Chance of pension reduction small due to favorable rules

In

the coming years, until the new pension system is implemented in 2026, favourable rules will continue to apply for the so-called coverage of pension funds. As a result, there is a high probability that pensions will not have to be reduced. This can be seen from the new pension law, officially presented today by Minister of Great Tits. It had already been made clear that the risk of reduction is small due to the adapted rules.

In six years‘ time, the new pension system will have to be fully implemented. In that system, the coverage ratio no longer determines whether pensions should be cut. This will also bring an end to the discussion on the interest rate used to determine this coverage ratio. The coverage ratio is, in short, the money that a pension fund has available to pay the members’ pension benefits.

Because of the coronacrisis, Great Tit decided earlier that the funds will only have to cut next year if the funding ratio has fallen below 90 percent. Normally, that limit is 104 percent.

Pensions more flexible

Flexible rules will therefore also apply to the transitional period to the new system. The starting point is that the new system looks at the current situation. There will be no shortened if this is not strictly necessary. But to exclude it is certainly not, warns Great Tit.

The lower limit for the funding ratio remains at 90%, and pension funds have to check each year whether they are on course in order to be at 95% when the new system is finally adopted.

If

this is not the case, pensions will have to be cut, as is stated in the Great Tit proposal. But since the new system is already being anticipated, it is also more likely that pensions will increase with inflation, the so-called indexation. Most pensions haven‘t been indexed for years.

In the new system, pensions become more flexible, because they become more dependent on economic developments. If things go economically well, pensions can go up sooner. Conversely, the same applies: in a disappointing economy, they go down faster.

More security

However, ‘safety valves‘ are introduced to absorb too hard blows. Thus, the countless and setbacks count less heavily for people who are already close to their retirement. In this way, they have more certainty about the amount they eventually get.

Today’s proposal by Great Mees goes into so-called ‘Internet consultation’. That means that anyone who wants to do so can make their say about it until February 2021. The new pension law is planned to enter into force in 2022. After the transitional period, the new system will be in place in 2026.