On January 20, 2014, the Deputy Minister of Finance, Mr. Weekers, presented the proposal to amend the bill (novelle) on the Reduction of Maximum Pension Accrual and a Maximum on Pensionable Income (“Witteveen 2015”). The amendment to the bill includes measures taken from the agreement concluded in December 2013 between parliamentary parties VVD, PvdA, D66, ChristenUnie and SGP and the government on the changes of pensions in 2015 of which we informed you in an earlier memorandum (“the pension agreement”).
The amendment to the bill includes the following measures:
- Adjustment of the maximum pension accrual rates: the accrual rate for average pay plans will be 1.875%. This will enable a participant with an accrual period of 40 years to realize a pension of 75% of their average salary. The maximum accrual percentage for final pay plans will be 1.657% per year of employment.
- As in earlier proposals, the maximum pensionable income will be capped at EUR 100,000, less the state pension offset.
- People in a higher income bracket will be able to build up additional voluntary retirement savings under a tax-friendly scheme. Employees whose income is EUR 100,000 or more will be able to build up a retirement provision via a net annuity which is generally equal to a pension accrual of 1.875% of their average salary. The contribution will be paid from the net salary or net income. There is, therefore, no tax relief for the contributions and the annuity payments will not be taxed. Another tax-friendly aspect is that the accrued value will not be subject to the deemed investment yield tax in box 3. This scheme is available to anyone with an income of EUR 100,000 or more. The net annuity will replace the measures from the bill for the implementation of the pension and annuity top-up rules, which have been withdrawn.
- The tax relief for the retirement reserve and the life insurance policy or banking annuity will also be correspondingly reduced in line with the adjustments to the employee pensions.
The pension agreement also includes nine safeguards to achieve that the lowering of the maximum pension accrual for tax purposes will lead to the actual reduction of the contributions, for which the amendment to the bill lays the foundation. Proposals are made for new information obligations for pension funds. Pension funds will have to inform their accountability body, the Dutch Central Bank (De Nederlandse Bank; “DNB”) and their participants of what is included in the actual pension contribution and the amount of the various components. More specifically, the funds must include this information in its request for advice to the accountability body before determining the pension contribution. After determining the pension contribution, the funds must provide information about the composition of the pension contribution and the amount of the various contribution components in the actuarial and technical business report, the financial statements and the annual report. The funds must also report the management costs in the annual report. The amendment to the bill also introduces the legal basis for sanctioning in the event of an imbalanced contribution structure. The maximum sanction will be raised from EUR 10,000 to EUR 1 million.
The following subjects of the pension agreement are not included in the amendment to the bill:
- Introduction of a voluntary collective pension plan for the self-employed with no staff (zelfstandige zonder personeel; “zzp-er”), which will offer participants flexibility with regard to contributions and payments. Pension can be drawn upon in the event of disability with pension capital being protected if welfare benefits are claimed. The plan will be administered by an investment institution.
- Introduction of the option for employees to use the employee share of the pension contribution to repay their home mortgage, as proposed by the Reformatorisch Maatschappelijke Unie. The Cabinet will examine how this can be implemented as carefully and as soon as possible. This will include a feasibility test, which will also be used to assess the advantages and disadvantages of the various alternatives.
- In 2014, the Cabinet will initiate a multi-party dialog on the long-term future of the pension system in the Netherlands. The Social and Economic Council of the Netherlands (Sociaal Economische Raad; “SER”) will be asked to provide their advice before the end of 2014.
How can KPMG Meijburg & Co help you?
The amendments to the tax rules contained in the proposal to amend the bill mean that further changes will need to be made to numerous pension plans as of January 1, 2015. These new changes are in addition to the tax adjustments that needed to be implemented by January 1, 2014, i.e. the raising of the standard pension retirement age and the reduction of the pension accrual. Making changes to company pension plans is time-consuming and must be done with care and on time. It may therefore be useful to discuss with your tax advisor at KPMG Meijburg & Co the various changes and the points that need to be taken into consideration well in advance of the date on which they are to take effect (January 1, 2015).
KPMG Meijburg & Co’s Pension group has extensive experience with and knowledge of amending pension plans and what is and is not possible for tax purposes. We can conduct a tax review of your current pension plan(s) and assist you with any adjustments that may need to be made, as well as helping you obtain the necessary approvals from the Dutch Tax and Customs Administration and/or the Ministry of Finance.
If you would like to receive more information on our pension advisory services and how we can be of assistance to you, please contact one of our Pension group advisors or your personal contact at KPMG Meijburg & Co.