Annual notice 2018
Employees are forced to work longer, causing labour mobility to decrease and costs of pension, wage, and absenteeism to increase. It is more important than ever before to increase employee vitality and to give priority to behavioural change. In this annual notice, we will analyse the causes and consequences, and provide possible solutions.
Tax rules cause devastation of the pension system
Since 2005, a sequence of legislative amendments restricting the pension has been adopted: the abolition of the early retirement scheme, pre-pension, life-course savings scheme and right of entitlement to periodic payments, the introduction of the levy in connection with early retirement, increase in the standard retirement age from 60 to 68 and an ever-decreasing accrual rate. The final question is not if the salary limit of € 100,000 introduced in 2015 is lowered but when this will be done.
Is sustainable employability the solution?
The government considers sustainable employability an alternative for pension, so that people will continue to work. This is an advantage to the government, because employees generate more tax revenues. For employees and employers, however, the goal is not sustainable employment but vitality.
Everything centres around the vital employee
Not everyone can and wants to continue to work. Measures, insight, and the required behavioural change often come too late. Frequently there is a need or necessity to retire before the state pension age. The best employees are vital, and are not necessarily sustainably employable. Vitality is not achieved only by working on schooling, but also by having the means to be able to stop working at an earlier age. Employers are often of the opinion that capital formation is the employee’s own responsibility. However, scientific behavioural research shows that employees start planning their pension much too late. This is no longer solely the problem of the employee; the employer is also confronted with a substantial increase in the costs due to higher costs of absenteeism, pension and wage, severance schemes, and tax measures.
Manage behaviour, not intentions
Effective policy is aimed at actually realising behavioural change in the employee. Policy is effective when a balance exists between paternalism and flexibility. Behavioural economics have taught us that the employee appreciates employer’s initiative. The initiative prevents employees from having to make difficult choices, and it encourages them to take responsibility for their own needs and to take action.
The Vitality Account is an example of a facility that combines paternalism and flexibility. This account makes it easier for the employee to save a relatively small amount on an individual Vitality Account on a monthly basis. To stimulate saving behaviour, the employer may decide to make a contribution. With Life Cycle investments, employees will be able to realise attractive returns without running too much investment risk. The employer and the employees decide together for which vitality purposes the money saved may be withdrawn. If the employee does not use the money in the course of his employment, it may be used for pre-pension.
Employees often have insufficient knowledge of the possibilities and consequences of part-time pension or pre-pension. Older employees often have accrued an adequate pension, but are not aware of this. Pension Coaching is an online tool for employees to give them insight into their pension and the possibilities and impossibilities of early retirement. The outcome of this tool may be that the employee may be able to adjust his pension accrual adequately and in time by saving money, for instance in the Vitality Account. Another outcome may be that early retirement is possible.
Avoid levy in connection with early retirement
If it is better for economic reasons to say farewell to older employees, the 52%-rate levy in connection with early retirement may always be avoided, provided that correct arrangements have been implemented.
KWPS can carry out a basic vitality analysis for free and without any obligations. The analysis is based on an anonymised file of participants, and the data thus obtained will be used to calculate expected future developments. On the basis of general empirical figures, the analysis provides information about future developments in costs of salary, pension, and absenteeism. In addition, information is provided about solutions and how the employer may benefit from these solutions. A Vitality Analysis may be the business case required by HR.
If you are interested in a Vitality Analysis or in any of the other topics in this annual notice, please contact us by telephone, send an e-mail to email@example.com, or contact your designated contact person at KWPS.