- wide or collective labour agreements.
Both employees and employers contribute to this scheme and is as such based on the years of employment of the individual employee.
The state tries to stimulate these pensions by excluding the paid premiums from taxes. The financing of the occupational pension schemes is different from that of the state pensions. It is the case that employees and employers now pay for the employees’ own pensions in the future. The ambition level of the pension payment, nowadays, is normally 70 percent of the average wage during the employees’ career. It is required by law that an occupational pension scheme is an independent and separate legal entity or an accepted insurance company.
The schemes can be performed by four different pension-performers (art 22 PW)
Firstly, the industry sector pension funds. These are funds on behalf of one or more industry sectors or parts of that. In the Netherlands especially the industry-wide schemes are important and widespread. These schemes are set up through organised negotiations between employers and employees. In the Netherlands the government is able to make the participation in an industry-wide scheme obligatory for all or some companies in a certain industrial sector. The government aims at an as high as possible amount of people who fall within the occupational pension schemes, because they want to improve the position of people during their retirement, as the state pension doesn’t provide for enough payment.
Secondly, the enterprise pensions funds. These funds are connected to one enterprise or a group of enterprises. In some enterprises they have an independent division which deals with the pensions and others have contracted the pensions out to specialized enterprises. In a big and stable group of enterprises it can be an advantage for employees to join in an enterprise pension fund, because most of the times the employer pays the full premiums. For the employer on the other hand, it can be a disadvantage that he can be held more directly responsible for a deficit of the pension fund.
Thirdly, a Dutch insurer who takes care for the pensions.
Fourthly it can be a foreign insurance company and the last performer can be a foreign pension fund. Article 9 PW makes clear that there are three different pension schemes.
- The first is the defined benefit scheme. That implies a payment of a specific amount at a specific age.
- The second is a capital agreement, which implies a payment of a specific capital at a specific age.
- And the third is the defined contribution scheme, where an available premium is put forward. Which of the schemes is in case applicable will depend on the agreements about that.