In the realm of employment benefits, a pension scheme holds a special place as the most highly regarded secondary benefit among employees. Recent research conducted by both Aegon Cappital and other parties reveals that workers, even those in younger age brackets, recognize the importance of a robust pension plan. Despite dedicating limited time to contemplating their retirement, employees acknowledge the value of this benefit and appreciate employers who prioritize their long-term financial security.
In the Netherlands, a new pension legislation, fully effective as of 2028, will trigger a shift towards a single type of pension system known as the defined contribution. This impending change demands thoughtful decision-making, as the transition can significantly impact employees in various ways. Consequently, it is imperative for organizations to initiate the process of designing or revising their pension schemes well in advance.
The pension advisor’s role
The evolving landscape of pension regulations necessitates a tailored approach for creating a robust and effective pension scheme. Engaging a knowledgeable pension advisor is crucial. Their role involves analyzing employee preferences and requirements, defining the financial framework within budget constraints, assessing risk appetite, and considering any mandatory requirements from collective labor agreements or industry pension funds. A pension advisor will also assist in selecting the most suitable product to meet the organization's specific needs. Ultimately, the advisor proposes a tailored pension scheme, associated pension provider and ensures compliance with new legal requirements. As a new style pension provider, Aegon Cappital provides pension advisors with extensive tools to assist with these steps.
Involve employees in the pension transformation and start on time
The first step is to gauge employees' needs and secure consensus on the proposed plans. Once employee needs are understood, it is vital for employers to formulate a clear vision and purpose regarding their pension scheme. Companies may adopt different perspectives, ranging from using the pension scheme as a talent acquisition and retention tool to providing financial stability for their workforce. This vision sets the foundation for the ultimate design of the pension scheme. Furthermore, organizations should address the growing demand for flexibility in pension schemes. Many employees seek more control over their retirement planning and want options such as early access to a portion of their pension capital or the ability to adjust the retirement age. Some options are already well established, but others become available in the new pension system and employers should use these options to meet the evolving needs of employees.
“In the Netherlands, a new pension legislation, fully effective as of 2028, will trigger a shift towards a single type of pension system known as the defined contribution”
The Works Council or Labor Unions plays a significant role in the process of creating or amending a pension scheme. Obtaining their approval is not only a legal requirement, but also of added value in testing if proposed solutions will resonate with employees. Involving them early in the process ensures a smooth transition to the new pension system. By actively engaging with the employee representatives from the outset, organizations can address concerns and secure their buy-in, reducing potential hurdles during implementation.
Once the Works Council or Labor Unions give the green light, the approved pension scheme can be implemented. However, the process doesn't end there. Effective management and monitoring of the scheme are crucial. Significant changes within the organization, such as mergers, acquisitions, or shifts in the workforce, may necessitate adjustments to the pension scheme. Regular evaluation ensures that the scheme remains aligned with the company's objectives and employees' evolving needs.
Historically, changes to pension systems have often been implemented at the last minute, just before the deadline. However, there are notable advantages to starting the process early. Initiating the process allows ample time to thoroughly assess employees' needs, formulate a comprehensive vision, and take the necessary steps to ensure a seamless transition to the new scheme. Early action also provides organizations with the opportunity to leverage the expertise of pension advisors, customize the scheme to meet specific requirements, identify any legal constraints or considerations and leaves room for the selection of the most suited pension provider. By taking a proactive approach, companies can avoid last-minute compromises or the implementation of schemes that do not fully align with employees' needs and aspirations.
Clear pension communication is important when choosing a pension provider
Communication and education play a vital role in the success of a pension scheme. Employers should select a pension provider who is able to provide employees with clear and understandable information about the pension scheme, its benefits, and how to manage it. Together with their selected partner they should use effective communication tools such as workshops, seminars, and access to that expert advisors should be made available to employees. Additionally, discussing the role of technology and digitization in pension management is crucial. Employers should also look for a pension provider that makes use of online platforms, mobile apps, and automated tools to enhance employee engagement with their pension scheme. For instance at Aegon Cappital we use automated tooling to help employees make choices regarding the risk they are financially able to take and also comfortable with. Last, highlighting the importance of long-term planning and early action in a more individual pension system is essential. Employers should emphasize the benefits of starting retirement planning early, to reduce the risk of inadequate retirement income.
Conclusion
Undoubtedly, a well-crafted pension scheme holds immense value for both employees and employers. While employees may invest limited time in contemplating their retirement, they consistently recognize the significance of a robust pension plan. Consequently, employers must dedicate attention and resources to crafting pension schemes that meet the diverse needs of their workforce. By embarking this journey well in advance, involving key stakeholders, and taking early action, organizations can ensure that their pension schemes align with their vision, provide financial security, and support employees in achieving their long-term goals.
