Employment law aspects of the Future of Pensions Act

But what action exactly are employers expected to take under the FPA and when? And which parties should be involved in this change process and how? How should possible age discrimination be dealt with? Many employers have raised these practical questions and we have answered them during our webinar of 12 October last. The following is a short summary of these answers.

Employee participation

If a change with respect to the employment benefit of pension is envisaged, any employee participation obligations must first be identified and taken into account. Employee participation entails that employees should be involved in certain decision-making processes within a company. The Works Council Act stipulates various powers of different consultative bodies. The consultative body to be involved in implementing the FPA depends on how many employees a company employs, as will be shown below.Pension plans administered by an industry-wide pension fund and/or exhaustively arranged in an applicable collective labour agreement form an exception to the rule though; if this applies, the consultative bodies referred to below do not, in principle, play a role in implementing the FPA (unless agreed otherwise), since in that case the trade unions have primary authority during consultations and negotiations.

Small companies 10-50 employees

Entrepreneurs managing small companies are required to arrange a staff meeting with their companies’ employees twice a year. Another option for small companies is to set up an employee representative body, either on their own initiative or if requested by the majority of their employees. The powers of these two consultative bodies are more or less the same. They both boil down to an obligation to inform the relevant body about the intended change and a limited right to be consulted on any major change to the pension plan, if such change affects at least 25% of the employees. This right to be consulted is considered to be limited because there is no possibility for the relevant body to initiate legal proceedings in the event of non-compliance by the employer with this obligation or with the advice given.

Large companies >50 employees

A large company is legally obliged to establish a Works Council. If a collective labour agreement has been entered into, this obligation may also apply to companies with <50 employees. Works Councils have a right to consent in respect of proposed decisions to adopt, amend or withdraw pension plans. The right of consent covers both changes to the pension scheme regulations and/or the pension agreement, as well as certain changes to components of the financing agreement. Unlike staff meetings and employee representative bodies, Works Councils do have the possibility of initiating legal proceedings if employers have taken decisions without seeking consent or if a Works Council has not given its consent.

The FPA does not stipulate an explicit deadline for completing the advisory procedure with the staff meeting or the employee representative body or for completing the consent procedure with the Works Council. That said, considering the deadline for completing the subsequent phase involving the individual employees’ employment conditions (see below), it is paramount to start this on time.

Change of the employment benefit of pension

After completion of the employee participation process, the intended change will have to be implemented in each individual pension agreement. Under the FPA this must be implemented no later than 1 January 2025, because the pension administrator also needs sufficient time to effectively implement the change. However, exceeding this deadline is not subject to a (direct) sanction.

Main rule: consent

In principle, the change must be implemented in each individual pension agreement with the consent of each individual employee involved. Circumstances may arise based on which the employee may be obliged to accept a proposal from the employer (if it is reasonable). Likewise, subject to certain conditions the employee’s silence (if considered deliberate) may indicate their consent.

No consent required?
Under certain circumstances, a change to the pension agreement does not require individual consent. Examples of this are the mandatory industry-wide pension funds, or situations in which employment contracts or pension agreements prescribe that parties are also bound to future versions of applicable collective labour agreements or pension scheme rules. In those cases, the employees concerned are directly bound to the collective agreements.

In addition, if employers have the right to unilaterally implement the change individual consent may not be required either. This occurs if employers have such a strong interest in the change that it is reasonable for this interest to prevail over the interest of employees in continuing the pension plan unchanged. This in addition is subject to the employment contract containing a provision facilitating such a unilateral change by the employer under such circumstances.

Equal treatment

Within the context of the FPA, from an employment law perspective the issue of equal treatment is also relevant. The Equal Treatment in Employment (Age Discrimination) Act (Wet gelijke behandeling op grond van leeftijd bij arbeid) prohibits direct or indirect age discrimination, unless it has a legitimate purpose and is achieved by appropriate and necessary means. One example of direct age discrimination is when an employee's contribution in the premiums due is age-dependent. An example of indirect age discrimination is when recently hired employees pay a higher premium contribution than regular employees, because new employees tend to be younger.

The FPA assumes a flat premium, so age discrimination will basically no longer occur. However, in various aspects of the transition to the new system, age-based discrimination may still play a role.

One of the situations in which this may occur is when the transition results in certain age groups temporarily not accruing any pension, or accruing less pension compared with the current situation. Compensating (to a greater or lesser extent) certain age groups within the context of collective conversion (transferring pension accrued in the past into the new pension system) and/or when applying transitional law, may involve direct or indirect age discrimination, too.

In the Explanatory Memorandum to the FPA, published in December 2020, the government explained why such age discrimination may nevertheless be permissible, as there may be a legitimate aim that is achieved by appropriate and necessary means. These arguments are based on the legitimate importance of transitioning to a new pension system. Employers and pension administrators, though, also have their own responsibility in substantiating why they consider the distinction they make legitimate, if only because they are the first parties to address employees.

Hence, adequate preparation during the transition phase is important. By assessing in advance whether the various components of the transition might lead to direct or indirect age discrimination, in your capacity as an employer or pension administrator you can anticipate possible discussions by identifying beforehand the legitimate purpose of the distinction made and the appropriate and necessary means to achieve that purpose. If you discuss the upcoming change of your pension plan with your Works Council or with the trade unions, you are advised to include this topic in these discussions. Furthermore, you could also consider having the intended course of action assessed in advance by, for example, The Netherlands Institute for Human Rights.