COVID-19

Effects of the corona crisis for pensions

Edzo Boven Edzo Boven

A number of measures have been taken with regard to pensions. The most important measures are; already retired healthcare employees, delayed payment for pension premiums, continuing pension accrual and working time reduction, survivors’ pension and pension-based investments. Below a brief overview of these measures. 

Already retired healthcare employees  

In principle, it is not allowed to return to work later in the event of early retirement. However, the Tax Authorities arranged in a decree that healthcare workers who have retired earlier than the AOW-entitled age can return to work without tax consequences for their pension. The argument is that the outbreak of the coronavirus COVID-19 has created a new situation, which gives rise to the resumption of work. At the time of early retirement, this was not foreseeable.

Delayed payment for pension premiums  

Postponing payments for pension contributions is not an obvious measure, as employers are granted a deferment for pension contributions that are deposited for employees. The financial consequences are for the account of the insurance company and/or employees if the pension premiums ultimately remain unpaid. However, a number of pension funds have already decided to give employers a deferral of payment for the pension contributions. Insurance companies are still considering implementing this grace period. It is assumed that pension contributions will also fall under the Temporary Emergency Bridging Measure for Sustained Employment (NOW). If this is not the case, delay of payments is prohibited based on current legislation (Dutch Pension Act). This is of importance in particular for defined contribution pension plans, where the pension premium is the basis for accrual of the pension capital. At this moment, the Pension Fund for the Catering Sector (Pensioenfonds Horecaand the Pension Fund for the Metal Industry (PMT) has installed a grace period of 30 days, the Pension Fund for the Travel Sector (Pensioenfonds Reissector) a period of 45 days and the Pension Fund for Retail (Pensioenfonds Detailhandel) a period of 90 days. The website of your pension fund will give information regarding a possible delay of payment of the pension invoices. Insurance companies are also willing to grant delay of payment of the pension premiums in certain situationsThe website of the insurance company will give you more information, or contact your pension advisor.

Continuing pension accrual and working time reduction  

The question is whether working time reduction counts as a period of time for pension accrual. In other words, can the accrual (premium payment) continue unabated during a reduction in working hours? This has been confirmed by the Tax Authorities in a recent decision. There are three situations to be recognised; 

  1. If the employment continues to exist during the period of working time reduction, this is without a doubt possible.
  2. If the employment is (partially) terminated, but there is an income-replacement wage-related benefit (such as an unemployment benefit), this is also considered pensionable service, whereby the pension accrual may continue, based on the wages prior to the reduction of working hours.
  3. In the event of a reduction in working hours in which there is no involuntary dismissal or income-replacement wage-related benefit, it is possible, under certain conditions, to make use of the voluntary continuation of a pension scheme.

Survivors’ pension 

For the survivors’ pensions for partner and/or children (partner’s pension and orphan’s pension) it was briefly unclear whether there was cover in in the event that the employee would die as a result of a corona infection after visiting a “high-risk country” (the so-called code red and code orange countries). It soon became clear that no insurer in the Netherlands excludes surviving relatives in the event of the death of an employee as a result of corona infection, not even in cases where the contamination occurred elsewhere.

Pension-based investments  

For investment-based pension schemes (defined contribution schemes), employees' pension capital has been hit hard by the huge stock market declines. This can have major consequences, especially for employees who are retiring in the not too distant future. Solutions such as working after pensionable age, part-time retirement and waiting to purchase a pension until after the retirement date for the state pension benefit are possible solutions. However, the employer will have to cooperate with the first two solutions, which is not always self-evident.

The investment climate has consequences for the workers who will not retire in the short term too, although there is still time for recovery of the invested capital in most cases. Many insurance companies will inform employers and employees not to make hasty decisions, such as adjusting the investment profile (e.g. by changing from neutral to offensive lifecycles or by starting to invest yourself). In your role as an employer (duty of care), it is advisable to consult with your pension adviser whether a presentation or individual meetings with employees could be used to explain some things regarding the new situation.  

Pension funds have also been hit hard, in particular the funding ratios of these funds. This could lead to an increase in the likelihood of a temporary reduction of pension benefits or of the future accrual of the pension.   

This seems to be no problem with regard to the average-wage pension schemes with insurers for the time being. Problems may arise in situations where the pension scheme is regulated not in the form of a five-year contract, but in the form of a subscription. In the form of a subscription, the premium is usually recalculated at the end of each year.

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