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How will your business’s finances be affected in the long term by the coronavirus crisis? You may be able to receive an allowance to cover some of your labour costs under the government’s Temporary Emergency Bridging Measure for Sustained Employment (Tijdelijke Noodmaatregel Overbrugging voor Werkbehoud – NOW). The conditions governing the Temporary Emergency Bridging Measure for Sustained Employment were published this week. The other costs relating to your employment benefits package, including the costs associated with your pension scheme, will continue as before and will be only partially reimbursed by means of a 30% mark-up on your labour costs. Paying contributions to your pension provider is a contractual and/or legal requirement. This article looks at the possibilities that exist for pension schemes and considers the consequences for your employees.
How the coronavirus crisis will affect pensions for you as an employer
Possibility of deferring payment of pension contributions
Pension providers, the Federation of the Dutch Pension Funds and the Labour Foundation have held talks with the Dutch Association of Insurers on temporary, flexible ways to enable employers to defer the payment of pension contributions. In this context, it is crucial that the pension rights of members of your pension scheme are not affected. Businesses struggling to pay their pension contributions are advised to read the information provided on their pension provider’s website and to contact their pension fund, pension insurer, premium pension institution or financial adviser as necessary. Find out whether you need to notify your pension fund that your business is unable to pay your contributions due to your financial situation. To do this, you must submit specific forms to your pension provider no more than twee weeks after the date on which you should have paid the contributions.
Note: reporting an inability to make payments may have consequences for your external financing. Read your financing terms carefully and consult your adviser to find out what the best option would be for you.
Changing your pension scheme unilaterally
Under the Pensions Act (Pensioenwet), you as an employer are able to change the contents of your pension scheme unilaterally if there is a ‘compelling reason’ for this. In such cases, you may change the pension scheme without obtaining consent from your works council and/or employees. A great many requirements must be satisfied in order to make use of this possibility, and the process takes some time. You are not permitted to make changes unilaterally if you participate in an industry-wide pension fund on a compulsory basis, since in that case the contents of the pension scheme are determined by the social partners and not by you, the employer. To find out more about changing your pension scheme unilaterally, please contact your pension adviser.
Restrictive terms of cover for employees travelling to high-risk areas?
The Dutch government uses a colour code system to issue international travel advice. In this system, code orange means ‘necessary travel only’, and code red ‘do not travel’. There are many high-risk areas, and some insurers apply exclusions if an insured member travels to any of them. All pension providers (that do not also act as pension funds) have indicated that they follow the advice issued by the Dutch Association of Insurers. This means that the restrictive terms of cover are not applicable if a member dies from coronavirus in an identified high-risk area. In that event, a benefit will still be paid in accordance with the terms of the pension scheme rules.
Prices on the stock market
The turmoil caused by the coronavirus has also put the financial markets under considerable strain. If you have a defined contribution scheme, the contributions paid towards the retirement pensions are invested in your pension scheme. In 2019 many pension schemes achieved good returns on their investments, but there has been a sharp decrease in the value of those investments this year due to the fall in share prices in recent weeks. Your pension provider might adjust the composition of the life-cycle portfolios as a result. Pension investing calls for a long-term view: pension contributions are invested on behalf of the pension scheme’s members on an annual or monthly basis. New contributions are used to purchase investments at the prevailing prices, which are now lower. In this way, it is possible to generate positive results when share prices start to recover.
Frequently asked questions about sick leave insurance, health insurance and insurance relating to occupational disability benefits (WIA)
The coronavirus crisis may also have consequences for your sick leave insurance, health insurance and insurance relating to occupational disability benefits (WIA). Answers to frequently asked questions about these insurance policies can be found in our frequently asked questions about coronavirus under the heading ‘Staff’.
How the Temporary Emergency Bridging Measure for Sustained Employment affects pension accrual
Many businesses have applied for the short-time working scheme. That scheme has now been replaced by the Temporary Emergency Bridging Measure for Sustained Employment. All applications for the short-time working scheme that have already been granted will remain in force. Applications that have been submitted but have not yet been dealt with will be handled in accordance with the Temporary Emergency Bridging Measure for Sustained Employment, which replaces the short-time working scheme.
The measure has no impact on pension accrual and the cover you have taken out, as these are based on the last earned salary prior to the application of the Temporary Emergency Bridging Measure for Sustained Employment and there is no change in your employees’ years of service. You are not required to notify your pension provider if you make use of the Temporary Emergency Bridging Measure for Sustained Employment.
Pension capital invested in life-cycle funds
Are any of your employees about to retire? The market conditions at the time they retire will affect the level of their pension benefits. Share prices and interest rates are very low due to the coronavirus crisis, and so pension benefits will be lower too.
That said, in principle the life cycles have been designed to ensure your employees are only exposed to responsible risks in the run-up to their retirement date. Most of the employee’s pension capital is gradually moved into long-term fixed interest securities as the retirement date approaches. As a result, a drop in share prices close to the employee’s retirement date has less of an impact on the level of the employee’s pension capital. Moreover, many life-cycle portfolios make use of a construction in which fixed-income securities (such as government bonds) increase in value when interest rates are low. This ensures the employee will have more pension capital just before the retirement date so that he/she can still purchase a reasonable nominal pension (despite the low interest rates). As not all of the pension capital will be converted into variable-income securities and real estate (since part of it will continue to be invested in shares), the pension benefits will usually be lower than expected if market interest rates are low.
What options are available to employees nearing retirement?
The level of the pension benefits is determined by a number of factors, including market interest rates. Currently, market interest rates are extremely low, which means lower pension benefits for your employees. Consequently, employees who are about to retire need to be properly prepared for lower pension benefits and know what their options are. These options are as follows:
- The employee purchases fixed lifelong pension benefits (based on prevailing market interest rates).
- The employee purchases variable pension benefits (based on prevailing market interest rates).
- The employee opts for part-time retirement (and partially defers the purchase of the remainder of his/her pension capital).
- The employee postpones the date on which their pension comes into payment, in accordance with the terms of the pension scheme.
Help your employees make a difficult choice
Employees who are about to retire therefore face a difficult choice. While this is obviously always the case, the choice is particularly difficult this year due to all the market uncertainty caused by the coronavirus crisis. As an employer, you will therefore need to provide additional information and support to employees who are about to retire.
Do you require assistance?
Do you want to know what consequences the coronavirus crisis will have for you as an employer, how you can best explain these consequences to employees who are about to retire, or how you can provide them with better support and more information? We can work with your pension adviser to provide you with support in this area. To arrange this, please get in touch with your contact person at Moore DRV or complete the contact form below.
Knowledge dossier on our website
Do you want to know what possibilities are available to you for gearing your business processes to the measures taken so far in connection with coronavirus, or what you can do to help your business stay afloat? We have created a special page on our website, where our coronavirus team of specialists will share their knowledge with you in the coming months. Keep a close eye on that page so that you can make the right choices for your organisation. If you have specific questions about the impact on your organisation, please get in touch with your contact person at Moore DRV or complete the contact form below.
