Mandatory industry-wide pension funds in the Netherlands
The Dutch pension landscape is highly formed by so-called mandatory industry-wide pension funds (IWPF or in Dutch Bpf). If an employer acts in a specific industry, mandatory participation in an IWPF can be applicable. There are roughly 50 different mandatory IWPFs and more than 5,000,000 employees accrue pension through these funds. The biggest pension funds are for instance for civil servants, care and welfare sector, construction workers and the metal industry. The risks of not joining an IWPF can be very impactful.
Why are there industry-wide pension funds?
The main reason behind the IWPF is to prevent competition on employment conditions. All employers in the industry have the same pension plan to offer to the employees. Employers cannot seduce the employees by offering a high salary, fully financed by the lack of a pension plan. The pension plan therefore protects the employees from a bad deal on their employment conditions. In addition, the legislator has intended to reduce the risk of so-called ‘blank spots’ (employees without any pension accrual) when it comes to accruing pension.
When does an employer have to participate in a pension fund?
To define the employers who should join the IWPF, there is a so-called mandatory participation resolution (Verplichtstellingsbesluit). In this resolution, the Dutch minister of Social Affairs and Employment specifies the activities that are included in the industry (the scope) and therefore lead to a mandatory participation. The criterion for mandatory participation as well as the scope of activities that are included in the mandatory participation depend on the pension fund. For example, some pension funds include employees who do service activities such as sales or administrative work, while others only include employees who produce products and exclude staff.
What are the consequences of not joining a mandatory pension fund?
If the activities of a company fall within the scope of an IWPF, the employees in the industry have the right to pension entitlements of the mandatory IWPF, even when the employer did not pay premiums. Therefore, pension funds will make great effort to claim the pension premiums with retroactive effect from the employer. If the mandatory participation had been applicable for numerous years, this can lead to extremely high invoices. The premiums of one year can be up to 20% of sum of salaries. Multiply this by a number of years, and a premium amount results that can have severe consequences for your business.
Prevent risks by having a scope study carried out
As part of setting up a pension scheme, KWPS conducts an investigation into whether the employer is subject to mandatory participation in an IWPF. If the company’s activities change over time, it is wise to inform KWPS, so that a new check on the applicability of a mandatory pension fund can be performed. It is also possible that the scope of the mandatory participation is adjusted in the meantime as a result of which an employer is suddenly obliged to join. In any case, it is good to perform a check every couple of years, for example when renewing the pension plan at the end of the contract term.
16 June 2021