De Unie, in your interest
0345 851 851
info@unie.nl

DSM pension

The pension contract between the trade unions and DSM expires on 1 January 2021. That is why we started discussions with DSM to come to a new pension agreement. We also bear in mind that there is also talk at a national level about a total renewal of the pension system.

Cost-effective premium

Every pension fund in the Netherlands is bound by a whole set of strict rules that the scheme must meet in order to be approved. One of these is that the pension fund (PDN) must request a cost-effective contribution from members. At the moment 24% of the total wage bill is paid. DSM pays 18% of this and employees pay 6% of the pension basis. The premium must be sufficient to guarantee your pension in the future. The premium is therefore not about the past. At the moment, with the current calculation rules, 24% of the wage bill is not sufficient for the current scheme to cover costs. DSM has already indicated that they are not willing to pay more for the pension. So if we want to keep the current scheme in place, it would mean that an additional 4,5% of your wages would have to be paid (you would then end up with more than 10% of the wages). If interest rates fall even lower at this point, it would rise even further. In fact, there is enough money in the fund, but the calculation rules (the method of how your pension is valued in money) are determined by the government. We can imagine that employees will not be willing to give up this year's pay rise and perhaps part of the next year for retirement.

Accrual rate

At this point, you accrue pension every year. You do this on part of your salary (your salary up to 110.000 - minus the franchise). The accrual is 1.763 per year (1.763 x 40 years of service = 70% of your average salary). In the new scheme we want to reduce the accrual to 2% for a very limited time (maximum 1,4 years). With full pension accrual it would then become:

1.763 x 38 = 66.99 plus 2 x 1,4% = 2,8 so a total of 69,7% of your average earned salary. How exactly that works out in terms of money differs per salary group.

Your total accrued pension will therefore be slightly lower. Of course you may be willing to pay more money for your future wages. That is possible, but it will be limited to 4,5% extra of your wages because you will then have the maximum fiscal possible arrangement. However, you may not be in the most optimal tax scheme because, for example, you are not going to work for 40 years of service, or you may have built up a part of pension with another employer that was not optimal for tax purposes. We explain the general rule here, but it can be slightly different on a personal level.

Pension agreement

Last year, the cabinet concluded the so-called pension agreement with the social partners. They have also agreed that the entire pension system in the Netherlands will be turned upside down. Low interest rates are currently the major problem for pension funds. The funds must calculate with a low actuarial interest rate. Because it really concerns very long-term obligations, that is very unfavorable. This ensures that the funding ratios (the valuation of the total pot of pension money) are low. To be able to index (ensure that pension incomes grow with inflation), the coverage ratio must be above 110%. If the funding ratio is below 5% for 100 consecutive years, the pension fund must submit a recovery plan and cut all pensions. So for the pensioners but also for the participants who will receive a pension in the future. The value of the total pension pot then decreases.

The indexation / or discount is first felt by the people who are now retired. For them, only the state pension increases with the indexation of the government, but their pension money has been the same for years. Fortunately, a discount has not yet been necessary.

That system is unsustainable, in the Netherlands we pay a large sum of money to have as much guarantee as possible for a welfare-proof pension. In practice, this does not work out because calculations have to be made with rules that are fine when interest rates are high, but very bad when they are not.

A number of things will change in the new pension agreement. There will be a scheme so that people can retire earlier, as of 1 January 2020 (the Company AOW at DSM). The calculation rules are turned upside down and that should lead to a more personal and transparent pension.

This is currently being worked on in The Hague. We know that there are a lot of changes to come, but we don't know the completely new rules at the moment. The transition date will also be indicated by the government and if we know all that exactly, we can adjust the scheme for the future. Of course in consultation with our members.