Under the Reduction of Maximum Pension Accrual and Premium Rates and Maximum Pensionable Income Act (Wet verlaging maximumopbouw- en premiepercentages pensioen en maximering pensioengevend inkomen; “WMO Act”; also referred to as Witteveen 2015) the pensionable salary will be capped at EUR 100,000 as of January 1, 2015; the state pension offset must be deducted from this amount. This part of the government’s plans has remained intact. The cap will be indexed annually at the beginning of the calendar year and will be linked to the indexation of the minimum wage. The indexation will eventually be included in a ministerial decree.
On January 20, 2014, the government presented a proposal to amend the WMO Act to the Lower House, which approved it on Thursday March 6, 2014. A new voluntary savings plan has been introduced for that part of the income exceeding the cap: the net annuity. This should make it possible to accrue a retirement provision that is almost equal to the annual gross pension accrual of 1.875% under an average pay plan. The premium or contribution is non-deductible, but must be paid from the net income. The benefits will not be taxed in box 1. The value of the entitlement will be exempt from the tax on deemed investment income in box 3. The net annuity − leaving aside the net premium − must comply with current annuity legislation. It must therefore provide for a retirement income. The net annuity replaces the bill for the implementation of the pension and annuity top-up rules (Wet pensioenaanvullingsregelingen), which has been withdrawn.
Net annuity to also be administered in the second pillar
The government had initially indicated that pension funds would not be allowed to administer the net annuity, because it is not a pension within the meaning of the Pensions Act. The Lower House disagreed. During the parliamentary debate on March 3, 2013 a preference to also make it possible to have the net annuity administered in the ‘second pillar’ (i.e. pension accrual through employer contributions) was expressed. This would occur by way of a plan operated by the employer which can be administered by a pension fund. The government agreed and set out how this should be realized in a letter dated March 28, 2014. It is expressly not the intention that the different plans become financially entangled. The Act stipulates that pension funds, insurers, premium pension institutions and foreign pension institutions that offer a net annuity must administer this separately. Additional product requirements will also apply to the net annuity in order to minimize the risk of taxed and untaxed money flows becoming entangled. For example, a net annuity that consists of a pure defined contribution plan without a guaranteed return on investment and which operators of pension plans would be obliged to offer. The longevity and return on investment risk would thereby be run by the participant, and this would diminish the risk of cross-subsidization between the gross and net plans during the accrual stage. Bank savings variations of the net annuity will also be introduced: the net annuity savings account and the tax-efficient blocked net annuity investment plan.
The government also agreed to the Lower House’s request for a penalty provision in the event the net annuity is surrendered. The box 3 benefit will be reclaimed upon surrender. The average contribution will be determined at half of the value of the net annuity upon surrender, and the number of years during which the box 3 benefit was received (assuming a contribution as of January 1, 2015 over a maximum 10-year period). A rebuttal provision will apply in the event this fixed approach proves to be disproportionately harsh.
The undertaking that the net annuity can also be administered by pension funds still needs to be laid down in law. Draft legislation is not yet available, but the government has taken account of the preference expressed by pension operators to have this issue clarified in more detail before the summer. Further consultation with the pension sector and supervising authorities still needs to take place.