The new pension
One of the developments that directly affect APG is the introduction of the new pension system. We see the potential for great benefits in the system reform. The key word is simplicity. A new system offers an opportunity to start with a clean slate. And with that, an opportunity to have an explainable system that matches the perceptions of the participants.
Initially, the system was to be fully implemented on January 1, 2026, but delays in the legislative process have postponed this until January 1, 2027, at the latest. Although this gives the parties who will have to shape the new pension in practice — such as APG, the pension funds, and the social partners — more time for the transition, there will also be more uncertainty for the time being.
Until all the details have been confirmed, we are working partly on the basis of hypotheses. We may have to make adjustments at a later stage. That does not have to be a problem but, if unexpected developments occur, it can lead to delays in the implementation. We are keeping a close eye on developments. Some of the funds we work for have already indicated that they wish to switch to the new system in 2025, so we have already started our preparations.
What remains?
We must avoid throwing out the baby with the bathwater; the good elements of the current pension system will be kept. The pension remains a lifelong benefit. Moreover, the State pensions (General Old Age Pensions Act, or AOW) remains the basis for the pension. In addition, the idea of solidarity is retained because we manage the risks via collective investments. After all, millions of people together can cope with risks better than a single individual can. Finally, the so-called compulsory membership remains in place, which means that employees in certain sectors must always be affiliated with a pension fund.
What is changing?
The main difference between the current system and the new system is that we are moving from a benefit plan to a contribution plan. Participants will no longer accrue entitlements, as is done under the existing system, but they will build up personal pension assets. In the current system, pension benefits are fixed, in principle, with indexations done and reductions taken here and there. This makes pension funds insufficiently resistant to (unexpected) shocks. The new rules will change all that because the benefit payments can vary from year to year. This enables pension funds to absorb the adverse effects of any shocks and spread them over a longer period.
In the new system, it will become clearer how much money you put in as a participant and how much capital you build up. However, the pension will be more flexible under the new system. It will go up when the economy is better and go down when things are going badly. For younger employees, there is enough time to absorb setbacks. If you are due to retire, there is no such time. The new rules ensure that the mobility in that case is smaller. For people “halfway” through their accrual, the new rules can be disadvantageous. That is why these participants will receive compensation or have special arrangements applied to them.
Different rules also apply to the investment of pension contributions in the new system. In the current system, we invest for everyone with the same return and risk, even though the risks differ for each age group. In the new plan, there is more customization per age group, based on the risk that participants within the particular age group are willing to accept.
The pension funds and social partners do have some choice in the new system. One can opt for what is called a Solidary Contribution Scheme in which the aim is to maintain sufficient solidarity and thus a higher pension by investing together and sharing the risks. It is also possible to opt for the Flexible Contribution Scheme, within which an investment profile can be selected. As of January 1, 2023, participants will have the option to withdraw 10% of their pension amount at the time they retire.
What does the pension system reform mean for APG?
APG wants to provide the funds and social partners with excellent support in the choices they must make about the interpretation of the contract and the method of “entering” (the transfer of entitlements from the current system to the new system). This involves directing and implementing the entire process, converting entitlements to capital, and transferring large quantities of data to new systems. We are working to develop a single system, a single policy and capital administration, in which the new pension rules can be administered regardless of the choices made by pension funds. We are making substantial investments to this end.
Challenging planning that affects the entire company
To ensure that the implementation of the new system proceeds as smoothly as possible, we have started the Pension of the Future program. In this program, we prepare ourselves as a pension administration organization for the new system and we guide and support pension funds in the choices they will face over the coming period. Our goal is to ensure that pension funds, participants, and employers are satisfied.
Employees must also be able to explain that we have switched to a pension scheme in which the contribution is fixed but the final pension may fluctuate. The participants are used to a system in which the premium changes, but it is clear what the final pension amount will be. This is a major change. The advent of the new pension system therefore presents APG with challenges in the area of human resources policy. The skills and knowledge we need will be even more related to communication and digitalization than they are now. Retraining will become even more important, and our search in the tight labor market will also have a different focus.