The Future Pensions Act (FPA) Explained

Date:August 1, 2023

On July 1, 2023, the Future Pensions Act, FPA in short (or Wet Toekomst Pensioenen – WTP in Dutch) officially came into effect, marking a significant milestone in the history of the Dutch pension system. This act is a major reform aimed at making the Dutch pension system more balanced, flexible, personalized, and transparent. It impacts all three pillars of the Dutch pension system, thereby affecting nearly all pension schemes.

From Defined Benefit to Defined Contribution

In the new system, the focus in the second pillar is on the premium contributions, and the pension benefits are no longer based on accrued rights as commonly seen in the current average salary schemes. This means that the transition is made from a ‘Defined Benefit’ (DB) to a ‘Defined Contribution’ (DC) system. This change has significant implications for (former) participants and retirees, as almost all existing pension schemes are based on accrued rights. It also has a considerable impact on pension funds, service providers, and other entities in the sector.

The transition to the new pension system is a complex and unique operation. A transitional phase has been initiated, running until January 1, 2028, during which the sector is working on implementing the measures from the FPA and the resulting regulations. The goal is to adjust all pension schemes to the new system by that date. The challenge is to create a system that enjoys full trust from participants and to do so in a controlled and cost-efficient manner.

The transition to the new pension system is a complex and unique operation. The challenge is to create a system that enjoys full trust from participants and to do so in a controlled and cost-efficient manner.

The transition from DB to DC has already taken place in several countries, and it is common practice almost everywhere not to transfer accrued rights to the new pension scheme. This means that in other countries, the two types of schemes will continue to coexist for a considerable period.

Sailing into it

The unique aspect of the FPA is the massive conversion of accrued pension rights to new defined contribution schemes (also known as ‘sailing into it’ or invaren in Dutch). This has not been done on this scale before. Sailing into it presents both operational challenges, such as data quality and communication, and important substantive issues, such as determining the appropriate compensation for groups of stakeholders who may be adversely affected by the transition to the new system.

A successful implementation requires an integrated approach.

The transition to the new pension system involves various themes, and a successful implementation requires an integrated approach to these themes. The relevant page introduces these themes, discussing both the general outlines and the details. It addresses the challenges and opportunities that the FPA brings, with the ultimate goal of achieving a successful, controlled, and cost-efficient transition to the new system. A system that is more balanced, flexible, personalised, transparent, and sustainable.

Realisation and Implementation of the Future Pensions Act

As of July 1, 2023, the FPA will come into effect. From this date onwards, all involved parties can make the transition to a pension scheme that complies with the FPA. Because the transition from the current pension system to the new pension system involves a massive operation, where the accrued pension is converted into individual pension pots, it is crucial to execute this carefully and controlled and communicate about it transparently and comprehensibly. The realization and implementation of the FPA take place in three phases:

  1. The preparation phase, in which the labor conditions agreements regarding the new pension scheme and the conversion of pension entitlements are made.
  2. The transition to the FPA, where the new pension scheme is implemented, and the entitlements are converted into individual pension pots. This must be completed by January 1, 2027, at the latest.
  3. The compensation phase, in which any negative effects of converting the entitlements into individual pension pots are compensated (over a period of 10 years).

Vision of Projective Group

The majority of parties operating in the pension sector are affected by the implementation of the FPA. New policies, processes, IT adjustments, compliance issues, manageability, communication, and risk management are all challenges that arise. Our consultants possess the knowledge and expertise to assist our clients through advisory or execution support in achieving or maintaining an integral and controlled business operation in the realization and implementation of the FPA.

Interested in learning more? Contact us here.

About Projective Group

Established in 2006, Projective Group is a leading Financial Services change specialist. With deep expertise across practices in Data, Payments, Transformation and Risk & Compliance.

We are recognised within the industry as a complete solutions provider, partnering with clients in Financial Services to provide resolutions that are both holistic and pragmatic.  We have evolved to become a trusted partner for companies that want to thrive and prosper in an ever-changing Financial Services landscape.