Supreme Court on amending a pension supplement scheme

The Supreme Court found that Article 20 of the Pensions Act (Pensioenwet) does not prevent the employer AFM from amending unconditional supplements into conditional supplements. AFM must still demonstrate a compelling interest for this amendment, however, which is detrimental to the employees.

Unilateral amendment of a pension scheme

In this case, AFM amended the pension scheme with the consent of the Works Council. As we know, this consent does not bind individual employees. A number of AFM employees therefore opposed the amendment, which exchanged an unconditional supplement for a conditional one. AFM invoked a unilateral amendment clause in the employment contract (under Article 7:613 of the Dutch Civil Code (Burgerlijk Wetboek)) or a specific change clause in the pension scheme (under Article 19 of the Pension Act, which is modelled on Article 7:613 of the Dutch Civil Code). Incidentally, the Future Pensions Act (Wet toekomst pensioenen) will explicitly clarify that Article 19 of the Pension Act also makes it possible to amend the pension scheme for retired persons.

As an aside, if an employer has not included a unilateral pension amendment clause in the employment contract, it could invoke Article 7:611 of the Dutch Civil Code and the Stoof/ Mammoet judgement in order to unilaterally amend an employment condition, such as pensions. It can be seen from the Supreme Court’s IFF judgement delivered in late 2022 that all of these amendment routes materially involve the same balancing of employer and employee interests in the amendment and in fact that the standard for amendments is equally high.

Scope of the amendment prohibition under Article 20 of the Pension Act

Article 20 of the Pension Act states that an amendment to a pension agreement does not affect pension entitlements accrued up to the time of that amendment, subject to a few exceptions. The Supreme Court ruled on the scope of this article, which is intended to protect accrued pension entitlements, with respect to the granting of supplements.

An unconditional right to the granting of supplements can sometimes still be impaired, according to the Supreme Court. It identifies two variants:

(i) an absolutely unconditional supplement, to which the prohibition on amendment under Article 20 of the Pension Act applies in full – i.e. amendment to the detriment of the participant is not allowed;

(ii) an unconditional supplement with a conditional element, such as being a participant. This means that the pension scheme rules stipulate that accrued pension entitlements will be indexed unconditionally, but only while the employee is still employed: thereafter, a conditional right to indexation over the accrued pension applies.

No genuine unconditional supplement

The Supreme Court does not regard the situation under (ii) as a genuine unconditional supplement, within the meaning of Article 20 of the Pension Act. Therefore, according to the Supreme Court, the amendment prohibition does not apply to that situation. In other words, in that situation, amending an unconditional supplement into a conditional supplement for pension that has already been accrued is indeed possible. The decisive factor for the Supreme Court in this respect is that, in the situation under (ii), there is no obligation to fund the supplement in advance, i.e. no obligation to segregate or have had to segregate assets for this purpose.

Limited protection under Article 20 of the Pension Act

Therefore, for participants in a pension scheme that was the subject of these proceedings, the protection provided by Article 20 of the Pension Act only applies to assets that have already been compulsorily segregated or assets that should have been segregated. In these cases, therefore, an employer is absolutely not entitled to amend accrued pension entitlements. Other than in these cases, as applies to AFM, it can amend pension entitlements. At any rate, although the prohibition on amendment under Article 20 of the Pension Act does not apply, the employer must still have the prior consent of the Works Council when amending or abolishing the granting of supplements and meet the strict requirements of unilateral amendment under Articles 7:613 and 7:611 of the Dutch Civil Code or Article 19 of the Pension Act.

Round-up

In other words: fixed increases in pension during employment (called supplements/indexation) do not fall under the amendment prohibition of Article 20 of the Pension Act insofar as no payments (provisions) have yet had to be made for them. It therefore follows from this judgement that a right to unconditional indexation of participants’ pensions can be amended, provided the requirements for unilateral amendment of employment conditions are also met.

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