Can changing jobs result in missing out on tens of thousands of euros in additional pension benefits? Can changing jobs lead to receiving pension compensation twice? The answer to both questions is yes. And do pension providers and employers have a duty to inform and a duty of care towards employees regarding pension compensation, while employees themselves also have a role to play? I would answer that question with a “yes” as well. Following my previous blog Duty of care in pension compensation, it is time for an update, as these issues are currently receiving far more attention than they were a year ago.
Pension compensation: a role for pension providers, employers and employees
Pension compensation may be receiving more attention because the first major pension funds, such as PFZW, have already transitioned to the new pension system, while other large funds such as PME and ABP are expected to do so on 1 January 2027 under the Future Pensions Act (Wet toekomst pensioenen – Wtp). For the sake of completeness: pension compensation is relevant much more broadly and applies to all pension providers transitioning on 1 January 2027 or, at the latest, in 2028.
To clarify once again, pension compensation essentially means that a participant (employee) who is employed at the time of the transition to the new pension system receives an additional amount in their pension pot. This results in a higher monthly pension benefit after retirement.
Pension compensation is not a right that an employee can enforce against an employer. The topic is currently attracting attention because various stakeholders (members of parliament, employees and advisers) are realising that the exact date on which someone participates in a pension scheme can determine whether they do or do not receive pension compensation. Being employed or leaving employment one day earlier or later with an employer participating in, for example, PME or ABP can make a cumulative difference of tens of thousands of euros over the course of retirement.
Example: tens of thousands of euros at stake
To illustrate, consider an employee named Jan who is employed by an employer affiliated with PME on both 31 December 2026 and 1 January 2027. The latter date is PME’s transition date.
Jan earns a salary of €70,000 and the applicable franchise is €20,000, resulting in a pensionable salary of €50,000. Suppose that, given Jan’s age, PME applies a relatively high compensation percentage of 40% (which is quite common for participants aged between 40 and 50). PME would then add €20,000 to Jan’s pension pot.
Importantly, Jan would generally miss out on this compensation if he left employment on 31 December 2026 and did not immediately commence employment with another employer affiliated with PME.
Tips for employers and employees
The primary obligation to provide information about pension compensation rests with the pension provider. Experience shows, however, that this information does not always reach employees (through their employer) in a timely or sufficiently clear manner. What can employers and employees do?
My recommendations are:
- Check the website of the relevant pension provider to determine the reference date for eligibility for pension compensation. The one-off pension compensation depends on participation in the scheme on a specific date.
- Ensure that, in the event of a restructuring, any social plan addresses the consequences of just missing or just qualifying for pension compensation because of the importance of the transition date.
- Employers should also include a provision on this issue in settlement agreements. For example:
“Any continuation of pension accrual after the End Date, including voluntary continuation in order to qualify for compensation on 1 January 2027, shall be the Employee’s responsibility. The Employer advises the Employee to obtain timely information from the pension provider regarding the possibilities and conditions applicable thereto.”
- Employees should be aware that reducing their working hours while remaining with the same employer may also have a negative impact on the amount of pension compensation they receive.
Finally, even if an employee misses out on pension compensation, this does not necessarily mean there is a definitive loss or damage. Most pension schemes offer the possibility of voluntarily continuing participation after employment ends (for example, during a period of unemployment benefits). While the employee will often have to pay a substantial portion of the full pension premium themselves, the costs may be outweighed by the benefit of still receiving all or part of the pension compensation.
More information
If you would like additional tips or have specific questions about pension compensation, please feel free to contact me.