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Value transfer: the former employer gets the bill

Changing jobs also has consequences for the pension scheme of the employee. He or she will no longer be participating in its current pension scheme, but instead start participating in the scheme of its new employer. This will lead to a certain amount of fragmentation, as the employee ends up accruing pension rights with several pension providers (pension funds or insurers). This may disadvantage the employee. To overcome such disadvantages the concept of individual value transfer has been created. But then again, this may end up disadvantaging the employ

Individual value transfer

Disadvantageous consequences for the employee may result particularly, if he or she was part of a final salary scheme. In these schemes the pension is tailored to the final salary that is earned. In that case, any move causes a pension loss. This can be countered with individual value transfer. Individual value transfer means that the employee takes the accrued pension rights with it to its new pension provider, thereby providing the employee with pension rights of the new pension provider in respect of the past, as if the employee had always participated in that new pension scheme. To that end, the previous pension provider is required to transfer the reserved pension benefits to the new pension provider. But often not the precise amount that is needed is transferred. That is the result of the applicable rules. In that case, either the former or the new employer may be obliged to pay the difference. Until 2011 it was always the new employer. Whereas, now, the former employer may be the one having to make additional payments. This means that former employers are potentially being faced with very hefty payment obligations, especially since 1 January 2012, and particularly for employees with many years' service.

A risk for the employer?

Employers would be well-advised to check what risks they are running in this regard. These can differ on a case-by-case basis. If you are affiliated to a pension fund then, as a rule, you are not running any risk. In addition, the Minister plans to introduce a threshold amount for small employers. If the additional amount to be paid by such small employer exceeds € 15,000.00, there is no obligation to make the additional payment. However it then also has to be an established fact that the additional payment would be at least 10% of the total transfer value. This exception would apply to all employers that, in accordance with the social security legislation, are considered to be "small". However, on account of the fall of the Cabinet, it is now uncertain whether the relevant draft Decree will be introduced. The obligation to make an additional payment may, furthermore, not be an issue in a number of other cases, either.

Advantageous for the employee?
So, where there is a risk, what then? Then, the next question should be, what will this value transfer actually deliver? In actual fact, it is not always necessarily in the employee's interests. There may be disadvantages associated. For example, if the new scheme offers less prospect of indexation on the accrued rights. On balance, an employee may then be worse off. Then value transfer ends up being a double whammy. Both for the employer (who has to make up the difference), and for the employee (poorer pension). There is insufficient awareness of this among employees. There is a tendency for them to make a fairly rash decision in favour of individual value transfer, looking only at the benefit of convenience: all their rights in one scheme. They overlook the financial consequences. However, these may be far more important. In addition to this, due to the launch of the pension register www.mijnpensioenoverzicht.nl (pages in Dutch) the benefit of convenience has become much more relative.

In brief: take stock and discuss

So, employers would be well-advised, in their own interest, to provide their (former) employees with proper advice on this matter. In any case, they are obliged to point out to them the option of individual value transfer. When employers fulfil this obligation, they are better off taking stock of and discussing the further consequences at the same time.

Authors

Picture of Paulus van den Bosch
Paulus van den Bos
Advocaat
Amsterdam