The Dutch pension landscape is undergoing its most significant transformation in decades with the implementation of the Wet toekomst pensioenen (WTP), or Future Pensions Act. Officially enacted on 1 July 2023, the WTP represents a landmark legislative reform, amending thirteen existing laws, including the foundational Pension Act. This comprehensive overhaul initiates a transition period for pension funds, employers, and participants, now extending until at least 1 January 2028, to adapt to the new framework. The core objective of the WTP is to forge a supplementary pension system that is more transparent, personal, and sustainable in the long term. This ambition necessitates a complete renewal of all employee pension agreements and the underlying agreements with pension providers.
The WTP is not merely a legislative update but signifies a fundamental re-architecting of the social contract surrounding retirement in the Netherlands. The extensive nature of the reform, touching numerous laws and fundamentally altering pension structures for approximately 70% of employees previously in Defined Benefit (DB) schemes, underscores a profound shift. This change moves away from a model of collective employer and fund responsibility for guaranteed outcomes towards one characterised by greater individual exposure, transparency, and engagement. The protracted nine-year negotiation period leading to the WTP’s adoption further highlights its foundational importance.
The extended transition period, now confirmed until at least 2028, is indicative of the immense operational and administrative complexity entailed by the reform. The task of converting an estimated €1.5 trillion in collective pension assets into individual pension pots is a monumental undertaking. This “marathon sprint,” as some commentators have termed it, involves substantial IT system overhauls, meticulous attention to data quality, and the development of entirely new communication strategies to guide participants through the changes. The fact that some pension funds are already signaling postponements to their transition timelines further attests to these practical difficulties.
Several converging pressures necessitated this comprehensive reform. The traditional Dutch pension system, long lauded for its robustness, faced growing challenges to its long-term sustainability. Demographic shifts, notably increasing longevity, and a more dynamic labour market characterised by more frequent job changes, rendered the old collective models increasingly strained. Persistently low interest rates also exerted considerable pressure on the funding of pension promises and limited the growth potential of pension assets under the previous regime.
A key structural issue addressed by the WTP was the “doorsneesystematiek,” or average premium system. Under this system, pension contributions from younger participants, which had a longer investment horizon to generate returns, were effectively pooled and averaged with those of older participants. This was perceived as disadvantaging younger cohorts. The WTP seeks to create a system where pension assets can potentially grow more rapidly during favourable economic conditions, while also acknowledging the inherent risk of greater volatility during less prosperous periods.
At its core, the WTP aims to recalibrate intergenerational fairness and enhance individual agency in pension accrual. The explicit abolition of the “doorsneesystematiek” directly tackles the perceived inequity for younger workers. Concurrently, the introduction of personal pension pots and a strong emphasis on transparency are designed to empower individuals. This shifts the system towards one where personal contributions, investment choices (where applicable), and individual investment horizons have a more direct and visible impact on ultimate retirement outcomes.
For decades, the Dutch occupational pension system was predominantly characterised by Defined Benefit (DB) arrangements. In these schemes, the pension benefit payable at retirement was typically determined by a formula based on factors such as the participant’s final salary or career average salary, and years of service. A defining feature of DB plans was that the primary investment and longevity risks were borne by the employer or the pension fund. Prior to the WTP, approximately 70% of Dutch employees participating in occupational pension schemes were covered by such DB plans. These arrangements involved collective pension pots and, crucially, provided a degree of certainty or guarantee regarding the level of benefits participants would receive in retirement.
The WTP marks a decisive break from this tradition. The Act explicitly disallows the establishment of new DB or final-salary arrangements. All future pension accruals within the Dutch occupational pension system must now take place within Defined Contribution (DC) plans. While existing pension entitlements accrued under DB plans will remain unaffected until they are converted into a DC framework, the future is unequivocally DC.
This transition entails a fundamental shift in the allocation of risk. In DC schemes, the ultimate pension outcome is not predetermined but depends on the total contributions made and, critically, the investment returns achieved on those contributions over the participant’s career. Consequently, investment risk and, to a large extent, longevity risk are borne more directly by the individual participant rather than the employer or the collective fund.
This transition from DB to DC represents a fundamental shift in the risk landscape, with profound implications for Liability-Driven Investment (LDI) strategies. Traditional DB plans are characterised by well-defined, long-term liabilities, making LDI strategies focused on matching asset cash flows to these future obligations a cornerstone of their investment management. Under the WTP’s DC framework, the concept of “liability” transforms. It is no longer a guaranteed nominal amount but rather the provision of an adequate retirement income stream derived from the performance of individual pension pots.
This alters the nature of LDI, moving its focus from precise liability matching to fostering growth potential while managing volatility appropriate to different age cohorts, often through lifecycle investment approaches. The scale of this challenge is underscored by the estimated €1.2 trillion in existing DB assets that will transition to the new DC system, compelling a system-wide re-evaluation of investment and risk management philosophies.
A critical component of the transition to the new DC system is the ‘invaren’ process. ‘Invaren’ refers to the collective transfer of existing pension assets, estimated at around €1,500 billion, from the old collective DB pots into the newly established individual pension pots for each participant. This process is generally mandatory for pension funds, unless it can be demonstrated that ‘invaren’ would lead to a significant and demonstrable disadvantage for specific groups of beneficiaries. Current surveys by De Nederlandsche Bank (DNB) suggest that pension funds representing approximately 97% of total participants intend to convert existing pension entitlements into the new system.
The mechanics of ‘invaren’ must be detailed in a transition plan. This plan is typically drafted by employers in consultation with employee representatives or, in the case of industry-wide pension funds, by social partners (employer organisations and trade unions). The DNB and the Autoriteit Financiële Markten (AFM) play crucial supervisory roles, assessing these transition plans for their financial impact, the robustness of the decision-making process, and the adequacy of risk management strategies.
The ‘invaren’ process is fraught with complexity. It demands meticulous attention to data quality, ensuring that participant records are accurate and complete. Significant IT system upgrades are necessary to facilitate the creation and administration of individual pots and the new contract types. Effective and transparent participant communication is paramount to explain the changes and their implications. Furthermore, the entire process must adhere to the principle of ‘evenwichtigheid,’ ensuring a balanced consideration of the interests of all participant groups (active members, deferred members, and pensioners). Recent political discussions and proposed legislative amendments concerning mandatory referendums or individual opt-out rights for the ‘invaren’ process highlight the sensitivity surrounding these conversions and the potential for further complications or delays.
The ‘invaren’ process can be seen as the technical and political linchpin of the entire WTP reform. Its success is contingent upon not only robust execution but also the perceived fairness of the conversion. The sheer financial scale of the asset transfer and the direct impact on every participant’s accrued pension rights make ‘invaren’ an exceptionally sensitive operation. The legal requirement for a ‘balanced’ transition, as stipulated in the WTP, is an “undefined standard”, leaving room for interpretation and potential disputes. The political proposals for referendums or opt-outs underscore this sensitivity. As the Dutch Pension Federation has warned, a failure to manage this process equitably and transparently could trigger legal challenges and significantly erode trust in the new pension system.
Furthermore, the ‘invaren’ process itself will necessitate a significant re-evaluation of asset valuations and is likely to trigger large-scale asset re-allocations, which could have ripple effects across financial markets. Converting collective DB assets into individual DC pots requires valuing those assets at a specific point in time. The choice of valuation methodologies and the very act of division can crystallise unrealised gains or losses. While some analyses suggest that pension funds may initially seek to maintain their existing asset mix to avoid undue market stress, the fundamental shift towards lifecycle investing, inherent in the new DC framework, will inevitably drive changes in asset allocation over time. The unwinding of extensive long-dated interest rate hedges, a common feature of DB LDI strategies, is alone predicted to generate substantial market flows.
To clarify the fundamental differences, Table 1 provides a comparative overview:
Table 1: Key Differences: Traditional DB vs. WTP DC Schemes
Feature | Traditional DB | WTP DC Schemes (General) |
Benefit Promise | Typically fixed or formula-based (e.g., final/average salary) | Variable; depends on contributions and investment returns |
Primary Risk Bearer | Employer / Pension Fund | Participant |
Contribution Structure | Often age-dependent (e.g., ‘doorsneesystematiek’) | Flat-rate (age-independent) premium |
Pension Pot | Collective | Individual pension pots |
Portability | Often complex to transfer accrued rights | Designed for simpler transfer of individual pot value |
Investment Focus | Primarily liability matching | Growth-oriented with lifecycle de-risking |
Guarantees | Explicit guarantees on benefit level common | Limited or no explicit guarantees on benefit level; outcome-based |
Transparency for Member | Often opaque regarding individual share | High transparency on individual pot value and contributions |
A central tenet of the WTP is the introduction of individual pension pots for every participant. This means that each employee will have their own clearly identifiable account where contributions paid in (by both employee and employer) and the investment returns generated on those contributions are visibly tracked. The primary aim is to enhance transparency and foster a greater sense of personal ownership over pension savings.
The implications of this shift are manifold. Participants will gain significantly more insight into and, in some schemes, more control over their pension accrual. The ultimate pension benefit will be directly dependent on the capital accumulated within this personal pot. It is important to note that the personal pension pot represents the life insurance value of a pension entitlement; this means it is designed to provide income for life but, generally, any remaining capital in this specific pot upon premature death is not passed to heirs, as survivor pensions are typically funded separately. This individualisation also brings increased responsibility for employees, necessitating a higher degree of financial literacy and engagement with their pension planning.
The move to individual pots, while lauded for increasing transparency, concurrently transfers a significant cognitive and decision-making burden to participants. While the ability to see one’s “own” pension money grow can be empowering, understanding the complex interplay of investment choices (particularly in flexible schemes), market volatility, and individual longevity on the final value of that pot requires a more sophisticated level of financial understanding than was previously necessary. Recognising this, the WTP itself mandates that pension providers offer enhanced “choice guidance” to assist participants in making informed decisions. This represents a significant new role for pension providers, extending beyond mere administration to encompass education and decision support.
A cornerstone of the WTP reform is the abolition of the ‘doorsneesystematiek’, or average accrual system. Under this traditional Dutch system, every euro of contribution resulted in the same nominal pension accrual for all participants, regardless of their age. However, because contributions from younger members had a much longer period to generate investment returns, they were effectively subsidising the pension accrual of older members whose contributions had less time to grow. The rationale for abolishing this system is rooted in a desire for greater intergenerational fairness, particularly for younger generations, and to create a system better suited to modern careers characterised by more frequent job changes and less lifelong employment with a single employer.
In place of the ‘doorsneesystematiek’, all new pension schemes established under the WTP must implement a flat-rate, or age-independent, contribution system. This means that the contribution, expressed as a percentage of the pensionable salary, will be the same for all participants within a given scheme, irrespective of their age. The maximum tax-allowed pension contribution is set at 30% of the pensionable salary (less the AOW franchise), excluding additional costs for administration and risk premiums (such as for disability or survivor benefits). A temporary increase to 33% is permitted until 1 January 2037, primarily to facilitate compensation arrangements during the transition. The pension base, upon which this flat-rate premium is calculated, is determined by taking the employee’s pensionable wage and subtracting the AOW (state pension) franchise. The AOW franchise effectively carves out the portion of income for which state pension provision is already made.
The shift to a flat-rate contribution has distinct impacts on pension accrual for different age groups. Younger workers are generally expected to benefit, as their contributions (being a consistent percentage from an earlier age) will have a longer period to compound through investment returns. This can lead to a more substantial personal pension pot by retirement compared to some traditional progressive scale systems where their initial contributions might have been lower. Conversely, mid-career and older workers, particularly those in the 40-to-55 age bracket, may experience a relative disadvantage. Under the ‘doorsneesystematiek’, they would have benefited from increasing contribution rates or the implicit subsidy from younger members as they approached retirement. The flat-rate system removes this, potentially leading to lower accrual in their later working years if no compensatory measures are taken.
Recognising the potential adverse effects on certain age groups, the WTP mandates that adequate and cost-neutral compensation be provided to those negatively impacted by the transition from age-dependent to flat-rate contributions. This compensation is primarily targeted at the 40-to-55 age group. Employers have two main avenues for providing this compensation: either by granting additional pension entitlements within the new scheme or by providing an increase in salary. For pension funds undergoing the ‘invaren’ process, existing pension assets can potentially be used to finance part or all of this compensation.
However, employers whose schemes are with insurers or Premium Pension Institutions (PPIs) may not have access to such collective assets and will need to find alternative ways to fund compensation, typically through increased premiums or direct salary adjustments.
An important transitional provision is the “non-retroactive effect” (eerbiedigende werking). Employers can opt to allow existing employees (those in service before a cut-off date, typically linked to the fund’s transition date but no later than 1 January 2028) to remain under the old age-dependent contribution scale. New employees hired after this date would then enter the new flat-rate scheme. This option can simplify communication and reduce immediate compensation needs for the existing older workforce, but results in the employer operating two different pension systems concurrently, which can introduce its own administrative complexities.
The shift to flat-rate contributions, while aiming to enhance fairness for younger cohorts, introduces considerable complexity in designing and implementing compensation mechanisms. The ‘doorsneesystematiek’ embodied an implicit intergenerational contract, which is effectively broken for mid-career individuals who contributed “too much” in their younger years with the expectation of benefiting from the system’s age-related advantages later on. The mandated compensation is an attempt to bridge this gap, but its calculation, funding (especially for employers with insured schemes), and perceived fairness are intricate challenges. The “non-retroactive” option may defer some of these complexities but at the cost of creating dual-track systems within an organisation. The ultimate success of this fundamental change in contribution methodology will depend significantly on how well these compensation issues are navigated without creating new grievances or perceived inequities.
Table 2 illustrates the conceptual impact of this shift:
Table 2: Impact of Age-Independent Contributions vs. ‘Doorsneesystematiek’
Age Cohort | Pension Accrual under ‘Doorsneesystematiek’ (Conceptual) | Pension Accrual under WTP Flat-Rate (Conceptual, Pre-Compensation) | Key Compensation Considerations |
20-30 | Lower initial accrual relative to premium paid (subsidising older members) | Higher initial accrual relative to premium paid (no subsidy out); full benefit of long investment horizon | Generally benefits; no compensation typically needed. |
30-40 | Approaching a “fair” accrual relative to premium; may start to benefit from system | Fair accrual from own premium; loses future implicit subsidy from younger new entrants | May experience some negative impact depending on previous system’s progressivity; compensation may be considered in some cases. |
40-55 | Higher accrual relative to premium paid (benefiting from subsidy from younger members) | Fair accrual from own premium; loses significant expected future subsidy | Most likely to be adversely affected; primary target group for compensation to bridge the gap. |
55+ | Highest accrual relative to premium paid (significant benefit from subsidy) | Fair accrual from own premium; loses expected subsidy, but has less time for new system to impact total pot | Impact depends on proximity to retirement and ‘invaren’ rules for existing rights; compensation may be part of overall transition. |
Note: This table is conceptual, and actual impacts vary based on specific scheme designs and individual circumstances.
Under the WTP, social partners (employers and unions) are tasked with choosing the type of pension contract that best suits their industry or company. The law provides for three main types of defined contribution agreements:
The SPR is characterised by its collective nature. It features an age-independent, fixed contribution that is invested collectively by the pension provider. Investment returns are not directly tied to individual accounts in terms of investment choice but are distributed among participants according to a predetermined allocation key. This key is designed such that younger participants, with a longer investment horizon, generally bear more investment risk and have greater exposure to potential upside from investment results. A defining feature of the SPR is a mandatory “solidarity reserve”. Participants in an SPR do not have individual investment choices, and pension payouts are typically only in a variable form. The SPR emphasises collective risk-sharing and solidarity among participants.
The FPR shares some similarities with pre-existing DC plans, particularly in its separation of individual pension assets during the accumulation phase from the collective assets of pensioners in the benefit phase. However, like all WTP schemes, it mandates a flat, age-independent contribution rate. A key feature of the FPR is the potential for participants to have some degree of investment choice, typically within a lifecycle framework where risk is adjusted according to age. Investment returns are directly allocated to the individual’s pension capital. Upon retirement, the participant typically has a choice between a lifelong fixed pension benefit (which may be lower) or a variable benefit that continues to be exposed to investment risk but offers the prospect of higher payouts. The FPR may also include an optional “risk-sharing reserve,” which is mandatory for industry-wide pension funds choosing this contract type. Compared to the SPR, the FPR offers more individual choice and flexibility, with correspondingly less inherent collective solidarity.
The PUK is specifically designed for pension insurers, though under certain conditions, PPIs can also execute them. In this arrangement, contributions are also invested individually. A distinctive feature of the PUK is that it offers participants the option, typically starting 15 years before their statutory retirement age, to use their accrued pension capital to purchase a guaranteed nominal fixed or partially fixed lifetime pension benefit. This type of scheme was already in existence prior to the WTP and continues to be an option under the new law.
The three WTP contract types offer a spectrum of solutions, balancing collective elements with individualisation. The PUK, being primarily an insurance product, occupies a somewhat different space. The main decision for the majority of pension funds and social partners will revolve around the choice between the SPR and the FPR. The SPR, with its collective investment approach and mandatory solidarity reserve, maintains stronger ties to the traditional Dutch pension philosophy of collective solidarity. In contrast, the FPR offers a greater degree of individual choice and direct exposure to investment risk, reflecting broader international trends in pension reform towards individualisation. The aggregate of these choices across the Dutch pension landscape will significantly shape the future character of occupational pensions in the Netherlands, whether they lean more towards collective security or individual responsibility. Current projections and the stated preferences of some influential bodies, like trade unions, suggest that a significant number of funds may opt for the SPR.
Table 3 provides a structured comparison:
Table 3: Comparative Overview of WTP Pension Contract Types
Feature | Solidary Contribution Scheme (SPR) | Flexible Contribution Scheme (FPR) | Contribution-Benefit Agreement (PUK) |
Primary Administrator | Pension Provider (Pension Fund) | Pension Provider (Pension Fund) | Pension Insurer (or PPI under conditions) |
Investment Approach | Collective investment; returns allocated via key | Individual lifecycle investing (default); potential for participant choice in investment profiles | Individual investment |
Primary Risk Allocation | Collective (shared via allocation rules and solidarity reserve) | Primarily Individual (direct link to personal pot performance) | Individual during accumulation; can be transferred to insurer via purchase of guaranteed benefit |
Collective Buffer | Mandatory Solidarity Reserve | Optional Risk-Sharing Reserve (mandatory for industry-wide funds) | None inherent to the accumulation phase; guarantee purchased from insurer |
Participant Investment Choice | No | Yes, if offered by the scheme (within lifecycle framework) | Yes, during accumulation; then option to annuitise |
Payout Form | Variable only | Choice between Fixed or Variable benefit at retirement | Choice between Fixed or Variable benefit (if fixed benefit purchased pre-retirement) |
Key Characteristics | Emphasis on solidarity, collective risk-sharing, stable payouts | Emphasis on individual choice, flexibility, direct link between investment and outcome | Option for early de-risking through purchase of guaranteed benefits from an insurer |
The WTP introduces a new paradigm for risk management in pensions, moving away from the implicit and explicit guarantees of DB schemes towards a system where risks are more transparently allocated and managed through new mechanisms within the DC framework.
In the SPR, the collective investment of assets means that financial risks are inherently pooled among participants. The core of risk management in the SPR lies in the ‘toedelingsregels’ (allocation rules). These rules meticulously define how investment returns, differentiated into ‘protection return’ and ‘excess return’, and various other financial results (including those related to longevity) are distributed across different age cohorts and to the mandatory solidarity reserve.
The protection return (beschermingsrendement) is designed to shield pension assets, particularly those of older cohorts, from adverse movements in interest rates, thereby providing a degree of stability to their expected pension outcomes. This can be achieved through a ‘direct method,’ where returns are generated from a separately managed protection portfolio, or an ‘indirect method,’ where allocations are made from the collective pool based on DNB’s reference interest rate term structure (RTS). The excess return (overrendement) represents the investment return remaining after the allocation of the protection return. This portion is distributed based on the risk appetite of the various age cohorts, with younger participants typically receiving a larger share, reflecting their greater capacity to absorb volatility for potentially higher long-term growth.
Longevity risk, both micro (individual deviations from expected lifespan) and macro (systemic changes in life expectancy due to new mortality tables), is also managed through a combination of allocation rules and the solidarity reserve. For micro-longevity, protection returns are age-dependent, and any collective mortality gains or losses (the difference between the reserved capital of deceased participants and allocated protection returns) can be allocated to cohorts or the reserve. Macro-longevity impacts can be buffered by the solidarity reserve or addressed through specific allocation rules that adjust capital based on revised life expectancy data.
Inflation risk is primarily addressed indirectly through the overall investment strategy and the potential for achieving positive excess returns. If the ‘direct method’ for protection returns is used, inflation-linked assets might be included in the protection portfolio to offer a more direct hedge. Interest rate risk is principally managed via the allocation of protection returns, with older, more risk-averse cohorts receiving a higher degree of protection.
A notable feature of the SPR is the possibility of lifting borrowing restrictions (‘Leenrestrictie’). This allows younger participants to have an exposure greater than 100% to the excess return portfolio, effectively (though fictitiously) borrowing from the more stable assets allocated to older cohorts, up to a maximum exposure of 150%. Should this leveraged exposure result in negative personal assets, the scheme must have rules for replenishment, often involving the solidarity reserve.
The intricate allocation rules of the SPR, while designed to promote fairness and stability, introduce new layers of complexity in terms of modelling and governance for pension funds. These ‘toedelingsregels’ are highly detailed, requiring sophisticated actuarial and financial models to implement correctly. Pension funds must conduct thorough scenario analyses and establish robust governance structures to ensure transparency in how these rules are applied and to demonstrate that the outcomes align with the risk attitudes of their diverse participant base. The Dutch Pension Federation has explicitly highlighted the increased importance of model risk management in this new environment.
In stark contrast to the SPR, the FPR places the primary burden of financial and investment risk squarely on the individual participant. Investment risk is managed predominantly through lifecycle investing strategies, where the asset allocation automatically de-risks as the participant approaches retirement. Many FPRs will also offer participants a degree of choice over their investment profile, allowing them to opt for a more aggressive or conservative strategy than the default lifecycle path.
Longevity, inflation, and interest rate risks are largely individualised in the FPR. The participant’s retirement income will depend on the size of their personal pension pot at retirement and the prevailing market conditions (e.g., annuity rates) when the pot is converted into an income stream. Pooled swap funds can be utilised as a tool within FPRs to help manage interest rate risk for individual members or cohorts.
The FPR framework, by design, shifts the onus of managing retirement outcomes significantly towards the individual. This makes participant financial literacy and the quality of default lifecycle strategies paramount. While individual investment choices offer flexibility, participants are also directly exposed to market risks. Given that many individuals may lack the financial expertise or inclination to actively manage their pension investments, the design of appropriate default lifecycle funds and the provision of robust “choice guidance” by pension providers become critically important. The “duty of care” for pension funds and employers is arguably heightened in the FPR, requiring them to ensure participants understand the risks and choices involved.
Even within the new DC framework, mechanisms for collective risk-sharing persist, primarily through the solidarity reserve in SPRs and the risk-sharing reserve in FPRs.
The Solidarity Reserve is a mandatory component of the SPR. It is a collective capital buffer, capped at a maximum of 15% of the pension fund’s total assets. This reserve can be funded through a portion of ongoing pension contributions (up to 10% annually), a share of collective excess investment returns (up to 10% annually), or via a one-time capital injection from existing fund assets during the ‘invaren’ process. Its primary purpose is to absorb financial shocks, smooth out investment returns over time, share risks intergenerationally, and generally make the payout phase of pensions more stable for retirees. The solidarity reserve is not allowed to become negative.
The Risk-Sharing Reserve is an analogous feature for the FPR. It is optional for most funds implementing an FPR but becomes mandatory for industry-wide pension funds that choose this contract type. Like the solidarity reserve, it is capped at 15% of assets and can also be initially funded from existing assets during ‘invaren’. However, a key difference is that ongoing funding for the risk-sharing reserve can only come from pension contributions (up to 10% annually), not from investment returns. This reserve allows for the sharing of certain risks between the accumulation and payout phases and can also facilitate intergenerational risk sharing. It too cannot become negative.
These collective reserves, while generally smaller and funded differently than the substantial buffers often maintained under traditional DB schemes, represent the primary mechanism for retaining some degree of collective risk-sharing in a predominantly DC world. Their effective governance, transparent funding, and clearly defined rules for deployment will be crucial for maintaining participant trust and confidence. In the absence of explicit benefit guarantees, the prudent management of these reserves is key to demonstrating that some collective protection against adverse outcomes remains within the new system. The rules governing their use must be pre-defined and clearly communicated to participants.
Under the WTP, the principle for handling capital that remains from participants who pass away (often referred to as ‘sterftewinst’ or ‘biometrisch rendement’ – mortality gain or biometric return) has shifted. Generally, such capital is no longer paid out as ‘restitution’ directly to the heirs from the deceased’s main pension pot, particularly in the Solidary Pension Scheme. Instead, this capital reverts to the collective. This collective capital can then be used to help fund survivor pensions (which, pre-retirement, are now largely risk-based and funded by separate premiums) or to otherwise benefit the remaining collective of participants, for example, by being added to the solidarity or risk-sharing reserves, or by being redistributed among other participants’ pots.
One specific implementation of this principle is described by Centraal Beheer PPI as a “bonus on survival.” In their model, money released from the accounts of deceased participants is channeled into a profit-sharing deposit. This deposit is invested, and the proceeds are then used annually to increase the pension capital for all active and deferred participants within their WTP-compliant schemes. While this is one provider’s approach, the underlying principle of collective benefit from mortality gains is consistent with the WTP’s design.
In the Flexible Premium Scheme, mortality gains (‘sterftewinst’) can also be handled collectively, for instance, by being credited to the risk-sharing reserve or by being distributed uniformly among the remaining participants. It’s a key principle that pensioners are always protected against micro-longevity risk (the risk of individuals living longer than average). The Minister for Pensions had indicated an intention to investigate whether some form of ‘restitution’ (direct payment to heirs from the pot) could be reintroduced, but this was not anticipated to be resolved by the time the WTP came into effect.
The handling of ‘sterftewinst’ is a nuanced but important facet of the WTP’s risk-sharing architecture. It subtly reinforces the collective nature of the pension system, even within the more individualised schemes. The principle that capital remaining from deceased participants (beyond specifically designated survivor benefits) accrues to the benefit of the surviving collective is, in itself, a form of longevity risk sharing. It helps ensure that those who live longer are supported by the broader pool of assets. The precise mechanism for this redistribution whether through bolstering collective reserves or via a direct ‘bonus on survival’ to individual pots may vary, but it underscores that even personal pension pots operate within a collective framework for managing certain risks, particularly longevity. This approach differs significantly from some pure individual DC account systems in other countries, where any remaining capital might automatically form part of the deceased’s estate.
A defining characteristic of the WTP is the fundamental shift away from the concept of guaranteed nominal pension benefits, which were a hallmark of many traditional Dutch DB schemes. Under the new DC-centric system, pension outcomes are no longer fixed promises but are inherently variable, depending on the cumulative effect of contributions, long-term investment returns, and individual or cohort longevity.
Consequently, the notion of “benefit security” is redefined. It is no longer about the certainty of a pre-defined nominal sum but rather about the robustness and resilience of the DC framework itself. This includes the design of the chosen pension contract (SPR or FPR), the effectiveness of risk management strategies within that contract (e.g., lifecycle investing, allocation rules), and the adequacy and prudent management of collective buffers like the solidarity or risk-sharing reserves. The Pensioenfederatie, representing Dutch pension funds, has been actively involved in discussions surrounding the WTP’s implementation. They have consistently emphasised the need for a careful and balanced transition, voicing concerns about potential negative impacts on pension outcomes if legislative amendments are poorly conceived or if the transition process itself is mismanaged.
This redefinition of “benefit security”—from a “guaranteed amount” to a “well-managed probability of achieving an adequate retirement income”—requires a significant mindset shift for participants. It also necessitates a new communication paradigm for pension funds. For decades, Dutch pensions were associated with a high degree of certainty regarding outcomes. The WTP fundamentally alters this by making those outcomes inherently variable and subject to market forces. “Security” in this new world is derived from trust in the systemic design (e.g., prudent lifecycle strategies, effective risk sharing through reserves, robust governance) and the competence of the pension fund managers, rather than from a fixed nominal promise.
Effectively communicating this new reality, managing participant expectations, and transparently demonstrating prudent management will be paramount to maintaining confidence in a system that no longer offers traditional guarantees. The focus for fiduciaries and managers must shift towards probabilistic outcomes, the long-term sustainability of the chosen DC model, and clear articulation of how risks are being managed on behalf of participants.
Table 4 provides a comparative overview of risk allocation in the two main WTP schemes:
Table 4: Risk Allocation in Solidary vs. Flexible Schemes under WTP
Risk Type | Solidary Scheme (SPR) Allocation | Flexible Scheme (FPR) Allocation |
Investment Risk | Primarily collective; shared via allocation rules and solidarity reserve. Younger cohorts bear more. | Primarily individual; direct impact on personal pot. Lifecycle investing is default. Optional risk-sharing reserve for some mitigation. |
Inflation Risk | Indirectly managed via a collective investment strategy and potential use of solidarity reserve. | Primarily individual; it depends on investment choices and market performance. |
Longevity Risk (Micro) | Collective; managed via allocation rules (protection returns) and/or solidarity reserve. | Primarily individual for pot depletion; collective aspects in payout phase or via risk-sharing reserve / mortality gain redistribution. |
Longevity Risk (Macro) | Collective; can be buffered by solidarity reserve or managed by specific allocation rules. | Primarily individual; potential mitigation through risk-sharing reserve or collective payout phase design. |
Interest Rate Risk | Collective; managed via protection returns (especially for older cohorts) and investment strategy. | Primarily individual; impacts annuity purchase rates or variable payout levels. Lifecycle may include interest rate hedging. |
The transition to the WTP framework necessitates a profound strategic reorientation for pension funds, their managers, and fiduciaries. This involves adapting funding and solvency approaches, transforming investment strategies, rethinking liability management, and redesigning ancillary benefits like survivor pensions.
The WTP aims to introduce more flexible solvency rules compared to the previous stringent regime. A key initial measure is the temporary reduction of the minimum ‘dekkingsgraad’ (coverage ratio – the ratio of assets to liabilities) from 105% to 100%. This provides pension funds with additional time and leeway to manage solvency pressures, particularly during the complex transition phase.
More broadly, the requirements of the Financieel Toetsingskader (FTK), the financial assessment framework that has long governed Dutch pension funds, are expected to become less stringent for the new DC contracts. This is because these contracts do not offer pre-defined benefit promises; instead, benefits are variable and dependent on investment outcomes. Consequently, the necessity for maintaining very high financial buffers is reduced, and rules around pension indexation (adjustments for inflation) may become more accommodative, allowing for increases sooner than under the old FTK.
During the transition period leading up to full WTP compliance, a ‘Transitie-FTK’ (Transitional Financial Assessment Framework) applies. De Nederlandsche Bank (DNB) has conducted research and provided guidance on this transitional framework, including its potential generational effects. The specific rules of the Transitie-FTK are detailed in DNB publications and are crucial for funds to navigate as they move towards the new system.
A significant point of discussion is the role of the ‘dekkingsgraad’ under the new WTP schemes. While some interpretations suggest that for the Solidary Pension Scheme (SPR), no minimal coverage ratio in the traditional sense is strictly necessary, allowing for more diversified liability hedging portfolios, DNB has clarified that the two overarching solvency requirements – the Vereist Eigen Vermogen (VEV – Required Own Funds) and Minimum Vereist Eigen Vermogen (MVEV – Minimum Required Own Funds) – remain applicable. However, the WTP does impact their calculation and application, with the MVEV often being lower for DC schemes compared to traditional DB schemes. Accounting standards, such as RJ-Uiting 2024-2, also provide guidance on the financial reporting implications of these changes, including the treatment of MVEV.
The concept of the ‘dekkingsgraad’, which has been the primary indicator of financial health for DB plans, necessarily evolves in a DC context. In a system where there isn’t a fixed nominal liability in the same way, the focus of solvency and financial health assessment shifts. It moves towards evaluating the adequacy of individual pension pots to generate target retirement incomes, the sufficiency and stability of collective reserves (solidarity or risk-sharing), and the overall robustness of the chosen DC contract type.
The WTP, therefore, fundamentally alters the existing solvency and funding paradigms. While it introduces elements of flexibility, it simultaneously demands new methodologies for assessing long-term financial health and ensuring the sustainability of pension provision in a DC-centric world. This moves beyond reliance on a single coverage ratio to encompass more sophisticated, forward-looking risk modelling and a nuanced understanding of how “security” is measured and communicated to participants when explicit guarantees are largely absent.
The shift from DB to DC under WTP mandates a comprehensive transformation of pension fund investment strategies, moving from a liability-driven approach to one focused on participant outcomes and age-appropriate risk management.
Lifecycle investing is set to become a cornerstone of investment management under the WTP, particularly for Flexible Contribution Schemes (FPR) and as an underlying principle in Solidary Contribution Schemes (SPR) through age-based risk allocation. This approach tailors the investment risk profile to different age cohorts. Younger participants, with a long time horizon until retirement, will typically have a higher allocation to growth-oriented assets (e.g., equities) to maximise potential returns.
As participants age and approach retirement, their investment mix will gradually shift towards more stable, lower-risk assets (e.g., fixed income) to preserve accumulated capital and reduce volatility. The rationale behind lifecycle investing is grounded in the concept of human capital versus financial capital: younger individuals possess significant human capital (future earning potential, which is bond-like), allowing them to take on more risk with their (initially smaller) financial capital. As they age, human capital diminishes while financial capital grows, necessitating a more conservative investment stance to protect retirement savings.
The WTP framework allows for more diversified liability hedging portfolios within the SPR, moving beyond traditional government bonds. Asset classes like mortgages are expected to remain attractive due to their risk-return profile, although their relative illiquidity requires careful management within the new DC context. Importantly, the transition to DC schemes does not preclude investment in illiquid assets; indeed, there is an acknowledged room and potential need for such investments to achieve long-term return targets. However, the choice between an SPR and an FPR might influence the practical constraints on holding illiquid assets, with FPRs potentially being more restrictive due to individualisation and liquidity needs for member choices or transfers.
Environmental, Social, and Governance (ESG) considerations are expected to continue playing a significant role in the investment policies of Dutch pension funds, which have often been at the forefront of sustainable investing globally. DNB provides guidelines for responsible investments that funds will need to consider, and academic research, including from Netspar, continues to explore aspects like participant willingness-to-pay for socially responsible assets, which may inform future ESG integration strategies.
A major strategic shift involves moving from hedging all liabilities comprehensively, as was common in DB schemes, to more age-cohort specific hedging strategies. This is expected to lead to the unwinding of very long-dated interest rate hedges (e.g., 30-60 years), which were crucial for matching long-term DB liabilities. Conversely, there might be an increase in demand for shorter-to-medium term hedges (e.g., 10-20 years) to protect the assets of older cohorts nearing or in retirement. These large-scale adjustments in hedging portfolios are anticipated to impact interest rate markets, potentially leading to a steepening of the yield curve.
The individualised nature of DC pots and the potential for member choices (in FPRs) or transfers also heighten the importance of liquidity management within investment portfolios. Furthermore, pension funds are now mandated to align their investment policies with the risk attitude of their participants. This requires the development and implementation of robust methodologies for eliciting and interpreting participant risk preferences, which will then inform the design of lifecycle glide paths and investment option offerings.
The move to WTP necessitates a paradigm shift in investment strategy. Under the DB system, the primary objective was to meet fixed, often nominal, liabilities, which naturally led to extensive interest rate hedging to minimise funding ratio volatility. Under the WTP’s DC framework, the objective transforms into maximising individual retirement capital within risk tolerances appropriate for different age cohorts. This implies a reduced reliance on broad, long-duration hedges for the entire fund and a greater emphasis on growth-oriented assets for younger participants, with a systematic de-risking process as they approach retirement. This requires pension funds to become more agile in their asset allocation, actively manage liquidity, and develop sophisticated models for lifecycle glide paths and risk preference assessments. The tactical challenge of unwinding vast portfolios of legacy hedges without causing undue market disruption will be a significant undertaking for many funds.
The transition to a DC-dominant system under WTP fundamentally redefines the concept of liability management for pension funds. Instead of managing precisely defined, long-term nominal liabilities, the focus shifts to managing the expected outcomes for participants’ individual pension pots and ensuring the provision of adequate and sustainable retirement income streams.
This involves providing mechanisms for converting accumulated capital into stable income streams during retirement. This can be achieved through various means, such as collective payout phases within the pension fund (particularly in SPRs), offering choices between fixed and variable annuities at retirement (common in FPRs), or facilitating the purchase of annuities from external providers.
Even in a DC framework, managing longevity risk remains a crucial aspect of liability management. This is addressed through mechanisms like collective reserves (solidarity or risk-sharing reserves) which can absorb unexpected increases in life expectancy, or through pooling arrangements in the payout phase where the risk of outliving one’s assets is shared among a cohort of retirees. The transition from the FTK to the WTP framework also elevates the importance of liquidity management, as funds need to be able to accommodate individual choices, transfers, and benefit payments from less rigidly structured asset pools.
Liability management under WTP, therefore, transforms from the relatively straightforward task of matching assets to fixed nominal outflows. It becomes a more complex endeavor of managing the provision of variable, yet hopefully stable and adequate, lifelong income streams derived from individualised capital accumulations. This introduces new forms of risk related to market volatility through retirement, individual and collective longevity, and the efficiency of capital-to-income conversion processes, all of which require sophisticated modelling and risk management capabilities. The “de-risking” process is no longer solely about the pension fund’s balance sheet but extends to managing the participant’s financial journey up to and throughout their retirement years.
The WTP also brings significant changes to the design and funding of survivor and orphan’s pensions. For survivor’s (partner’s) pensions payable upon death before the participant’s retirement, the new standard is a risk-based coverage. This means the benefit is structured like an insurance policy, typically providing coverage capped at a maximum of 50% of the participant’s last salary, irrespective of their length of service with the employer. A critical implication is that this risk-based coverage is often tied to active employment; if a participant leaves their job, this specific survivor pension coverage may cease unless arrangements for voluntary continuation are made.
To ensure consistency, the WTP introduces a standardised definition of a “partner” eligible for such benefits. This definition generally includes married individuals, registered partners, those with notarised cohabitation contracts, and, in some cases, partners who have been cohabiting for at least six months.
Orphan’s pensions also undergo changes, with benefits typically set at a maximum of 20% of the deceased participant’s pensionable salary for a half-orphan (40% for a full orphan), usually payable until the orphan reaches the age of 25.
The funding for this pre-retirement survivor and orphans’ pensions is primarily through risk premiums, which are separate from the contributions made to the participant’s main individual pension pot intended for retirement income. In contrast, any partner pension that becomes payable after the participant has retired is typically funded from the capital accumulated in their individual pension pot. As discussed earlier, any residual capital in a participant’s main pension pot upon death, after accounting for any such post-retirement survivor benefits, generally reverts to the collective (e.g., through a ‘bonus on survival’ mechanism or by bolstering reserves) rather than being paid to heirs.
The shift to predominantly risk-based pre-retirement survivor benefits under WTP standardises the level of coverage linked to salary but introduces a potential vulnerability: the loss of coverage upon cessation of employment. This is a significant departure from older systems where survivor benefits might have accrued in a way that provided ongoing cover even after leaving an employer. Participants need to be made acutely aware of this change and the importance of considering options for voluntary continuation of coverage or securing alternative protection if they are between jobs or become self-employed.
Table 5 summarises the evolution of key funding and solvency rules:
Table 5: Evolution of Funding & Solvency Rules (Pre-WTP FTK vs. WTP/Transitie-FTK)
Regulatory Aspect | Pre-WTP (Traditional FTK) | Post-WTP (New Rules/Transitie-FTK) |
Minimum Coverage Ratio (‘Dekkinggraad’) | Typically 105%; recovery plan if below, cuts if <90%. | Temporarily reduced to 100% during transition. For new DC schemes, concept evolves; no single minimum ratio for SPR in same way. |
Buffer Requirements | High buffers required due to benefit promises and risk-free valuation. | Reduced buffer requirements for DC schemes as benefits are not guaranteed; solidarity/risk-sharing reserves act as buffers. |
Nature of Pension Guarantees | Explicit guarantees on benefit levels common in DB schemes. | Largely removed; benefits depend on contributions and investment returns. Some guarantees via PUKs. |
Discount Rate Basis (for liabilities) | Primarily risk-free discount rate for DB liabilities. | Less emphasis on risk-free rate for DC as liabilities are not fixed; focus on expected returns for projections. |
Indexation Rules | Conditional, often requiring high funding levels. | Potentially permitted sooner and more flexibly in DC schemes due to variable nature of benefits. |
Primary Risk Focus | Ensuring fund solvency to meet guaranteed nominal DB liabilities. | Ensuring adequacy of individual pots and collective reserves to provide probable retirement income in DC schemes. |
The WTP officially came into effect on 1 July 2023, marking the start of a significant transition period for the entire Dutch pension sector. Several key milestones punctuate this journey. As of 1 January 2024, the statutory minimum age for starting pension scheme participation was lowered from 21 to 18 years. A crucial deadline looms on 1 January 2025, by which time social partners and employers must have finalised their employment conditions agreements regarding the new pension schemes and submitted their transition plans to pension providers.
Following this, pension providers have until 1 July 2025 to prepare their detailed implementation and communication plans based on these transition plans. The ultimate deadline for all pension schemes to be fully compliant with the WTP’s new rules is 1 January 2028. This deadline was extended from an initial target of 2027, reflecting the scale of the undertaking. The legislation also includes provisions for review moments, with the possibility of further extending the transition period if significant bottlenecks are identified.
The transition is not without its challenges. Pension funds and administrators face demanding IT development timelines, the complexities of aligning multiple stakeholders (social partners, employers, administrators, IT providers, regulators), ensuring high data quality for conversions, and managing the growing pressure from regulators. These factors contribute to a risk of delays, with some funds already indicating they may need to postpone their planned transition dates.
This multi-year transition timeline, while appearing extensive, is in reality highly compressed given the sheer magnitude and depth of the required changes. This places immense pressure on all stakeholders and makes effective, proactive project management absolutely crucial. The WTP has been aptly described as a “marathon sprint”, where each milestone involves intricate negotiations (e.g., between social partners), substantial technical development (particularly for IT systems and data migration), rigorous regulatory approvals from DNB and AFM, and extensive, carefully planned communication campaigns.
The highly interconnected nature of these tasks means that delays in one area can easily cascade and impact subsequent stages. The fact that industry bodies like the Pension Federation and consultancies such as Aon are already reporting expected postponements, even before some of the major interim deadlines have been reached, is a clear indicator of the significant strain on capacity and resources across the pension sector.
De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM) play pivotal supervisory roles throughout the WTP transition. They are responsible for monitoring the development and execution of transition plans, implementation plans, and participant communication strategies submitted by pension funds and other providers.
A key expectation from DNB is that pension funds will demonstrate strong ownership of the transition process and not merely delegate all responsibilities to their administrators or external consultants. While the regulators provide guidance and clarification on the new rules, they are also a source of significant scrutiny and can pose detailed questions regarding the plans and processes adopted by funds. The regulatory assessment focuses on ensuring a ‘balanced’ transition that adequately considers the interests of all participant groups, thoroughly evaluates the financial impacts of the changes, and ensures that decision-making processes are robust and transparent, all while safeguarding the operational conduct of business during this period of upheaval.
The level of regulatory scrutiny during the WTP transition is expected to be intense and will extend beyond mere technical compliance. DNB’s published assessment criteria indicate a focus not just on whether the rules are met, but on how decisions were made and how the often-competing interests of different participant groups were weighed. The emphasis on “strong ownership” by pension fund boards signals that regulators will hold these boards directly accountable for the fairness and robustness of their transition strategies. Reports from early-moving funds about receiving a “large volume of questions” from DNB suggest a deep-dive approach by the regulator, requiring funds to meticulously document their rationale, analyses, and decision-making pathways.
Effective participant communication is not merely an ancillary activity but a cornerstone of a successful transition to the WTP. Pension funds are under a legal obligation to create comprehensive communication plans and submit them to regulators. The primary goal of these communication efforts is to ensure that beneficiaries fully understand the changes being made to their pension schemes and, crucially, how these changes will affect their future pension benefits and responsibilities.
The WTP brings changes to existing communication tools. The familiar Uniform Pension Statement (UPO) and the simplified Pension 1-2-3 information layer will be discontinued. However, the fundamental obligation to provide participants with a clear pension statement remains, though pension administrators will now have more freedom in determining the format and presentation of this information. Alongside this, there is an increased regulatory emphasis on “choice guidance.” Pension providers must actively assist participants in understanding and making the various choices available to them under the new schemes, such as investment profiles in an FPR or decisions at retirement.
The challenges in participant communication are significant. Pension funds must find ways to explain complex technical changes—such as the shift from DB to DC, the introduction of individual pots, new risk-sharing mechanisms, and the end of traditional guarantees—in a simple, clear, and accessible manner. Managing expectations in a system where outcomes are no longer guaranteed will be particularly demanding.
The ultimate success of the WTP is heavily reliant on achieving a fundamental shift in participant understanding: from a largely passive expectation of guaranteed benefits to a more active engagement with a system characterised by managed uncertainties and increased individual responsibilities. The move to DC schemes, individual pension pots, and variable outcomes requires participants to grasp concepts such as investment risk, lifecycle investing, and the impact of their own choices, which may have been less directly relevant to them under the old system.
The discontinuation of familiar communication tools like the Pension 1-2-3 means that funds must innovate and develop new, effective methods to convey complex information and its personal implications. Failure in this communication endeavor could lead to heightened participant anxiety, suboptimal decision-making, and ultimately, widespread dissatisfaction with the new pension system, irrespective of its underlying technical or financial merits.
The Wet toekomst pensioenen represents a monumental and transformative reform of the Dutch pension system, arguably one of the most comprehensive undertaken by any developed nation in recent times. It signals a definitive move away from traditional Defined Benefit structures, which characterised the landscape for decades, towards a system dominated by Defined Contribution principles. This shift is driven by the need to address demographic pressures, adapt to a changing labour market, and create a pension framework perceived as more transparent, personal, and intergenerationally fair.
The core changes—the introduction of individual pension pots, the adoption of age-independent flat-rate contributions, and the establishment of new pension contract types (Solidary, Flexible, and Contribution-Benefit agreements) with distinct risk-sharing mechanisms—will profoundly reshape how pensions are accrued, funded, invested, and managed. The ‘invaren’ process, the conversion of vast collective DB assets into individual DC accounts, stands as a critical and complex undertaking, demanding meticulous planning, robust execution, and sensitive communication to ensure a balanced and equitable transition for millions of participants.
While the WTP introduces greater individualisation, particularly through personal pension pots and, in some schemes, investment choices, it also seeks to retain elements of collective solidarity. Mechanisms such as the solidarity reserve in the SPR and the optional risk-sharing reserve in the FPR are designed to buffer against shocks and facilitate some degree of intergenerational risk sharing, albeit in a more transparent and bounded manner than under the old system. The handling of mortality gains (‘bonus on survival’) also reinforces this collective dimension.
For pension fund managers, fiduciaries, actuaries, and business analysts, the WTP presents a new strategic landscape. Funding and solvency frameworks are evolving, with a move towards more flexible rules under the ‘Transitie-FTK’ but also new ways of assessing financial health beyond traditional ‘dekkingsgraad’ measures. Investment strategies must pivot towards lifecycle approaches, managing risk and return according to age cohorts, and navigating the tactical challenges of unwinding legacy hedges and adapting asset allocations. Liability management is no longer about matching fixed nominal outflows but about managing the provision of adequate and sustainable, albeit variable, retirement income streams.
The transition period, extending to 2028, is a testament to the operational and administrative challenges involved. Regulatory oversight from DNB and AFM will remain intense, focusing not only on technical compliance but also on the fairness of outcomes and the quality of participant communication. Indeed, effective communication is paramount, as the success of the WTP hinges on participants understanding and engaging with a system that places greater emphasis on individual responsibility and managed uncertainty.
The WTP is not an endpoint but rather the commencement of an evolving pension landscape in the Netherlands. The long-term efficacy of the new contract types and risk-sharing mechanisms will be tested against future economic conditions, market performance, and ongoing demographic shifts. The inherent complexities and political sensitivities surrounding such a large-scale reform suggest that continuous monitoring, adaptation, and potential refinement of the system will be necessary to meet the long-term retirement income needs of Dutch society and its individual members.
The scale and ambition of the WTP will undoubtedly offer valuable lessons and potentially influence pension policy debates in other countries grappling with similar challenges. Navigating this new and dynamic environment will require deep expertise in both pension policy and financial market intricacies for years to come.