1. No category

Quantitative Overview on
Supplementary Pension
Provision
Final Report
Prepared for
The European Commission
Directorate General EMPL
Contract ref. VT/2007/0216 of 21 June 2007
November 2007
Introduction
In April 2007 the EC issued an Invitation to Tender for a “Quantitative overview on
supplementary pension” focusing on seven European target countries. Hewitt Associates was
awarded the Tender as notified by the European Commission on 13 June by letter dated 4 June
2007.
This report covers the results of the study carried out on behalf of the European Commission in
accordance with the service contract VC/2007/0216 of 21 June 2007.
The study is based on the results of a specific survey on supplementary pension practices
involving major organizations in Europe. About 1,700 organisations were directly invited to
participate to the survey. With a view to widen the scope of the country specific analysis and
offer further insight on market practices, the survey was opened also to the participation of other
companies from different European countries. This has lead to the addition of two more countries
(Belgium and Italy).
About 290 organisations, most of which are private companies, and covering information about
more than 400 pension schemes, completed the survey questionnaire during July 2007. The
country specific analysis covers the following countries:
• Belgium;
• France;
• Germany;
• Ireland;
• Italy;
• Netherlands;
• Poland;
• Spain;
• United Kingdom.
For each country the quantitative analysis addresses the following topics:
• Nature and scope of pensions schemes;
• Typology of funding and benefit practices;
• Conditions of acquisition of pension rights;
• Treatment of dormant pension rights;
• Transferability of pension rights;
• Evolution of scheme conditions;
• Information and Communication.
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A chapter including tables with cross-country analysis by key variables introduces the national
sections.
The survey and the element of factual analysis presented in this report cannot be considered
comprehensive, or fully representative, of the overall supplementary pension practices in the
countries considered. However, given the number and nature of participating organisations, the
report should contribute to a better understanding of market practices.
Chapter 1 presenting the cross-country analysis has been drafted by Leonardo Sforza. Chapters 2
to 10, on the country specific analysis have been drafted by Tony Hewitt with the contribution of
Hewitt’s pension consultants Georg Thurnes and Mark Walddoerfer for Germany; Rachael Ingle
and Philip Shier for Ireland; Muriel van den Berg and Marcel Schep for the Netherlands; Yves
Corne for Belgium, Patrice Valade and Alain Boyadjian for France; Angeles Almena and Felix
Soroa for Spain; Wojciech Kizinski and Rafal Pol for Poland; Claudio Pinna for Italy.
The overall project has been managed and coordinated by Leonardo Sforza, in Brussels.
We are grateful to all participating organisations for having contributed to the survey by sharing
their pension policy information.
Hewitt project management is particularly grateful to Paul Todd and Georg Fischer of the
European Commission’s Directorate-General for Employment, for their valuable comments and
remarks during the project implementation.
The contents of this report do not necessarily reflect the opinion or position of the European
Commission.
Brussels, November 2007
About Hewitt
With more than 65 years of experience, Hewitt Associates (NYSE: HEW) is the world's foremost
provider of human resources outsourcing and consulting services. The firm consults with more
than 2,300 companies and administers human resources, health care, payroll, and retirement
programs on behalf of more than 340 companies to millions of employees and retirees
worldwide. Located in 35 countries, Hewitt employs approximately 24,000 associates. For more
information, please visit www.hewitt.com.
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2
Contents
Introduction
1
1. Overview of supplementary pension practices
4
2. Belgium
30
3. France
52
4. Germany
73
5. Ireland
96
6. Italy
118
7. Netherlands
135
8. Poland
159
9. Spain
179
10 United Kingdom
200
11. Participating Organisations
225
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1. Overview of supplementary pension practices
Context
There is a wide range of factors that affect the nature and the scope of
occupational pension schemes, some of which are not under the control
of the employer-employee contractual relationship. Despite some
converging general trends across the EU that lead to the growing role
of supplementary pensions, substantial differences remain in relation to
the institutional and legal framework governing pensions at the
national level, and the typology of benefit design and financing method
being adopted for each pension scheme. Moreover, this is an area
directly influenced by the interplay of different policies and socioeconomic factors which are embedded into domestic markets, national
traditions and cultures. Nevertheless, cross-border issues related to
supplementary pensions are likely to be more often experienced by
both employees and employers1 as a consequence of the increasing
internationalisation of business and markets interdependence2.
Over the last decade almost all EU member States have undertaken
systemic and parametric reforms of their pension policies, many of
which are still under process or require further structural initiatives.
This has led to the inevitable coexistence of different systems in place,
even within the same country, covering past acquired rights and new
requirements. This context makes the collection and cross-border
comparative analysis of quantitative information on supplementary
pensions at the EU level a difficult exercise, limited by the wide range
of systems in place, and by the lack of a coherent and comprehensive
framework of data gathering at the European level. The effective
implementation of a new pan-European statistical framework for the
collection of a basic set of data in this area should help to improve the
current information gap3.
The information presented in this report relies largely on the results of
the ad hoc voluntary survey carried out among organisations which
have established a pension scheme for their employees. Although the
structure of the survey has been designed to encompass the diverse
practices and types of scheme, the cross-country comparative analysis
presented in this chapter should be examined with caution as national
variations may simply be driven by structural systemic differences
reflected into a specific business practice.
1
CEPS-EChr, A New European agenda for labour mobility, April 2004
For an analysis of the internationalisation of European business see Nicolas Veron, “Farewell national champions”, Bruegel
policy brief n°6/2006.
3
Business statistics on pension funds are due to be gathered by Eurostat in accordance with Council regulation 58/97 and
annex 7 of European Parliament and Council regulation 2056/2002/EC. For methodological details see Eurostat, “Pension
Funds Statistics, note by Petra Sneijers, October 2005.
2
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1.1 Nature and scope of pension schemes
Pension coverage
An overwhelming majority of the workforce employed by the survey
participants enjoy supplementary pensions provided by their employer.
Almost two third of all respondents have supplementary pensions in
place that cover more than 90% of their workforce (see chart 1).
Coverage is even higher in the Netherlands and Belgium, a practice
that is mainly driven by the country specific regulatory conditions. In
contrast, for France supplementary pension schemes have a much more
exclusive coverage reaching no more than 5% of the overall workforce
in half of the participant organizations.
Chart 1.
Participants' Workforce Covered by Pension Schemes
38%
All 100%
Over 90%and less than 100%
27%
Over 70% and up to 90%
13%
Over 50% and up to 70%
Over 30% and up to 50%
Over 20% and up to 30%
Over10% and up to 20%
4%
3%
1%
Over 5% and up to10%
2%
Up to 5%
5%
0%
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8%
5% 10% 15% 20% 25% 30% 35% 40%
5
Written pension policy With few exception almost all participants (93%) have a written
pension policy in place that states eligibility, terms and conditions for
supplementary pensions within the organization (see chart 2). In some
countries such as Poland this is a statutory requirement for “qualified
scheme”.
Chart 2.
Organisations with a written policy on supplementary pension
Belgium
France
Germany
Ireland
Italy
Netherlands
Poland
Spain
UK
Others
All
0%
10%
20%
30%
40%
50%
Yes
Geographic scope
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60%
70%
80%
90%
100%
No
In nine out of ten organizations the policy is tailored to apply at
country specific level while very few organizations consider the policy
from a European or global perspective (see chart 3). In relative terms
the global level seems to be more relevant than the regional one,
reflecting more organizations seeking global coherence and
consistency of human resource (HR) policies.
6
Chart 3
Geographic scope of pension policy
Belgium
France
Germany
Ireland
Italy
Netherlands
Poland
Spain
UK
Others
All
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
At Country specific level
At European level, while respecting national specific legal requirements
At Global level, while respecting national specific legal requirements
In most cases (90%) survey participants had five or less pension
schemes in the country where they are located (see chart 4).
Pension schemes by
organisation
Chart 4
Average Number of Pension Schemes by Organisation in
the Country of Respondent
50 or more
1%
11 to 49
4%
6 to 10
5%
5 or less
90%
0%
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20%
40%
7
60%
80%
100%
1. 2. Typology of funding and benefit practices
49% of schemes are defined benefits (DB), where the employer carries
all or most of risks; 34% are defined contributions (DC) where the
employee carries all or most of risks related to their pension; and
another 17% of schemes are “hybrid”, where the risks are shared
between the employer and the employee. This typology does not
always respond to the legal status or to the legal definition of pension
scheme applicable in every country considered, but it rather reflects the
practical nature of the scheme and the way it is considered by
respondents. This is the case for example in Germany where from a
legal and statutory stand point all scheme are DB. However, in some
cases - particularly when the allocated risk for the employer is very
small (e.g. life insurance contracts)- these are more often considered as
DC-type scheme rather than DB, despite the minimum guarantee
ensured by the law.
Type of scheme
Chart 5
Pension by type of scheme indicated by survey participants
Belgium
France
Germany
Ireland
Italy
Netherlands
Poland
Spain
UK
Others
All
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Defined Benefits scheme (where the employer carries all, or most, risks)
Defined Contributions scheme (where the employee carries all or most risks)
Hybrid scheme (where risks are shared between the employer and the employee)
Changing policy
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78% of organisations do not plan any change in their pension policy in
the near future while 22% will do. The proportion of organisations
planning to change their policy is particularly high in Spain and
France. At the opposite extreme, in Ireland and Poland only few of
them have considered changing their policy (see chart 6).
8
Chart 6
Organisations planning to change their policy on pension within the next 3 years
Belgium
France
Germany
Ireland
Italy
Netherlands
Poland
Spain
UK
Others
All
0%
10%
Rationale for changes
20%
30%
40%
50%
60%
Yes No
70%
80%
90%
100%
When changes are planned to occur this is mainly re-aligning pension
policy to corporate strategy and improving the sustainability of longterm costs (see chart 7).
Chart 7
Most mentioned reasons for changing policy
53%
To re-align pension policy to corporate strategy
To achieve better long-term sustainability of benefit costs
42%
To better meet employee expectations
32%
To reduce immediate benefit costs
32%
To cope with new legislative requirements
32%
To reduce administrative burdens and management time
26%
To ensure greater consistency and coherence of pension
scheme's terms and conditions at the European level
26%
24%
To improve pension scheme governance
To improve recruitment and retention
21%
6%
Other (please specify)
0%
Methods of funding
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10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
A majority of schemes is funded via a separate legal entity. This is the
case for 59% of DB schemes, 66% of DC schemes and 54% of hybrid.
Insurance contracts are used to fund 16% of DB schemes and 28% of
DC schemes (see chart 8, 9 and 10). It is worth noting that the method
of funding varies substantially from one country to another and that the
available means of funding can go beyond thes three most common
categories.
9
Chart 8. Methods of funding DB schemes
25%
59%
17%
Funded scheme via separate legal entity - e.g. trust fund
Funded scheme via insurance contract
Unfunded scheme (book reserved, pay as you go or other)
Chart 9. Methods of funding DC schemes
6%
28%
66%
Funded scheme via separate legal entity - e.g. trust fund
Funded scheme via insurance contract
Unfunded scheme (book reserved, pay as you go or other)
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Chart 10. Methods of funding hybrid schemes
24%
54%
22%
Funded scheme via separate legal entity - e.g. trust fund
Funded scheme via insurance contract
Unfunded scheme (book reserved, pay as you go or other)
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Categorising schemes
by size of active
members
On average, a majority of schemes has less than 1,000 active
employees; one out of four schemes has between 1,000 and 5,000
active employees and a similar proportion of scheme has a much larger
coverage that can reach over 100,000 employees in 6% of hybrid
schemes, and in 1% of DB schemes (see chart 11).
Chart 11
Approximate headcount of active employees by Type of Scheme
Over10,000
Over 5,000 and up to 10,000
Hybrid
DC
DB
Over 1,000 and up to 5,000
Up to 1000
0%
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10%
20%
30%
12
40%
50%
60%
70%
Pension age for early
leavers
For almost all schemes, in all countries surveyed, 65 is the maximum
age from which preserved benefits are payable without reduction in
case of voluntary departure. In 54% of Hybrid, in 69% of DC and in
43% of DB schemes, the relevant age is 60 or even lower (see chart 12
and accompanying table).
Chart 12
Earliest pension age from which preserved benefits are payable without reduction
Hybrid
DC
DB
0%
10%
Under age 55
20%
30%
Age 55 - 59
40%
50%
Age 60
70%
Age 61-64
Age 65
DB
4%
6%
33%
9%
47%
1%
Under age 55
Age 55 – 59
Age 60
Age 61-64
Age 65
Age 66 and after
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60%
13
80%
90%
100%
Age 66 and after
DC
24%
18%
27%
2%
28%
1%
Hybrid
4%
4%
46%
9%
34%
0%
1.3. Conditions of acquisition of pension rights
Waiting period
In 74% of DB schemes, 63% of DC and 64% of Hybrid, there is no
waiting period imposed between commencing employment and joining
the pension scheme. In the remaining cases the waiting period usually
does not exceed six months for DC schemes or 12 months for DB and
Hybrid schemes (see charts 13,14,15)
Chart 13
Length of waiting period before joining DB schemes
74%
1% 6%
None
7 - 12 months
Over 2 years and up to 5 years
Over 10 years
5%
2%
5%
7%
1 - 6 months
Over 1 year and up to 2 years
Over 5 years and up to 10 years
Chart 14
Length of waiting period before joining DC schemes
24%
None
7 - 12 months
Over 2 years and up to 5 years
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14
8%
3%
1%
1%
63%
1 - 6 months
Over 1 year and up to 2 years
Over 5 years and up to 10 years
10%
6%
Chart 15
Length of waiting period before joining
Hybrid schemes
8%
12%
64%
None
7 - 12 months
Over 2 years and up to 5 years
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15
1 - 6 months
Over 1 year and up to 2 years
A very large proportion of schemes do not impose any minimum age
on joining the scheme (84% of DC schemes, 58% of Hybrid and 48%
of DB schemes). In 25% of DB and 17% of hybrid schemes it is set at
21 years or below. Only in 12% of DB and 4% of Hybrid schemes, the
age is set at 26 or above (see chart 16). In most cases the age does not
prevail over the waiting period (see chart 17).
Minimum age
Chart 16
Minimum age before joining the scheme
More than age 35
Age 30 - 35
Age 26-30
Age 24 - 25
Hybrid
DC
DB
Age 22 - 23
Age 20 - 21
Less than age 20
No minimum age
0%
10%
20%
30%
40%
60%
DB
48%
15%
10%
3%
14%
4%
5%
3%
No minimum age
Less than age 20
Age 20 - 21
Age 22 - 23
Age 24 - 25
Age 26-30
Age 30 - 35
More than age 35
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50%
16
70%
80%
DC
84%
8%
1%
1%
6%
0%
0%
0%
90%
Hybrid
58%
7%
10%
4%
15%
3%
0%
1%
Chart 17
% of schemes where age supersede waiting period
Hybrid
Yes
DC
No
DB
0%
10%
20%
Headcount of
employees in waiting
period status
30%
40%
50%
60%
70%
80%
90%
100%
The number of employees in a waiting period is very limited. About
eight out of ten organisations have 100 employees or less in this
situation (see chart 18).
Chart 18
Employees in waiting period status
Over 1,000
Over 500 and up to 1,000
Hybrid
Over 250 and up to 500
DC
DB
Over 100 and up to 250
Up to 100
0%
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10%
20%
30%
40%
17
50%
60%
70%
80%
90%
The majority of DC schemes and a large part of DB and Hybrid
schemes do not impose any vesting period although there are still 32%
of DB schemes requiring two or more years between joining scheme
and acquiring vested pension rights. When asked about other vesting
conditions, age is applicable only in 27% of DB scheme, 13% of DC
and 24% of hybrid schemes, while employer discretion is even less
frequent (see charts 19-20)
Vesting conditions
Chart 19
Vesting period conditions
2%
1%
Over 10 years
7%
2%
4%
Over 5 years and up to
10 years
8%
Over 2 years and up to
5 years
16%
17%
Over 1 year and up to 2
years
7 - 12 months
10%
1%
26%
Hybrid
DC
DB
17%
15%
9%
7%
6%
8%
8%
1 - 6 months
38%
None
0%
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59%
38%
10%
20%
30%
18
40%
50%
60%
70%
Chart 20
Other vesting conditions
98%
93%
91%
87%
76%
73%
Age condition
No age restriction
Employer discretion
No
27%
24%
13%
7%
9%
2%
DB
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DC
Hybrid
19
1.4. Treatment of dormant pension rights
Revaluation of
preserved benefits
For one per cent only of DC and one quarter of DB or hybrid schemes
there is no revaluation of preserved benefits between the date of
ceasing pension accrual and the date of commencement of pension
benefits at retirement. In the majority of cases a revaluation is
operated, most often on the basis of investment return on assets (for
75% of DC and 27% of hybrid schemes); or in line with the inflation
rate (for 27% of DB and 23% of hybrid scheme), (see chart 21). When
a maximum cap is set for revaluation, this is over 4% in the majority of
DB and Hybrid schemes and over 3% in most DC schemes (see chart
22). In the scheme with a minimum revaluation threshold this is in
most cases set at zero or less (see chart 23).
Chart 21 Methods of revaluation of preserved benefits
0%
10%
Revaluation made in line with the adjustment of the rights of active members
4%
Revaluation made in line with the adjustment of pension benefits in payment
4%
Revaluation is set as a nominal sum
3%
Revaluation made in accordance with pay rises/earnings development
3%
No revaluation
Other
20
50%
60%
70%
80%
8%
12%
13%
13%
14%
27%
23%
12%
8%
3%
75%
27%
2%
2%
5%
26%
1%
3%
25%
10%
8%
DB
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40%
8%
5%
Revaluation made in accordance with inflation rate
Vested rights are not preserved but are instead discharged as payment of a capital sum
equivalent to the value of the vested pension rights - to the outgoing employee
30%
1%
2%
2%
Revaluation made on the basis of a fixed rate of revaluation defined in the rules of the
pension scheme
Revaluation made on the basis of investment returns earned on assets
20%
DC
Hybrid
Chart 22
% of schemes subject to a maximum limit of revaluation
Hybrid
15%
23%
8%
46%
8%
Up to 2%
Over 2% and up to 3%
DC
25%
17%
42%
17%
Over 3% and up to 4%
Over 4% and up to 5%
Over 5%
DB
8%
0%
17%
14%
10%
20%
30%
49%
40%
50%
60%
13%
70%
80%
90%
100%
Chart 23
% of schemes subject to a minimum limit of revaluation
Hybrid
77%
8%
8%
8%
0% or less
Over 0% and up to 1%
DC
55%
5%
30%
10%
Over 1% and up to 2%
Over 2% and up to 3%
Over 3%
DB
81%
0%
10%
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20%
30%
40%
10%
50%
60%
70%
21
80%
90%
8%
100%
1.5. Transferability of pension rights
53% of DC schemes allow employees at all times to transfer pension
rights into the pension scheme when joining the organisation, while
12% of DC schemes do not. In contrast, 42% of DB schemes do not
permit any transfer and 19% keep it at the discretion of the employer
or trustee (see chart 24). When transfer-in is permitted, 51% of DC
schemes restrict the transfer to DC benefits, while the majority of
hybrid schemes do not impose any restriction (see chart 25).
Availability of
transfer-in rights
Chart 24
Availability of transfer-in pension rights when joining the
organisation
29%
Permitted at all times
53%
28%
23%
Permitted if right exercised
within specified time limits
13%
12%
26%
Permitted at discretion of
employer/trustee
23%
19%
23%
Not permitted
12%
42%
0%
10%
20%
30%
DB
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22
DC
40%
Hybrid
50%
60%
Chart 25
Type of transferred-in benefit provided
19%
Not permitted
12%
36%
14%
2%
Restricted to DB benefit
17%
15%
Restricted to DC benefit
51%
14%
53%
36%
No restriction
33%
0%
10%
20%
30%
DB
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23
DC
40%
Hybrid
50%
60%
Most often, employees are allowed to transfer out their pension rights
at all times, although there are still cases where this is not permitted
(29% of DB, 15% of DC and 21% of hybrid schemes) (see chart 26).
Availability of
transfer-out rights
Chart 26
Availability of transfer-out
rights
49%
51%
Permitted at all times
43%
13%
Permitted if right exercised
within specified time limits
19%
15%
16%
Permitted at discretion of
employer/trustee
15%
13%
21%
15%
Not permitted
29%
0%
10%
20%
30%
DB
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24
DC
40%
Hybrid
50%
60%
1.6. Evolution of scheme conditions
Only a small proportion of participant organisations have introduced
changes in their scheme conditions. Most often the changes concerned
the eligibility criteria (see chart 27). Over the next three years even
fewer organisations are planning changes to their schemes. Those
making changes are focusing particularly on eligibility criteria for DB
schemes and the treatment of preserved benefits for hybrid schemes
(see chart 28).
Past and future
changes
Chart 27
% of schemes having introduced changes in the last three years
9%
9%
Availability of transfer rights
4%
11%
8%
8%
Treatment of preserved benefits
10%
6%
Waiting period
5%
8%
Vesting period
10%
11%
17%
Eligibility
12%
18%
0%
2%
4%
6%
8%
DB
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25
10%
DC
12%
Hybrid
14%
16%
18%
20%
Chart 28
% of schemes that will introduce changes in the next three years
2%
2%
Availability of transfer rights
5%
7%
4%
Treatment of preserved benefits
5%
3%
1%
Waiting period
2%
0%
Vesting period
1%
2%
5%
Eligibility
3%
9%
0%
1%
2%
3%
4%
DB
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26
5%
DC
6%
Hybrid
7%
8%
9%
10%
1.7. Information and Communication
Communication with
members in service
A broad range of approaches are used to inform and communicate with
pension members, with a well diffused practice of using both paper
based and online technology. Members in service are offered a wider
range of opportunities including personalised briefing and workplace
advisors. For members with preserved benefits the most commonly
used method is paper based communication, with notably a telephone
helpline in more than 40% of organisations (see charts 29 and 30).
Chart 29
Forms of communication for members in services
emails
online secured portal (including personal records)
online intra-net (generic material)
electronic noticeboards
paper-based benefit statements
Hybrid
paper-based newsletters
DC
paper-based booklets
DB
workplace notice boards
telephone helpline
seminars
workplace adviser
one-to-one briefing
0%
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10%
20%
27
30%
40%
50%
60%
70%
80%
Chart 30
Forms of communication for members with preserved benefits
emails
online secured portal (including personal records)
online intra-net (generic material)
electronic noticeboards
paper-based benefit statements
Hybrid
paper-based newsletters
DC
paper-based booklets
DB
workplace notice boards
telephone helpline
seminars
workplace adviser
one-to-one briefing
0%
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10%
20%
28
30%
40%
50%
60%
70%
2. Belgium
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29
2.1 Belgium – Country Overview
Supplementary
pension coverage in
Belgium
In the early 1980’s Belgium developed a clear legal framework
governing supplementary pension schemes. The legislation has been
regularly updated with a view to ensure greater transparency to the
system. The last review at the end 2006 aims to position Belgium as a
centre of excellence for the establishment of pan-European pension
funds following the implementation of the EU directive of September
2003 (Directive 2003/41/EC).
Proportion of Belgian
workforce covered
All public servants are entitled to a Social Security pension based upon
a final pay formula. No supplementary pension tends to be provided (in
excess of this entitlement).
Employees in the private sector are entitled to a Social Security
pension and sometimes to a supplementary non-state pension.
Whether a supplementary pension is provided depends on the
employer’s discretionary decision or a decision of the sector to which
the employer belongs.
There are no recent quality statistics on the percentage of the
workforce that is covered by supplementary pension schemes. A
recent estimate, made on the basis of 2003 statistics, indicates that
supplementary pensions in Belgium are likely to cover between 50 and
60% of the workforce4.
At least 40% of the employees in the private sector today are therefore
probably not covered by any supplementary pension schemes. The
government, through the promotion of industry-wide plans, is trying to
remedy to this.
End 2005 there was 13 sector-wide pension arrangements. Beginning
of 2007 the number had increased to 20. The sectors employed
together more than 600,000 employees.
Benefit design
4
The types of benefit design include:
•
defined benefit schemes where all the financing risks are allocated
entirely to the sponsoring employer
•
defined contribution schemes where most of the financing risks are
allocated entirely to the scheme member
•
hybrid schemes where the financial risks are shared in a variety of
ways between the sponsoring employer and scheme members.
Comité Superieu des Finances, Comité d’Etude sur le Vieillissement, rapport annuel, juin 2007
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Defined contribution schemes, by law, need to provide a minimum
investment return. The liability risk when the minimum return
threshold is not insured, stays with the employer. Thus, stricto sensu
every defined contribution scheme could be catalogued as a hybrid
scheme given the part of risk retained by the employer.
Benefit design in the
public sector
Public civil servants are entitled to a final pay Social Security pension
and very rarely will be entitled to a supplementary pension.
Benefit design in the
private sector
Since the early 1990’s, hardly any new defined benefit schemes have
been established. Many “old” defined benefit schemes are being
continued although rapidly increasing numbers are being closed to new
entrants.
A recent survey from the Belgian Association of Pension Funds shows
the 121 participating schemes to be distributed as follows:
Defined benefit:
Defined contribution:
Cash balance:
Hybrid:
Not specified:
64%
21%
1%
13%
1%
If schemes financed via group insurances had been included in this
survey, then no doubt the percentage of defined contribution schemes
would be much higher. Small employers setting up new schemes have
been opting more often for a defined contribution design using a group
insurance contract.
Financing methods
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The types of financing methods include:
•
Unfunded schemes which are only allowed for self-employed
directors.
•
Funded schemes where the objective is to build up assets in a fund
which is financially independent of the sponsoring employer.
Typically these schemes are invested in a broad range of assets –
equities, property, bonds, cash and increasingly new sectors such
as commodities, hedge funds and private equity. Funding in
Belgium is via pension funds or insurance contracts.
31
2.2 Belgium – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 100 Belgium-based organisations were approached to
complete the on-line pension survey. Responses were received from 37
organisations, covering 60 pension schemes.
Written pension policy 89% of these Belgium-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at Belgium level for 88% of policies
• at European level for 6% of policies
• at Global Level for 6% of policies
19% of the 37 Belgium-based organisations plan to change their
pension policy within the next 3 years.
Table 2.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 2.2.A
To achieve better long-term sustainability of
benefit costs
To re-align pension policy to corporate
strategy
To ensure greater consistency and coherence
ofatpension
scheme's
terms and conditions at
the European
level
57%
To cope with new legislative requirements
57%
71%
57%
To improve pension scheme governance
29%
Other (please specify)
14%
To improve recruitment and retention
14%
To better meet employee expectations
14%
To reduce administrative burdens and
management time
14%
0% 10 20 30 40 50 60 70 80 90 100
% % % % % % % % % %
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Size of organisations
in the survey
Table 2.2.B shows the distribution of the 37 Belgium-based
organisations by approximate head-count of their workforce in
Belgium.
Table 2.2.B
Over 100,000
Over 50,000 and up to 100,000
Over 20,000 and up to 50,000
Over 10,000 and up to 20,000
5%
Over 5,000 and up to 10,000
5%
Over 2,500 and up to 5,000
14%
Over 1,000 and up to 2,500
11%
Over 250 and up to 1,000
27%
Up to 250
38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
65% of the Belgium-based organisations participating in the survey
have up to 1000 employees in the country.
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Pension coverage
Table 2.2.C shows the distribution of the 37 Belgium-based
organisations by the extent of pension coverage (the percentage of their
Belgium workforce covered by each organisation’s pension schemes).
Table 2.2.C
73%
All 100%
Over 90%and less than
100%
16%
Over 30% and up to
50%
3%
Over 20% and up to
30%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
A very large proportion of participating organisations (89%) tend to
cover almost all the company workforce, while there are 11% of
organisations indicating coverage below 50% of the country
workforce.
Reasons for the lack of coverage are driven by the restricted eligibility
applied by some employers. “Blue collars” employees are for example
still quite often excluded from participation to a pension scheme.
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2.3 Belgium – Typology of funding and benefit practices
Type of scheme
Table 2.3.A shows the distribution – by type of benefit design – of the
60 Belgium-based schemes covered by the survey.
Table 2.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
52%
Defined contributions
Employee carries all
risks
33%
Hybrid
Risks shared between
employee/employer
15%
Although over 50% of schemes are Defined Benefits, a large
proportion of these Defined Benefits schemes relate to organisations
that have also set up Defined Contributions or Hybrid schemes for
their new entrants.
Because of the mandatory investment guarantee applicable to defined
contribution plans, all defined contribution schemes in Belgium could
be catalogued as hybrid schemes.
Open or closed to new
entrants: Defined
Benefits
Table 2.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 2.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
61
12
21
6
73
27
61% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
12% of the Defined Benefits schemes were opened to new entrants
after 2005 and remain open. Most likely these relate to organisations
who have introduced lower-cost benefits, replacing existing Defined
Benefits schemes.
27% of the Defined Benefits schemes have been closed to new
entrants. Some of these relate to organisations who have established
Defined Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions
Table 2.3.C shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 2.3.C
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
76
90
14
5
5
10
-
76% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
Only 10% of Defined Contributions schemes were closed to new
entrants. Probably these are part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
14% of Defined Contributions schemes were opened to new entrants
after 2005, demonstrating the continuing shift from Defined Benefits to
Defined Contributions.
Open or closed to new
entrants: Hybrid
Table 2.3.D shows the distribution of Hybrid schemes by the timing of
their open/closed status.
Table 2.3.D
Hybrid
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Hybrid schemes
64
82
18
0
9
18
9
64% of Hybrid schemes were opened to new entrants before 2005 and
remain open.
18% of Hybrid schemes were closed to new entrants in/after 2005.
This appears to be part of scheme amalgamations, rather than actual
closures.
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Method of funding
Table 2.3.E shows the method of funding employed for Belgium-based
schemes.
Table 2.3.E
Method of
funding
Funded via
separate legal
entity
Defined Benefits
61%
Defined
Contributions
32%
Hybrid
56%
Funded via
insurance
contract
35%
58%
44%
Unfunded
3%
11%
-
100%
100%
100%
61% of Defined Benefits schemes in the survey were funded via a
pension fund. 3% of Defined Benefits schemes were unfunded
schemes.
11% of Defined Contributions schemes in the survey were unfunded
schemes.
All of the Hybrid schemes in the survey were funded.
Size of schemes by
headcount
Table 2.3.F shows the distribution of Belgium-based schemes by the
size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 2.3.F
Defined
Benefits
%
48
Defined
Contributions
%
65
Hybrid
%
39
15
56
Over 1,000 and up to
2,500
3
15
22
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000
3
5
-
6
-
11
-
-
-
100
100
100
Headcount of
employees in each
scheme
Up to 250
Over 250 and up to
1,000
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11
Pension age for early
leavers
Table 2.3.G shows the distribution of Belgium-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 2.3.G
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
10
57
33
100
Defined
Contributions
%
30
40
30
100
Hybrid
%
56
11
33
100
Pension ages for early leavers in Belgium-based schemes tend to be
either 60 or 65.
A number of schemes provide unreduced benefits from ages under 60
– particularly for Defined Contributions schemes where the benefits
are calculated on a money-purchase basis.
As from 2010 onwards, law will prohibit payments prior to age 60.
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2.4 Belgium – Conditions of acquisition of pension rights
Waiting period before
joining
Table 2.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 2.4.A
Waiting Period
Defined Benefits
%
74
None
Defined
Contributions
%
75
Hybrid
%
44
1 – 6 months
6
10
11
7 – 12 months
13
15
33
Over 1 year and
up to 2 years
-
-
11
Over 2 years and
up to 5 years
6
-
-
100
100
100
By law, no waiting period can be imposed on employees 25 or older.
Minimum age before
joining
Table 2.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Law requires immediate affiliation for employees age 25 or older who
meet the other eligibility requirements.
Table 2.4.B
Minimum age
Defined Benefits
%
32
No minimum age
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Defined
Contributions
%
70
Hybrid
%
11
Less than 20
10
-
-
Age 20 - 21
3
-
-
Age 22 - 23
-
-
-
Age 24 - 25
55
30
89
100
100
100
39
Headcount of
employees in waiting
period
Table 2.4.C shows the distribution of Belgium-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 2.4.C
Headcount in waiting
period
Defined
Benefits
%
89
Up to 100
Defined
Contributions
%
93
Hybrid
%
100
Over 100 and up to 250
11
7
-
Over 250 and up to 500
-
-
-
Over 500 and up to
1,000
-
-
-
100
100
100
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age.
Vesting conditions
Table 2.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 2.4.D
Vesting Period
Defined Benefits
%
None
48
Defined
Contributions
%
68
Hybrid
%
13
1 – 6 months
3
11
13
7 – 12 months
41
5
75
Over 1 year and
up to 2 years
3
11
-
Over 2 years and
up to 5 years
3
5
-
100
100
100
Law requires full vesting after one year of scheme participation. The
employers quoting a vesting period in excess of one year therefore
made an incorrect entry.
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2.5 Belgium – Treatment of dormant pension rights
Table 2.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design.
Revaluation of
preserved benefits
Law requires no minimum level of revaluation.
More than one revaluation method is indicated if this is applicable.
62% of DB schemes and 56% of Hybrid have indicated that they don’t
have a revaluation. In 72% of DC schemes the revaluation is made on
the basis of investment return earned on assets.
Table 2.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Defined
Contributions
%
-
Hybrid
%
-
Revaluation made in line with the
adjustment of pension benefits in
payment
-
-
-
Revaluation is set as a nominal sum
-
11
-
Revaluation made on the basis of a fixed
rate of revaluation defined in the rules of
the pension scheme
7
-
-
Revaluation made in accordance with
inflation rate
7
-
-
Revaluation made in accordance with
pay rises/earnings development
10
5
22
Revaluation made on the basis of
investment returns earned on assets
7
72
22
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
7
5
22
62
-
56
7
11
-
No revaluation
Other
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Defined
Benefits
%
7
41
2.6 Belgium – Transferability of pension rights
Availability of
transfer-in rights
Table 2.6.A shows the availability of rights of an employee to transfer
pension rights into their Belgium-based scheme when joining their
employer, separately for each benefit design.
Table 2.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Not permitted
43
Defined
Contributions
%
11
Hybrid
%
44
Permitted at
discretion of
employer/trustee
7
-
-
Permitted if right
exercised within
specified time
limits
17
33
11
Permitted at all
times
33
56
44
100
100
100
For a significant number of Defined Benefits and Hybrid schemes,
transfer-in rights are either not permitted or only permitted with
employer/trustee discretion.
Employers with pension schemes are required by Law to facilitate a
transfer-in of pension reserves accrued with a previous employer.
Many employers set up specific schemes to receive these transfers to
avoid the administrative complexity of managing these transfer values
within the normal pension scheme.
This explains why some schemes, despite the above referred
legislation, do not permit a transfer-in.
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Type of benefit
provided for a
transfer payment
Table 2.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 2.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
Defined Benefits
%
Hybrid
%
46
28
71
Restricted to DC
benefit
12
50
-
Restricted to DB
benefit
-
-
-
42
22
29
100
100
100
Not permitted
Availability of
transfer-out rights
Defined
Contributions
%
Table 2.6.C shows the availability of rights of an employee to transfer
pension rights out of their Belgium-based scheme, separately for each
benefit design.
Table 2.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
10
Defined
Contributions
%
11
Hybrid
%
22
Permitted at
discretion of
employer/trustee
-
-
-
Permitted if
rights exercised
within specified
time limits
38
50
11
Permitted at all
times
52
39
67
100
100
100
Because of the above referred legislation, all plans by law need to
permit a transfer (within approximately three months of the
employee’s departure).
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2.7 Belgium – Evolution of scheme conditions
Changes within the
last three years
Table 2.7.A shows the percentage of Belgium-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 2.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
19
6
44
Waiting Period
-
-
-
Vesting Period
6
-
13
Treatment of
preserved
benefits
3
11
11
Availability of
transfer rights
3
6
11
Table 2.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 2.7.B
Type of change
in last 3 years
Defined Benefits
%
Hybrid
%
Reducing
eligibility
requirements
14
Reducing the
waiting period
n/a
n/a
n/a
Reducing the
vesting period
33
n/a
33
-
100
-
100
100
100
Increasing the
revaluation rate
for preserved
benefits
Increasing the
availability of
transfer rights
Hewitt Associates
Defined
Contributions
%
-
44
100
These tables show that a significant percentage of schemes have
changed their conditions, apart from the length of the waiting period.
These changes have only been partly favourable to employees.
Changes within the
next 3 years
Table 2.7.C shows the percentage of Belgium-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 2.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
3
-
11
Waiting period
-
-
-
Vesting period
-
-
-
Treatment of
preserved
benefits
3
6
22
Availability of
transfer rights
3
-
-
Table 2.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 2.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Reducing
eligibility
requirements
(not provided)
Defined
Contributions
%
n/a
Reducing the
waiting period
n/a
n/a
n/a
Reducing the
vesting period
n/a
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
-
100
100
100
n/a
n/a
Increasing the
availability of
transfer rights
Hybrid
%
-
Only a small proportion of the Belgium-based schemes are planning
changes – mainly changing the revaluation rate for preserved benefits.
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2.8 Belgium – Information and Communication
Communicating with
members in service
Chart 2.8.A shows the percentage of Belgium-based Defined Benefits
schemes which communicate with members in service, according to
method of communication.
Table 2.8.A
How do you communicate with Defined Benefits scheme
members? - Members in service - Belgium
Paper-Based Benefit Statements
73%
One-To-One Briefing
64%
Paper-Based Booklets
55%
Emails
50%
Workplace Adviser
32%
Online Intra-Net (Generic Material)
27%
Seminars
18%
Electronic Noticeboards
9%
Workplace Notice Boards
9%
Telephone Helpline
9%
Paper-Based New sletters
5%
0%
Hewitt Associates
20%
46
40%
60%
80%
100%
Chart 2.8.B shows the percentage of Belgium-based Defined
Contributions schemes which communicate with members in service,
according to method of communication.
Table 2.8.B
How do you communicate with Defined Contributions scheme
members? - Members in service - Belgium
67%
One-To-One Briefing
Emails
56%
Paper-Based Benefit Statements
56%
Seminars
22%
Workplace Adviser
22%
Online Intra-Net (Generic Material)
11%
Paper-Based Booklets
11%
0%
20%
40%
60%
80%
100%
j
Chart 2.8.C shows the percentage of Belgium-based Hybrid schemes
which communicate with members in service, according to method of
communication.
Table 2.8.C
How do you communicate with Hybrid scheme members? - Members
in service - Belgium
67%
Paper-Based Benefit Statements
Paper-Based Booklets
50%
One-To-One Briefing
50%
33%
Workplace Adviser
Emails
17%
Online Intra-Net (Generic Material)
17%
Paper-Based New sletters
17%
0%
Hewitt Associates
20%
47
40%
60%
80%
Chart 2.8.D shows the percentage of Belgium-based Defined Benefits
schemes which communicate with members with preserved benefits,
according to method of communication.
Communicating with
members with
preserved benefits
Table 2.8.D
How do you communicate with Defined Benefits scheme members?
- Members with preserved benefits - Belgium
Paper-Based Benefit
Statements
82%
One-To-One Briefing
29%
Emails
24%
Telephone Helpline
12%
Workplace Adviser
12%
Paper-Based Booklets
6%
0%
Hewitt Associates
20%
40%
48
60%
80%
100%
Chart 2.8 E shows the percentage of Belgium-based Defined
Contributions schemes which communicate with members with
preserved benefits, according to method of communication.
Table 2.8.E
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - Belgium
Paper-Based Benefit
Statements
60%
40%
One-To-One Briefing
Emails
20%
Paper-Based Booklets
20%
0%
20%
40%
60%
80%
100%
Chart 2.8.F shows the percentage of Belgium-based Hybrid schemes
which communicate with members in service, according to method of
communication.
Table 2.8.F
How do you communicate with Hybrid scheme members? - Members
with preserved benefits - Belgium
Paper-Based Benefit
Statements
60%
One-To-One Briefing
60%
0%
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20%
40%
49
60%
80%
2.9 Belgium – Concluding Remarks
Coverage
Supplementary pension schemes in Belgium generally do not cover
public sector employees, and only between 50 and 60% of the private
sector employees.
Trends in benefit
design
In the private sector, recent years have been characterised by a rapid
closure (to new entrants) of Defined Benefits schemes, and a shift to
Defined Contributions or Hybrid schemes.
Method of funding
The method of funding is primarily via a separate legal entity known as
pension fund or via a group insurance.
Waiting periods and
minimum ages
Law requires employees of 25 or older to be immediately affiliated to
pension schemes. Waiting periods can hence only be applied to
employees younger than 25.
Most defined contribution schemes require no minimum age and apply
no waiting period.
The majority of defined benefit schemes require a minimum age of 25.
Vesting conditions
A majority of defined contribution schemes and almost 50% of the
defined benefit schemes provide immediate vesting despite the ability
under Law to defer vesting to one year after scheme participation.
Revaluation of
preserved benefits
Law does not require any form of revaluation.
72% of defined contribution schemes provide a revaluation on the
basis of investment return on assets, while the majority of defined
benefit and hybrid schemes do no provide a revaluation.
Availability of
transfer rights
Law requires employers to allow a transfer-out and requires transfers
to be facilitated, through the normal pension scheme or a specific
scheme set up for this purpose
Communication
Law requires pension schemes to provide members an annual
statement, either online or on paper. The survey confirms these
practices.
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3. France
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3.1 France – Country Overview
Supplementary
pension coverage in
France
The majority of employees in France are not entitled to pension
benefits other than those provided by the basic state scheme (social
security) and the mandatory complementary pay-as-you-go schemes
(principally affiliated to ARRCO and AGIRC).
New retirement reform law intends to offer French residents access to
a tax efficient and secured “third pillar” through voluntary companysponsored retirement savings plans.
Proportion of France
private companies
offering
supplementary
pension schemes
About 55% of large companies provide a supplementary pension
scheme with mandatory membership and financed partially or entirely
by the employer. These schemes are usually offered to the
management and senior management.
About 45% of large companies offer to all the employees a collective
retirement saving plan with voluntary membership and financed by the
employee with a company matching.
Generally, employees working in small companies (less than 500
employees) are not covered by a supplementary pension scheme5.
Benefit design
5
The types of benefit design include:
•
defined benefit schemes where all the financing risks are allocated
entirely to the sponsoring employer
•
defined contribution schemes where all the financing risks are
allocated entirely to the scheme member
•
hybrid schemes where the financial risks are shared in a variety of
ways between the sponsoring employer and scheme members.
This coverage ratio emerge from the 2006 survey carried out by JPM / Interépargne / Hewitt.
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52
Benefit design in the
public sector
Public sector employees are all covered by mandatory state plans
which provide a high replacement ratio. At least 75% of final salary is
guaranteed after completing 40 years of service. This certainly
influences the relatively low importance of complementary forms of
retirement benefits in the public sector.
Nevertheless, a voluntary defined contributions plan, entirely financed
by the employee contributions, is available to all state employees that
wish to build up a complimentary source of revenues for their
retirement.
Benefit design in the
private sector
Private companies can offer a large range of supplementary schemes:
defined benefits or defined contributions.
The trend is to convert defined benefit schemes into defined
contributions schemes for managers, and implement collective
retirement saving plans for employees.
Financing methods
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The financing of defined benefits schemes can be either:
•
Unfunded pay-as-you-go schemes.
•
Funded schemes where the objective is to build up assets in a fund
which is financially independent of the sponsoring employer.
Typically these schemes are invested through an insurance contact
in a broad range of assets.
•
Funds of defined contributions schemes can be managed either by:
•
Insurance companies
•
Management companies.
53
3.2 France – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 127 France-based organisations were approached to complete
the on-line pension survey. Responses were received from 16
organisations, covering 21 pension schemes.
Written pension policy 88% of these France-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at France level for 86% of policies
• at European level for 7% of policies
• at Global Level for 7% of policies
44% of the 16 France-based organisations plan to change their pension
policy within the next 3 years.
Table 3.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 3.2.A
To re-align pension policy to corporate strategy
86%
To improve recruitment and retention
57%
To better meet employee expectations
43%
To cope with new legislative requirements
29%
To achieve better long-term sustainability of benefit costs
29%
To reduce immediate benefit costs
29%
Other (please specify)
14%
To improve pension scheme governance
14%
To reduce administrative burdens and management time
14%
To ensure greater consistency and coherence of pension scheme's
terms and conditions at the European level
14%
0%
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10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Size of organisations
in the survey
Table 3.2.B shows the distribution of the 16 France-based
organisations by approximate head-count of their workforce in France.
Table 3.2.B
Over 100,000
0%
13%
Over 20,000 and up to 50,000
19%
19%
Over 5,000 and up to 10,000
13%
13%
Over 1,000 and up to 2,500
13%
6%
Up to 250
6%
0%
5%
10%
15%
20%
25%
30%
35%
88% of the France-based organisations participating in the survey had
over 1000 employees in France.
Pension coverage
Table 3.2.C shows the distribution of the 16 France-based
organisations by the extent of pension coverage (the percentage of their
France workforce covered by each organisation’s pension schemes).
Table 3.2.C
25%
All 100%
Over 90%and less than 100%
6%
Over 50% and up to 70%
6%
Over10% and up to 20%
6%
Over 5% and up to10%
6%
Up to 5%
50%
0%
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10%
20%
55
30%
40%
50%
60%
The table shows that there are significant gaps in coverage, with 50%
of organisations indicating coverage up to 5% of the workforce.
However, one out of four participating organisation cover their entire
workforce.
Reasons for lack of coverage include companies that offer
supplementary pension only to their managers and senior managers.
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3.3 France – Typology of funding and benefit practices
Type of scheme
Table 3.3.A shows the distribution – by type of benefit design – of the
21 France-based schemes covered by the survey.
Table 3.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
62%
Defined contributions
Employee carries all
risks
33%
Hybrid
Risks shared between
employee/employer
5%
Although over 60% of schemes are Defined Benefits, a large
proportion of these Defined Benefits schemes relate to organisations
that have also set up Defined Contributions or Hybrid schemes for
their new entrants.
Open or closed to new
entrants: Defined
Benefits
Table 3.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 3.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
47
13
27
13
60
40
47% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
13% of the Defined Benefits schemes were opened to new entrants
after 2005 and remain open. A high proportion of these relate to
organisations who have introduced lower-cost benefits, replacing
existing Defined Benefits schemes.
40% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions and
Hybrid
Of the relatively small number of Defined Contributions schemes, all
were open to new members - half before 2005 and half after 2005.
Method of funding
Table 3.3.C shows the method of funding employed for France-based
schemes.
The single Hybrid scheme was opened to new entrants before 2005.
Table 3.3.C
Method of
funding
Funded via
separate legal
entity
Size of schemes by
headcount
Defined Benefits
15%
Defined
Contributions
43%
Hybrid
-
Funded via
insurance
contract
54%
57%
100%
Unfunded
31%
-
-
100%
100%
100%
Table 3.3.D shows the distribution of France-based schemes by the
size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 3.3.D
Headcount of
employees in each
scheme
Up to 250
Over 250 and up to
1,000
Over 1,000 and up to
2,500
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
Defined
Benefits
%
77
Defined
Contributions
%
14
Hybrid
%
-
-
-
15
-
-
-
29
-
8
-
-
-
14
-
-
29
-
-
14
-
100
100
100
100
Most companies provide a defined benefits scheme only to their
managers. This explains why 77% of defined benefits schemes cover
populations, of less than 250 employees.
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Pension age for early
leavers
Table 3.3.E shows the distribution of France-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 3.3.E
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
18
45
36
100
Defined
Contributions
%
71
29
100
Hybrid
%
100
100
Pension ages for early leavers in France-based schemes tend to be
either 60 or 65.
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3.4 France – Conditions of acquisition of pension rights
Waiting period before
joining
Table 3.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 3.4.A
Waiting Period
Defined Benefits
%
77
None
Defined
Contributions
%
43
Hybrid
%
100
1 – 6 months
-
29
-
7 – 12 months
-
29
-
Over 1 year and
up to 2 years
-
-
-
23
-
-
100
100
100
Over 5 years and
up to 10 years
There is no statutory requirement affecting waiting periods for defined
benefit schemes.
A waiting period not exceeding one month is required by law for
defined contributions schemes and three months for collective
retirement saving plans. Some schemes do not meet these statutory
requirements.
Minimum age before
joining
Table 3.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 3.4.B
Minimum age
Defined Benefits
%
77
No minimum age
Defined
Contributions
%
100
%
100
Less than 20
8
-
-
Age 20 - 35
-
-
-
15
-
-
100
100
100
More than age 35
There is no statutory requirement for minimum entry age.
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Hybrid
60
Headcount of
employees in waiting
period
Table 3.4.C shows the distribution of France-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 3.4.C
Defined
Benefits
%
100
Defined
Contributions
%
25
Hybrid
%
Over 100 and up to 250
-
-
-
Over 250 and up to 500
-
-
-
Over 500 and up to
1,000
Over 5000 and up to
10,000
Over 10,000
-
25
-
-
25
-
-
25
Headcount in waiting
period
Up to 100
100
100
-
Not provided
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have no vesting period or have
an immediate voluntary membership.
Companies that have indicated large number of employees (more than
5,000) in a waiting period for defined contributions schemes might
have categorised employees who choose not to join collective
retirement saving plans as being in a in waiting period.
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Vesting conditions
Table 3.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 3.4.D
Vesting Period
Defined Benefits
%
None
31
Defined
Contributions
%
100
Hybrid
%
100
1 – 6 months
-
-
-
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
-
Over 2 years and
up to 5 years
8
-
-
Over 5 years and
up tot 10 years
8
-
-
54
-
-
100
100
100
Over 10 years
Rights under defined benefits schemes in France are not vested until
retirement to maintain tax advantages.
However, a small proportion of France-based schemes apply either age
or seniority conditions before allowing vesting of pension rights.
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3.5 France – Treatment of dormant pension rights
Table 3.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 3.5.A
Revaluation method
Defined
Benefits
%
8
Defined
Contributions
%
14
Revaluation made in line with the
adjustment of pension benefits in
payment
-
14
-
Revaluation is set as a nominal sum
(fixed amount)
-
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
23
14
-
Revaluation made in accordance with
inflation rate
23
-
100
Revaluation made in accordance with
pay rises/earnings development
8
-
-
Revaluation made on the basis of
investment returns earned on assets
8
57
-
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
-
-
-
No revaluation
23
-
-
Other
23
-
-
Revaluation made in line with the
adjustment of the rights of active
members
Hybrid
%
-
The method of revaluation of preserved benefits is usually based on:
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the general asset rate of returns of the insurance companies, or
•
the state pension increase (close to the inflation rate in the last few
years).
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3.6 France – Transferability of pension rights
Availability of
transfer-in rights
Table 3.6.A shows the availability of rights of an employee to transfer
pension rights into their France-based scheme when joining their
employer, separately for each benefit design.
Table 3.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Not permitted
100
Defined
Contributions
%
14
Hybrid
%
-
Permitted at
discretion of
employer/trustee
-
29
100
Permitted if right
exercised within
specified time
limits
-
14
-
Permitted at all
times
-
43
-
100
100
100
In most of the France-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion.
Type of benefit
provided for a
transfer payment
Table 3.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 3.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
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Defined Benefits
%
Defined
Contributions
%
Hybrid
%
n/a
25
-
Restricted to DC
benefit
n/a
75
100
Restricted to DB
benefit
n/a
-
-
Not permitted
100
-
-
100
100
100
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Availability of
transfer-out rights
Table 3.6.C shows the availability of rights of an employee to transfer
pension rights out of their France-based scheme, separately for each
benefit design.
Table 3.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
100
Defined
Contributions
%
29
Hybrid
%
100
Permitted at
discretion of
employer/trustee
-
14
-
Permitted if
rights exercised
within specified
time limits
-
29
-
Permitted at all
times
-
29
-
100
100
100
Benefits under defined benefits schemes are typically not vested so
rights cannot be transferred out.
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3.7 France – Evolution of scheme conditions
Changes within the
last three years
Table 3.7.A shows the percentage of France-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 3.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
9
17
-
Waiting Period
9
-
-
Vesting Period
18
-
-
Treatment of
preserved
benefits
9
-
-
Availability of
transfer rights
-
-
-
Table 3.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 3.7.B
Type of change
in last 3 years
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Defined Benefits
%
Defined
Contributions
%
-
Hybrid
%
Reducing
eligibility
requirements
33
Reducing the
waiting period
100
n/a
n/a
Reducing the
vesting period
67
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
50
n/a
n/a
Increasing the
availability of
transfer rights
n/a
n/a
n/a
66
n/a
These tables show that a significant percentage of Defined Benefits
schemes have changed their eligibility, vesting and waiting period
conditions, and their treatment of preserved benefits.
For the most part, these changes have been favourable to employees.
Changes within the
next 3 years
Table 3.7.C shows the percentage of France-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 3.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
30
-
-
Waiting period
10
-
-
Vesting period
10
-
-
Treatment of
preserved
benefits
36
-
-
Availability of
transfer rights
20
-
-
Table 3.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 3.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Hybrid
%
Reducing
eligibility
requirements
67
Defined
Contributions
%
n/a
Reducing the
waiting period
100
n/a
n/a
Reducing the
vesting period
100
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
67
n/a
n/a
Increasing the
availability of
transfer rights
50
n/a
n/a
n/a
A significant portion of France-based Defined Benefits schemes are
planning changes – favourably for employees in most cases.
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3.8 France – Information and Communication
Communicating with
members in service
Chart 3.8.A shows the percentage of France-based Defined Benefits
schemes which communicate with members in service, according to
method of communication.
Table 3.8.A
How do you communicate with Defined Benefits scheme
members? - Members in service - France
One-To-One Briefing
78%
Paper-Based Booklets
56%
Emails
22%
Online Secured Portal (Including Personal Records)
22%
Paper-Based Benefit Statements
22%
Telephone Helpline
22%
11%
Workplace Adviser
0%
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20%
40%
60%
80%
100%
Chart 3.8.B shows the percentage of France-based Defined
Contributions schemes which communicate with members in service,
according to method of communication.
Table 3.8.B
How do you communicate with Defined Contributions scheme
members? - Members in service - France
Paper-Based Booklets
100%
Paper-Based Benefit Statements
50%
Online Secured Portal (Including Personal Records)
33%
Online Intra-Net (Generic Material)
17%
Paper-Based New sletters
17%
Workplace Notice Boards
17%
Telephone Helpline
17%
One-To-One Briefing
17%
0%
20%
40%
60%
80%
100%
The information provided for France-based Hybrid schemes was too
limited to draw conclusions.
For communicating to members with preserved benefits, France-based
schemes tended to make use of paper-based benefit statements, paperbased booklets, one-to-one briefings and emails.
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3.9 France – Concluding Remarks
Coverage
Supplementary private pension schemes in France are usually designed
to cover managers and senior managers. Recent laws provide a more
flexible framework that should encourage the implementation of
retirement saving plans designed to cover a much wider workforce.
Trends in benefit
design
During the last few years, many defined benefits schemes have been
closed or converted into defined contributions or hybrid schemes. At
the same time, collective retirement saving plans have become very
popular and their number has increased significantly.
Method of funding
The funding method is via a separate legal entity, i.e. with an insurance
company for defined benefits or defined contributions schemes and
with a management companies for collective retirement saving plans.
Defined benefits schemes in the private sector are partially funded.
Waiting periods
Most schemes have very few employees in waiting periods since they
have a short or no waiting period and no minimum age.
Vesting conditions
Rights under defined benefits schemes cannot be vested before
retirement age without losing the favourable tax regime that allows tax
deductibility.
Benefits under defined contributions schemes and collective retirement
saving plans are fully vested.
Revaluation of
preserved benefits
Availability of
transfer rights
The method of revaluation of preserved benefits is usually based on:
•
the general asset rate of return of the insurance companies, or
•
the state pension increase (close to the inflation rate in the last few
years).
In all defined benefits schemes in France, rights cannot be transferred
in or out since benefits are not usually vested and are only available at
retirement.
Rights under defined contributions schemes or collective retirement
saving plans can be transferred in or out.
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Communication
Since defined benefits schemes are offered to managers and senior
managers, the common methods are one-to-one meetings and paperbased booklets.
For defined contributions schemes and collective retirement saving
plans, statutory requirements are to provide an annual statement for the
account balance - hence the large proportion of paper-based booklets
and paper-based benefit statements reported by sponsors.
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4. Germany
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4.1 Germany – Country Overview
Supplementary
pension coverage in
Germany
Germany has a long-standing tradition of supplementary occupational
pension schemes dating back to the 19th century.
Today, pension schemes in Germany cover the entire spectrum of
possible benefits and financing methods.
Currently about 10% of Germany’s pensioners’ retirement income is
derived from occupational pension schemes.
Proportion of German
workforce covered
Approximately 10.4 m private sector employees (corresponding to
about 46% of the total private industry work force) are entitled to
company pensions.
Public sector employees subject to social security contribution are
automatically entitled to supplementary pension benefits.
Employees
Private
Sector
Public
Sector
Overall
*
Total
with company
pension benefits
13.7m*
5.3m
19.0m
without company
pension benefits
12.1m
0.0m
12.1m
25.8m
5.3m
31.1m
*
more than one deferred benefit possible
source: aba online/TNS Infratest Sozialforschung – 2006 data
On average a German retiree receives 405 EUR in company pensions a
month (men: 473 EUR and women: 313 EUR).
Source: German institute for economic research (Deutsches Institut für
Wirtschaftsforschung - DIW) – 2004 data
Approximately 19 bn. EUR pension benefits are paid by the private
sector and 9 bn. EUR by the public sector annually (for comparison:
the state pension system distributed 240 bn. EUR)6.
Benefit design
6
Due to the statutory requirement set out in the Company Pensions Act
for pension schemes to guarantee at least the return of the contributions
paid, German schemes need to be treated as defined benefit for
accounting purposes. On the other hand, a number of existing schemes
are modelled very closely on defined contribution schemes and
therefore allocate only a small residual risk to the employer.
Source: German federal office for labour and social affairs – data 2003 / 2005
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Benefit design in the
public sector
The public service pension scheme covers old age, disability and
survivors’ benefits. The benefit amount is computed with the sum of so
called accumulated points that in turn are derived by multiplying the
gross annual pay with conversion factors. In case of death or disability
in service, additional service is credited.
The use of accumulation points replaced the former total compensation
system which had been in use before the redesign of the supplementary
benefit scheme in 2002.
Benefit design in the
private sector
For historic reasons, pure defined benefit schemes are still the most
common form of occupational pensions. Recently though, employers
have been looking for ways to minimize their risk.
Over the past years, most large defined benefit schemes have been
closed for new entrants and have been replaced by pension schemes
allocating less risk to the employer. For example only very low
guaranteed interest rates are granted or the contribution increases are
linked to the development of certain indexes.
Financing methods
At the end of 2004 the total liabilities amounted to approximately 381
bn. EUR of which 221.7 bn. EUR (58%) related largely to unfunded
book reserve schemes.
Funded schemes are usually financed through external vehicles, in
recent years contractual trust arrangements (CTA) have become
increasingly popular.
The funds for the German “Pensionskassen” (captive insurance)
amounted to 83.2 bn. EUR (22%), direct insurance made up for 45.8
bn. EUR (12%), support funds were 29.7 bn. EUR (8%) and the
“Pensionsfonds” (German version of pension fund) were 0.6 bn. EUR7.
Typically these schemes are invested in a broad range of assets –
stocks, bonds, property, hedge funds to name a few. 38 % of the
benefits are financed by the employer only, 29% by the employee only
and 41% are jointly financed8.
The public sector is mainly financed with employer-allocated funds
and to a lesser extent with funds allocated to the employees. Additional
charges for a phased conversion from pay-as-you-go financing to the
funding principle can also be levied. For example currently 1% of the
contributions levied for the part of the Federal and State Government
Employees Retirement Fund for former East Germany are earmarked
for building up a reserve. Another possibility is to make a one-time
equivalent amount payment covering future benefits in order to buy out
of the pay-as-you-go community.
7
8
Source: DIA, aba online 2006 – data 2004
The total adds up to more than 100% as financing methods can exist in parallel. Source: TNS Infratest Sozialforschung
(2005) – 2004 data
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4.2 Germany – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 300 Germany-based organisations were approached to
complete the on-line pension survey. Responses were received from 59
organisations, covering 84 pension schemes.
Written pension policy 95% of these Germany-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at Germany level for 93% of policies
• at European level for none of the policies
• at Global Level for 7% of policies
24% of the 59 Germany-based organisations plan to change their
pension policy within the next 3 years.
Table 4.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 4.2.A
To achieve better long-term sustainability of
benefit costs
To re-align pension policy to corporate
strategy
64%
64%
To reduce immediate benefit costs
57%
To improve pension scheme governance
36%
To reduce administrative burdens and
management time
36%
To better meet employee expectations
29%
To improve recruitment and retention
14%
To cope with new legislative requirements
14%
To ensure greater consistency and
coherence of
scheme's
coherence
at pension
the European
levelterms and
7%
0%
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20%
40%
60%
80%
100%
Size of organisations
in the survey
Table 4.2.B shows the distribution of the 59 Germany-based
organisations by approximate head-count of their workforce in
Germany.
Table 4.2.B
Over 100,000
8%
2%
Over 20,000 and up to 50,000
8%
7%
Over 5,000 and up to 10,000
10%
12%
Over 1,000 and up to 2,500
22%
22%
Up to 250
8%
0%
5%
10%
15%
20%
25%
70% of the Germany-based organisations participating in the survey
had over 1000 employees in Germany.
Pension coverage
Table 4.2.C shows the distribution of the 59 Germany-based
organisations by the extent of pension coverage (the percentage of their
Germany workforce covered by each organisation’s pension schemes).
Table 4.2.C
All 100%
37%
Over 90%and less
than 100%
37%
Over 70% and up to
90%
8%
Over 50% and up to
70%
7%
Over 30% and up to
50%
2%
Over 20% and up to
30%
7%
Over10% and up to
20%
2%
0%
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5%
10%
15%
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20%
25%
30%
35%
40%
The table shows that 74% organisation cover at least 90% of their
workforce while 11% cover half or less of their workforce.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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4.3 Germany – Typology of funding and benefit practices
Type of scheme
Table 4.3.A shows the distribution – by type of benefit design – of the
84 Germany-based schemes covered by the survey.
Table 4.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
58%
Defined contributions
Employee carries most
risks
13%
Hybrid
Risks shared between
employee/employer
29%
Almost 60% of schemes are Defined Benefits. Although from a strict
legal perspective all pension schemes should be considered DB, there
is an increasing number of pension schemes that because tend to limit
employer risk and liabilities are more often considered, in practical
terms, as being of DC or hybrid type.
Open or closed to new
entrants: Defined
Benefits
Table 4.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 4.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
55
4
24
10
6
59
40
55% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
4% of the Defined Benefits schemes were opened to new entrants after
2005 and remain open. Some of these relate to organisations who have
introduced lower-cost benefits, replacing existing Defined Benefits
schemes.
40% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions
Table 4.3.C shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 4.3.C
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
55
9
91
27
9
9
55% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
Only 9% of Defined Contributions schemes were closed to new
entrants. This appears to be part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
36% of Defined Contributions schemes were opened to new entrants
in/after 2005, demonstrating the continuing shift from Defined
Benefits to Defined Contributions.
Open or closed to new
entrants: Hybrid
Table 4.3.D shows the distribution of Hybrid schemes by the timing of
their open/closed status.
Table 4.3.D
Hybrid
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Hybrid schemes
50
21
88
17
4
12
8
50% of Hybrid schemes were opened to new entrants before 2005 and
remain open.
Only 12% of Hybrid schemes were closed to new entrants. This
appears to be part of scheme amalgamations, rather than actual closure
of Hybrid schemes.
38% of Hybrid schemes were opened to new entrants in/after 2005,
demonstrating the continuing shift from Defined Benefits to Hybrid
schemes.
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Method of funding
Table 4.3.D shows the method of funding employed for Germanybased schemes.
Table 4.3.D
Method of
funding
Funded via
separate legal
entity
Defined Benefits
16%
Defined
Contributions
55%
Hybrid
25%
Funded via
insurance
contract
12%
27%
29%
Unfunded
71%
18%
46%
100%
100%
100%
16% of Defined Benefits schemes in the survey were funded via a
separate legal entity – typically traditional pension funds
(Pensionskasse), pension funds or trusts.
Size of schemes by
headcount
Table 4.3.E shows the distribution of Germany-based schemes by the
size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 4.3.E
Headcount of
employees in each
scheme
Defined
Benefits
%
18
Defined
Contributions
%
18
Hybrid
%
Over 250 and up to
1,000
24
36
21
Over 1,000 and up to
2,500
24
18
13
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
Over 100,000
6
9
13
8
-
13
6
18
4
8
-
8
4
-
4
-
-
8
100
100
100
Up to 250
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17
Pension age for early
leavers
Table 4.3.F shows the distribution of Germany-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 4.3.F
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
26
4
12
53
4
100
Defined
Contributions
%
55
9
27
9
100
Hybrid
%
58
13
4
25
100
Pension ages for early leavers in Germany-based schemes tend to be
either 60 or 65.
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4.4 Germany – Conditions of acquisition of pension rights
Waiting period before
joining
Table 4.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 4.4.A
Waiting Period
Defined Benefits
%
49
None
Hybrid
%
50
1 – 6 months
4
10
17
7 – 12 months
8
-
4
Over 1 year and
up to 2 years
4
-
0
Over 2 years and
up to 5 years
14
10
29
Over 5 years and
up to 10 years
18
10
-
2
-
-
100
100
100
Over 10 years
Minimum age before
joining
Defined
Contributions
%
70
Table 4.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 4.4.B
Minimum age
Defined Benefits
%
45
No minimum age
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Defined
Contributions
%
91
Hybrid
%
79
Less than 20
4
9
-
Age 20 - 21
10
-
4
Age 22 - 23
-
-
4
Age 24 - 25
4
-
4
Age 26 – 30
12
-
8
Age 30 - 35
18
-
-
100
100
100
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Headcount of
employees in waiting
period
Table 4.4.C shows the distribution of Germany-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 4.4.C
Defined
Benefits
%
58
Defined
Contributions
%
50
Hybrid
%
Over 100 and up to 250
5
25
6
Over 250 and up to 500
18
13
6
Over 500 and up to
1,000
Over 1,000 and up to
2,000
Over 2,000 and up to
5,000
13
13
6
3
-
-
5
-
-
100
100
100
Headcount in waiting
period
Up to 100
81
Many schemes have very small numbers of employees in waiting
periods. This is because they have a short or no waiting period and a
low or no minimum age.
Vesting conditions
Table 4.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 4.4.D
Vesting Period
Defined Benefits
%
None
14
Defined
Contributions
%
55
Hybrid
%
25
1 – 6 months
-
-
4
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
-
Over 2 years and
up to 5 years
49
27
71
Over 5 years and
up to 10 years
27
18
-
Over 10 years
10
-
-
100
100
100
Many Defined Contribution and Hybrid schemes are embedded in
deferred compensation models which lead, according to German law,
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to immediately vested rights. The statutory vesting period in Germany
for employer-financed schemes is 5 years for schemes established after
2001 and 10 years for schemes before this date.
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4.5 Germany – Treatment of dormant pension rights
Table 4.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design. 90% of DC scheme, 77 % of hybrid and 49% of DB schemes
apply revaluation. In the case of DC and hybrid, more often on the
basis of investment returns earned on assets.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 4.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Defined
Contributions
%
9
Hybrid
%
9
Revaluation made in line with the
adjustment of pension benefits in
payment
6
9
5
Revaluation is set as a nominal sum
(fixed amount)
-
9
5
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
16
9
23
Revaluation made in accordance with
inflation rate
8
-
18
Revaluation made in accordance with
pay rises/earnings development
16
9
9
Revaluation made on the basis of
investment returns earned on assets
-
62
36
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
-
-
-
51
10
23
4
-
5
No revaluation
Other
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Defined
Benefits
%
10
85
4.6 Germany – Transferability of pension rights
Availability of
transfer-in rights
Table 4.6.A shows the availability of rights of an employee to transfer
pension rights into their Germany-based scheme when joining their
employer, separately for each benefit design.
Table 4.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Defined
Contributions
%
40
Hybrid
%
Not permitted
82
30
Permitted at
discretion of
employer/trustee
12
20
52
Permitted if right
exercised within
specified time
limits
-
30
9
Permitted at all
times
6
10
9
100
100
100
In most Germany-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion.
Type of benefit
provided for a
transfer payment
Table 4.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 4.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
Defined Benefits
%
Hybrid
%
17
25
48
Restricted to DC
benefit
4
25
14
Restricted to DB
benefit
2
13
14
76
38
24
100
100
100
Not permitted
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Defined
Contributions
%
86
Availability of
transfer-out rights
Table 4.6.C shows the availability of rights of an employee to transfer
pension rights out of their Germany-based scheme, separately for each
benefit design.
Table 4.6.C
Availability of
transfer-out
rights
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Defined Benefits
%
Defined
Contributions
%
30
Hybrid
%
Not permitted
76
Permitted at
discretion of
employer/trustee
18
30
42
Permitted if
rights exercised
within specified
time limits
4
20
13
Permitted at all
times
2
20
13
100
100
100
87
33
4.7 Germany – Evolution of scheme conditions
Changes within the
last three years
Table 4.7.A shows the percentage of Germany-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 4.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
12
9
-
Waiting Period
6
-
-
Vesting Period
6
-
-
Treatment of
preserved
benefits
6
9
-
Availability of
transfer rights
-
18
9
Table 4.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 4.7.B
Type of change
in last 3 years
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Defined Benefits
%
Defined
Contributions
%
67
Hybrid
%
Reducing
eligibility
requirements
83
Reducing the
waiting period
100
n/a
n/a
Reducing the
vesting period
100
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
20
0
n/a
Increasing the
availability of
transfer rights
n/a
50
100
88
n/a
These tables show that a significant percentage of schemes have made
changes.
For the most part, these changes have been favourable to employees.
Changes within the
next 3 years
Table 4.7.C shows the percentage of Germany-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 4.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
4
-
-
Waiting period
-
-
-
Vesting period
-
-
-
Treatment of
preserved
benefits
2
-
-
Availability of
transfer rights
4
-
5
Table 4.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 4.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Reducing
eligibility
requirements
67
Defined
Contributions
%
n/a
Hybrid
%
Reducing the
waiting period
n/a
n/a
n/a
Reducing the
vesting period
n/a
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
50
n/a
n/a
Increasing the
availability of
transfer rights
33
n/a
100
n/a
Only a small proportion of the Germany-based schemes are planning
changes – mainly changing the availability of transfer rights.
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4.8 Germany – Information and Communication
Communicating with
members in service
Chart 4.8.A shows the percentage of Germany-based Defined Benefit s
schemes which communicate with members in service, according to
method of communication.
Table 4.8.A
How do you communicate with Defined Benefits scheme
members? - Members in service - Germany
79%
One-To-One Briefing
55%
Paper-Based Benefit Statements
47%
Online Intra-Net (Generic Material)
42%
Emails
39%
Paper-Based Booklets
29%
Telephone Helpline
26%
Paper-Based New sletters
Workplace Notice Boards
21%
Electronic Noticeboards
16%
Workplace Adviser
16%
Seminars
11%
Online Secured Portal (Including Personal Records)
8%
0%
20%
40%
60%
80%
100%
Chart 4.8.B shows the percentage of Germany-based Hybrid schemes
which communicate with members in service, according to method of
communication.
Table 4.8.B
How do you communicate with Hybrid scheme members? - Members
in service - Germany
One-To-One Brief ing
87%
Emails
73%
Paper-Based Booklets
73%
Online Intra-Net (Generic Material)
67%
Paper-Based Benef it Statements
67%
Telephone Helpline
67%
Paper-Based New sletters
47%
Workplace Notice Boards
47%
Online Secured Portal (Including Personal Records)
33%
Electronic Noticeboards
13%
Seminars
13%
Workplace Adviser
7%
0%
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20%
40%
60%
80%
100%
Germany-based Defined Contributions schemes communicated to
members in service mostly making use of one-to-one briefings, paperbased booklets and emails.
Communicating with
members with
preserved benefits
Chart 4.8.C shows the percentage of Germany-based Defined Benefits
schemes which communicate with members with preserved benefits,
according to method of communication.
Table 4.8.C
How do you communicate with Defined Benefits scheme members?
- Members with preserved benefits - Germany
Paper-Based Benefit Statements
66%
One-To-One Briefing
41%
Telephone Helpline
25%
Paper-Based Booklets
19%
Emails
9%
Paper-Based New sletters
6%
Workplace Adviser
6%
Online Intra-Net (Generic Material)
3%
0%
20%
40%
60%
80%
100%
Chart 4.8 D shows the percentage of Germany-based Hybrid schemes
which communicate with members with preserved benefits, according
to method of communication.
Table 4.8.D
How do you communicate with Hybrid scheme members? - Members
with preserved benefits - Germany
Paper-Based Benefit Statements
60%
Telephone Helpline
60%
40%
One-To-One Briefing
Emails
27%
Online Secured Portal (Including Personal Records)
20%
Paper-Based New sletters
20%
Paper-Based Booklets
20%
Online Intra-Net (Generic Material)
13%
0%
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20%
40%
60%
80%
Germany-based Defined Contributions schemes communicated to
members with preserved benefits mostly using one-to-one briefing,
telephone helplines and emails.
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4.9 Germany – Concluding Remarks
Coverage
Supplementary pension schemes cover over 5.3 million public sector
employees (close to 100% coverage) and about 10.4 million private
sector employees (approximately 46% coverage).
Well over 12 million private sector employees in Germany are not
covered by any supplementary pension schemes.
Trends in benefit
design
Recent years have been characterised by a rapid closure of pure
Defined Benefits schemes in the private sector, and a switch to
schemes that minimize financial risks to the employers within the limit
imposed by the regulatory framework (pure Defined Contribution
schemes are legally not allowed in Germany).
Method of funding
Even now, most of the pension liabilities in Germany are unfunded
(more than two thirds are unfunded in the sense of International
Accounting Standards). Nevertheless funding via contractual trust
arrangements becomes more and more popular.
The other pension schemes are funded via separate legal entities, that
are “Pensionskassen”, life insurances and pension funds.
The German type of pension fund is the only separate legal entity
where pension liabilities can be externally funded without tax
disadvantages (within certain legal regulations). Pension funds are
expected to be the most growing external funding vehicle.
Waiting periods
Most schemes have very few employees in waiting periods. This is
because most schemes have a short or no waiting period and have a
low or no minimum age requirement.
Vesting conditions
All Germany-based schemes are subject to statutory vesting
requirements. These require vesting periods of 5 years for schemes that
are sponsored by employer and no vesting period for schemes that are
sponsored by employee. Employers are free to voluntarily shorten the
5-year vesting period but hardly ever do so.
Revaluation of
preserved benefits
There are no legal requirements regarding revaluation of preserved
rights. A large majority of DC and Hybrid schemes provide revaluation
while 51% of DB scheme don’t. When pension schemes are funded via
separate legal entities in the majority of cases there are articles of
incorporation that regulate revaluation.
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Availability of
transfer rights
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Transfer rights are subject to legislation in Germany. Legal
requirements provide minimum standards depending on the funding
vehicle. For unfunded (book reserved) liabilities there are no
requirements (so transfer rights are hardly ever granted). For vehicles
similar to insurance, e.g. “Pensionskasse”, direct insurance or German
pension fund there are minimum requirements.
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5. Ireland
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5.1 Ireland – Country Overview
Legislative
Background
The legislation governing Irish pension schemes is the Pensions Act
1990, as subsequently amended, and regulations made under this Act.
Recent amendments to the Act, and associated Regulations, transposed
into Irish Law the requirements of the IORPS Directive with effect
from 23 September 2005.
Benefit design
The types of benefit design include:
Membership of
Occupational Pension
Schemes
•
defined benefit schemes where all the financing risks are allocated
entirely to the sponsoring employer
•
defined contribution schemes where all the financing risks are
allocated entirely to the scheme member
•
a small number of hybrid schemes where the financial risks are
shared in a variety of ways between the sponsoring employer and
scheme members.
In the past, the majority of Irish employees who are entitled to
occupational pensions were members of defined benefit schemes. In
recent years, there has been an increase in the number of members of
defined contribution schemes, and the most recent report of the
Pensions Board, the regulator for Irish pension schemes, gives the
following statistics as at 31 December 2006:
Defined
Benefits
Defined
Contributions
No. of Schemes
1,411
92,075
No. of Members
542,362
255,008
The majority of defined benefit schemes are required to satisfy the
funding standard set out in the Pensions Act although 87 schemes
covering 269,746 members included in the table above are currently
fully or partly exempt from the funding standard. These relate
primarily to employment in the public service, or other related
employments.
Approximately 30% of defined benefit schemes subject to the funding
standard failed to satisfy the standard when most recently certified, and
for these schemes a funding proposal (or recovery plan) must be
agreed and submitted to the Pensions Board.
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Introduction of
PRSAs
The Pensions (Amendment) Act 2002 introduced Personal Retirement
Savings Accounts (PRSAs). These are individual contracts (mainly
with insurance companies) which are available to employees whose
jobs do not offer an occupational pension, the self-employed and
indeed those not in remunerative employment e.g. housewives, carers,
students, unemployed. These contracts are regulated by the Pensions
Board and there are strict requirements set out in the Pensions Act in
relation to these contracts and their providers. For example, for
Standard PRSAs there are limits on the charges which the providers
may make, and there is a requirement to stipulate a default investment
strategy which is considered to be appropriate for the purchaser.
With effect from 15 September 2003, all employers are required to
provide their employees with access to a Standard PRSA within six
months of their commencement of employment. Employees must be
given the option to contribute to a PRSA via payroll deduction, but
there is no requirement on the employer to make any contribution. The
most recent statistics available from the Pensions Board as at 30 June
2007 showed that 111,832 PRSAs had been set-up, with a total value
of €1 billion.
The introduction of PRSAs was intended to improve the level of
pension coverage in Ireland, but there has been relatively little increase
in the percentage of the workforce covered for supplementary pensions
in the last five years (the most recent available statistics are around
55% of the workforce). The Minister for Social and Family Affairs
requested the Pensions Board to undertake a review of coverage, and to
consider possible ways in which it could be improved, and this report
was published earlier this year. One of the proposals which has
received consideration by Government is the introduction of a
mandatory supplementary pension scheme, to which employees,
employer and Government would each make contributions, although
the employee would have the option to withdraw from the pension
scheme (thereby forfeiting the employer and Government contribution)
within a short period after enrolment.
Green Paper
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As part of the discussions between the Social Partners and Government
in relation to the National Wage Agreement, the Government
undertook to publish a Green Paper setting out proposals in relation to
occupational pension schemes, and the possible introduction of
mandatory provision of such schemes. Following the recent general
election, the new Minister for Social and Family Affairs has
announced that the Green Paper will be published in September 2007.
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5.2 Ireland – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 200 Ireland-based organisations were approached to complete
the on-line pension survey. Responses were received from 35
organisations, covering 52 pension schemes.
Written pension policy 97% of these Ireland-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at Ireland level for 94% of policies
• at European level for 3% of policies
• at Global Level for 3% of policies
9% of the 35 Ireland-based organisations plan to change their pension
policy within the next 3 years.
Only three organisations gave reasons for changing policy.
Size of organisations
in the survey
Table 5.2.A shows the distribution of the 35 Ireland-based
organisations by approximate head-count of their workforce in Ireland.
Table 5.2.A
Over 50,000 and up to 100,000
3%
Over 20,000 and up to 50,000
0%
6%
Over 10,000 and up to 20,000
0%
Over 5,000 and up to 10,000
Over 2,500 and up to 5,000
20%
20%
Over 1,000 and up to 2,500
Over 250 and up to 1,000
26%
Up to 250
0%
26%
5%
10%
15%
20%
25%
30%
49% of the Ireland-based organisations participating in the survey had
over 1000 employees in Ireland.
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Pension coverage
Table 5.2.B shows the distribution of the 35 Ireland-based
organisations by the extent of pension coverage (the percentage of their
Ireland workforce covered by each organisation’s pension schemes).
Table 5.2.B
All 100%
29%
Over 90%and less than
100%
23%
Over 70% and up to
90%
23%
Over 50% and up to
70%
14%
Over 30% and up to
50%
8%
Up to 5%
3%
0%
5%
10%
15%
20%
25%
30%
35%
The table shows that 52% of organisations ensure supplementary
pension coverage for almost all their workforce (over 90% of their
employees). Another 37% of organisations cover between half and
nine-tenths, while 11% of organisations indicate coverage below half
of their workforce.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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5.3 Ireland – Typology of funding and benefit practices
Type of scheme
• Table 5.3.A shows the distribution – by type of benefit design – of
the 52 Ireland-based schemes covered by the survey.
Table 5.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
44%
Defined contributions
Employee carries all
risks
48%
Hybrid
Risks shared between
employee/employer
8%
Although over 40% of schemes are Defined Benefits, a large
proportion of these Defined Benefits schemes relate to organisations
who have also set up Defined Contributions or Hybrid schemes for
their new entrants.
Open or closed to new
entrants: Defined
Benefits
Table 5.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 5.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
35
4
4
17
13
26
43
56
35% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
8% of the Defined Benefits schemes were opened to new entrants
in/after 2005 and remain open. A proportion of these relate to
organisations who have introduced lower-cost benefits, replacing
existing Defined Benefits schemes.
56% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions
Table 5.3.C shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 5.3.C
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
69
4
88
15
4
4
12
4
69% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
Only 12% of Defined Contributions schemes were closed to new
entrants. This appears to be part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
19% of Defined Contributions schemes were opened to new entrants
in/after 2005, demonstrating the continuing shift from Defined
Benefits to Defined Contributions.
Open or closed to new
entrants: Hybrid
Of the relatively small number of Hybrid schemes, 50% were opened
to new entrants before 2005 and 50% were opened to new entrants
after 2005.
Method of funding
Table 5.3.D shows the method of funding employed for Ireland-based
schemes.
Table 5.3.D
Method of
funding
Funded via
separate legal
entity
Defined Benefits
81%
Defined
Contributions
92%
Hybrid
75%
Funded via
insurance
contract
5%
-
-
Unfunded
14%
8%
25%
100%
100%
100%
81% of Defined Benefits schemes in the survey were funded via a
separate legal entity – typically a trust fund. 14% of Defined Benefits
schemes were unfunded schemes – mainly sponsored by public sector
organisations.
92% of Defined Contributions schemes in the survey were funded via a
separate legal entity. The remaining 8% were unfunded schemes.
75% of Hybrid schemes in the survey were funded via a separate legal
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entity. The remaining 25% of Hybrid schemes were unfunded
schemes.
Size of schemes by
headcount
Table 5.3.E shows the distribution of Ireland-based schemes by the
size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 5.3.E
Defined
Benefits
%
39
Defined
Contributions
%
60
Hybrid
%
Over 250 and up to
1,000
17
28
-
Over 1,000 and up to
2,500
22
12
-
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
9
-
75
9
-
-
4
-
-
-
-
-
-
-
25
100
100
100
Headcount of
employees in each
scheme
Up to 250
-
An industry-wide private sector scheme accounts for the 25% of
Hybrid schemes in the “Over 50,000 and up to 100,000” category.
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Pension age for early
leavers
Table 5.3.F shows the distribution of Ireland-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 5.3.F
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
17
22
4
57
100
Defined
Contributions
%
48
12
4
36
100
Hybrid
%
25
75
100
Pension ages for early leavers in Ireland-based schemes tend to be
either 60 or 65.
A number of schemes provide unreduced benefits from ages under 60
– particularly for Defined Contributions schemes where the benefits
are calculated on a money-purchase basis.
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5.4 Ireland – Conditions of acquisition of pension rights
Waiting period before
joining
Table 5.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
A high proportion of schemes, irrespective of their benefit design, have
either no waiting period or a short period of 1 – 6 months.
Table 5.4.A
Waiting Period
Defined Benefits
%
74
None
1 – 6 months
Minimum age before
joining
Defined
Contributions
%
52
Hybrid
%
50
22
48
25
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
4
-
25
100
100
100
Table 5.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 5.4.B
Minimum age
Defined Benefits
%
43
No minimum age
Defined
Contributions
%
100
Hybrid
%
50
Less than 20
9
-
-
Age 20 - 21
22
-
50
Age 22 - 23
9
-
-
Age 24 - 25
17
-
-
100
100
100
All Defined Contributions schemes have no minimum age. About a
half of the other schemes have a minimum age, ranging up to age 25 in
the case of Defined Benefits schemes.
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Headcount of
employees in waiting
period
Table 5.4.C shows the distribution of Ireland-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 5.4.C
Defined
Benefits
%
73
Defined
Contributions
%
95
Hybrid
%
Over 100 and up to 250
-
5
-
Over 250 and up to 500
20
-
-
7
-
33
100
100
100
Headcount in waiting
period
Up to 100
Over 500 and up to
1,000
67
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age.
Vesting conditions
Table 5.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 5.4.D
Vesting Period
Defined Benefits
%
None
26
Defined
Contributions
%
38
Hybrid
%
-
1 – 6 months
4
4
-
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
52
25
75
Over 2 years and
up to 5 years
17
33
-
-
-
25
100
100
100
Over 10 years
Since June 2002, all Ireland-based schemes are required to have a
statutory 2-year vesting period.
A significant proportion of schemes have shorter or no vesting period.
Those schemes indicating vesting periods longer than 2 years will be
subject to the 2-year statutory requirement.
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5.5 Ireland – Treatment of dormant pension rights
Table 5.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design. 5% of DB and 25 % of hybrid schemes do not provide
revaluation. More often, revaluation of DB schemes is made in
accordance with inflation rate or pay raises, while for DC scheme this
is based on investment returns on assets.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 5.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Defined
Contributions
%
-
Hybrid
%
25
Revaluation made in line with the
adjustment of pension benefits in
payment
-
4
-
Revaluation is set as a nominal sum
(fixed amount)
-
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
10
-
25
Revaluation made in accordance with
inflation rate
43
-
25
Revaluation made in accordance with
pay rises/earnings development
24
4
-
Revaluation made on the basis of
investment returns earned on assets
-
73
-
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
-
-
-
No revaluation
5
-
25
10
17
-
Other
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Defined
Benefits
%
10
106
The main methods of revaluation indicated in the survey reflect largely
the statutory revaluation requirements which apply in Ireland:
• The standard statutory revaluation is in line with the Consumer Price
Index (subject to a maximum of 4% each year).
• Alternatively, revaluations can be limited to the increases which
apply to active members.
• Public sector schemes provide revaluations in line with pay rises.
Two-thirds of Defined Benefits schemes revalue either in line with
prices or pay rises.
The revaluation applying to Defined Contributions Schemes is
normally based on investment returns earned on assets.
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5.6 Ireland – Transferability of pension rights
Availability of
transfer-in rights
Table 5.6.A shows the availability of rights of an employee to transfer
pension rights into their Ireland-based scheme when joining their
employer, separately for each benefit design.
Table 5.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Not permitted
5
Defined
Contributions
%
0
Hybrid
%
0
Permitted at
discretion of
employer/trustee
27
24
25
Permitted if right
exercised within
specified time
limits
5
0
25
64
76
50
100
100
100
Permitted at all
times
There is a statutory requirement for receiving schemes to accept a
transfer-in from a previous pension scheme. This is reflected in the
high percentage of schemes indicating “permitted at all times”.
Type of benefit
provided for a
transfer payment
Table 5.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 5.6.B
Type of
transferred-in
benefit in
receiving scheme
No restriction
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Defined Benefits
%
Defined
Contributions
%
Hybrid
%
45
46
50
Restricted to DC
benefit
41
54
50
Restricted to DB
benefit
9
-
-
Not permitted
5
-
-
100
100
100
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About half of receiving schemes apply no restriction to the type of
transferred-in benefit, and roughly a half apply a restriction to DC
benefits only.
Availability of
transfer-out rights
Table 5.6.C shows the availability of rights of an employee to transfer
pension rights out of their Ireland-based scheme, separately for each
benefit design.
Table 5.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
-
Defined
Contributions
%
-
Hybrid
%
-
Permitted at
discretion of
employer/trustee
32
20
-
Permitted if
rights exercised
within specified
time limits
-
-
25
68
80
75
100
100
100
Permitted at all
times
A leaver with preserved benefits has a statutory right in Ireland to a
transfer payment for up to two years after leaving. In practice, many
Ireland-based schemes are willing to pay transfers at any time up to
normal retirement age.
Over two-thirds of schemes are willing to permit transfers at all times.
The remainder permit transfers within specified time limits or at the
discretion of employer/trustee.
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5.7 Ireland – Evolution of scheme conditions
Changes within the
last three years
Table 5.7.A shows the percentage of Ireland-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 5.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
33
17
-
Waiting Period
5
17
25
Vesting Period
-
13
-
Treatment of
preserved
benefits
-
4
-
Availability of
transfer rights
-
-
-
Table 5.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 5.7.B
Type of change
in last 3 years
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Defined Benefits
%
Defined
Contributions
%
50
Hybrid
%
Reducing
eligibility
requirements
75
Reducing the
waiting period
100
80
-
Reducing the
vesting period
n/a
100
n/a
Increasing the
revaluation rate
for preserved
benefits
n/a
-
n/a
Increasing the
availability of
transfer rights
n/a
n/a
n/a
110
n/a
These tables show that a significant percentage of schemes have
changed their eligibility, vesting and waiting period conditions.
For the most part, these changes have been favourable to employees.
Changes within the
next 3 years
Table 5.7.C shows the percentage of Ireland-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 5.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
9
-
25
Waiting period
5
-
33
Vesting period
4
-
-
Treatment of
preserved
benefits
5
-
50
Availability of
transfer rights
4
-
-
Table 5.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 5.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Reducing
eligibility
requirements
100
Defined
Contributions
%
n/a
Hybrid
%
Reducing the
waiting period
-
n/a
100
Reducing the
vesting period
-
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
-
n/a
-
Increasing the
availability of
transfer rights
-
n/a
n/a
100
Only a small proportion of the Ireland-based schemes are planning
changes – mainly reducing eligibility requirements.
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5.8 Ireland – Information and Communication
Communicating with
members in service
Chart 5.8.A shows the percentage of Ireland-based Defined Benefits
schemes which communicate with members in service, according to
method of communication.
Table 5.8.A
How do you communicate with Defined Benefits scheme
members? - Members in service - Ireland
Paper-Based Booklets
75%
Paper-Based Benefit Statements
69%
Emails
63%
One-To-One Briefing
56%
Workplace Notice Boards
50%
Online Intra-Net (Generic Material)
44%
Electronic Noticeboards
44%
Workplace Adviser
44%
Seminars
38%
Paper-Based New sletters
25%
Telephone Helpline
25%
Online Secured Portal (Including Personal Records)
13%
0%
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20%
40%
60%
80%
100%
Chart 5.8.B shows the percentage of Ireland-based Defined
Contributions schemes which communicate with members in service,
according to method of communication.
Table 5.8.B
How do you communicate with Defined Contributions scheme
members? - Members in service - Ireland
Seminars
94%
Emails
88%
Paper-Based Booklets
81%
Paper-Based Benefit Statements
69%
One-To-One Briefing
63%
Online Intra-Net (Generic Material)
50%
Online Secured Portal (Including Personal Records)
44%
Telephone Helpline
38%
Electronic Noticeboards
31%
Workplace Notice Boards
31%
25%
Workplace Adviser
Paper-Based New sletters
13%
0%
20%
40%
60%
80%
100%
Ireland-based Hybrid schemes communicated to members in service
mostly using paper-based newsletters and paper-based booklets.
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Communicating with
members with
preserved benefits
Chart 5.8.C shows the percentage of Ireland-based Defined Benefits
schemes which communicate with members with preserved benefits,
according to method of communication.
Table 5.8.C
How do you communicate with Defined Benefits scheme members?
- Members with preserved benefits - Ireland
50%
Paper-Based Benefit Statements
42%
Telephone Helpline
25%
Emails
Paper-Based Booklets
17%
Workplace Adviser
17%
Paper-Based New sletters
8%
One-To-One Briefing
8%
0%
20%
40%
60%
80%
100%
Chart 5.8 D shows the percentage of Ireland-based Defined
Contributions schemes which communicate with members with
preserved benefits, according to method of communication.
Table 5.8.D
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - Ireland
Paper-Based Benefit Statements
75%
Telephone Helpline
42%
Paper-Based Booklets
33%
Emails
17%
Online Secured Portal (Including Personal Records)
8%
One-To-One Briefing
8%
0%
20%
40%
60%
80%
100%
Ireland-based Hybrid schemes communicated to members with
preserved benefits mostly using paper-based booklets and paper-based
newsletters.
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5.9 Ireland – Concluding remarks
Coverage
Approximately 55% of the workforce in Ireland is covered by
supplementary pension schemes. Within the public sector, almost all
employees have supplementary pension coverage, but the level of
coverage is much lower within private sector employments. The
Government has attempted to address the shortfall in coverage by the
introduction of Personal Retirement Savings Accounts, which have
slightly increased the total level of coverage. However, consideration
is now being given to the introduction of mandatory occupational
pension provision.
Trends in benefit
design
In recent years, many private sector employers have ceased to offer
defined benefit pension accrual for current employees, and have
replaced this with a defined contribution arrangement. More recently,
hybrid schemes retaining some defined benefit characteristics have
become more common.
Pension provision within the public sector is still almost exclusively on
a defined benefit basis.
Method of funding
The method of funding is primarily via a separate legal entity known as
a Trust Fund. Within the public sector, pension schemes are generally
unfunded.
Defined contribution arrangements may be established by means of
insurance based Personal Retirement Savings Accounts.
Waiting periods
Most schemes have very few employees in waiting periods. This is
because most schemes have a short or no waiting period and have a
low or no minimum age.
Vesting conditions
All Ireland-based schemes are subject to a statutory vesting period of
not more than 2 years.
A significant proportion of Ireland-based schemes either have no
vesting period or a short period of between one and six months.
Revaluation of
preserved benefits
The method of revaluation of preserved rights under defined benefit
schemes largely reflects statutory requirements. These are:
• The standard statutory revaluation is in line with the Consumer Price
Index (subject to a maximum of 4% each year).
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• Alternatively, revaluations can be limited to the increases which
apply to active members.
• Public sector schemes provide revaluations in line with pay rises.
The revaluation applied to defined contribution schemes is normally
based on the investment returns earned on the assets.
Availability of
transfer rights
The majority of Ireland-based pension schemes permit employees to
transfer-in pension rights in accordance with the statutory
requirements.
Over two-thirds of schemes permit transfers out at all times and the
remainder permit transfers within specified time limits or at the
discretion of the employer/Trustee.
Communication
Hewitt Associates
The commonest method of communication for defined benefit schemes
are paper based booklets and benefit statements, which are also
frequently used in defined contribution schemes, where emails and
seminars are also widely used. The use of online intra-net facilities is
also becoming popular for both types of scheme.
116
6. Italy
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6.1 Italy – Country Overview
New Law aimed at
increasing pension
coverage
With the Budget Law for 20079, the Italian Government has introduced
one of the most compelling pension law reforms – coming into force in
2007. The new law makes several changes to the Italian private
pension system that will be instrumental in bringing about a significant
pension market expansion in the country.
The main elements of these major changes are :
• the introduction of the mechanism of tacit approval (“Silenzio –
Assenso”) on the basis of which the employee statutory severance
pay (the so called “trattamento di fine rapporto -TFR”) will be
transferred into a pension fund, unless the employee decides
differently;
• the freedom of choice given to all employees to retain the TFR or to
participate in various group or individual pension funds, with the
possibility of moving freely from one fund to another.
• a new tax incentive to promote transfers to pension funds.
Safeguards and
protections
These liberalisation rules are accompanied by specific safeguards and
protections:
• employers must inform their employees about the options introduced
by the Law, especially on the nature of the “Silenzio – Assenso”
concerning their TFR and on the consequences of their choice
(retaining the TFR as a company book reserve, or switching to a
pension fund – choosing between the national category pension
fund, an open pension fund, an individual insurance product, etc.);
• pension funds that wish to manage the TFR contributions coming
from the mechanism of the Silenzio - Assenso must offer, in order to
minimize the risk for the members, an investment policy that
guarantees a return comparable to the one established for the TFR
return.
Greater freedom of
choice
9
Almost all the major industrial sectors have set up in the past their own
pension fund at national level (Fonchim for the chemical industry,
Fon.Te for the commerce, Cometa for the metalwork, etc.)10. Before
Law n.296 issued on December 27, 2006 and published on Official Gazette n. 299 on December 27, 2006
A register of funds is kept by the Italian supervisory authority COVIP (Commissione di vigilanza sui fondi pensione) and
available on line at http://www.covip.it/ALBO.ASP.
10
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118
the reform an employee working in a given industry was not allowed to
join another pension fund other than the one in place at national level
for its sector of activity.
The rate of participation in these funds has been quite low in the past
(roughly in the order of 13%) reflecting the strong reluctance of
employees to join these industry wide pension funds and the limited
financial incentives to opt for such funds given the previously high
levels of social security pensions. The opportunity now offered for
“opting out” from these national industry wide funds may increase the
rate of employee participation in the new open funds.
Existing and potential
supplementary
pension coverage in
Italy
As of December 31, 2006, in Italy there were about 600 pension funds
with about 2.3 million participants plus 0.9 million people participating
in individual insurance schemes11. Assets of the “old” pension funds
(the ones implemented before 1993) were Euro 32,441 million. Assets
of “new” funds (the ones implemented since 1993) were Euro 12,772
million. Assets of individual insurance schemes were about Euro 4,552
million. Overall at the end of 2006, a total of 3.2 million members
were participating in pension schemes.
Overall there are about 12 million employees in the private sector
affected by the reform. The rate of employees covered by occupational
pensions, that has already increased at the end of the first semester of
implementation of the reform in 2007, is expected to grow further12.
The government is also studying the opportunity to set up a similar
process for employees in the public sector.
11
COVIP Annual Report 2006, March 2007
For a preliminary assessment of the first semester of implementation of the reform see the report made by the President of
COVIP, Mr. Luigi Scimía. Available at http://www.covip.it/documenti/RelazioniAnnuali/RelazionePresidente2006.pdf
12
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6.2 Italy – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 30 Italy-based organisations were approached to complete the
on-line pension survey. Responses were received from 15
organisations, covering 18 pension schemes.
Written pension policy 80% of these Italy-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at Italy level for 92% of policies
• at European level for 8% of policies
• at Global Level for none of the policies
25% of the 15 Italy-based organisations plan to change their pension
policy within the next 3 years. Only four organisations gave reasons
for changing policy.
Size of organisations
in the survey
Table 6.2.A shows the distribution of the 15 Italy-based organisations
by approximate head-count of their workforce in Italy.
Table 6.2.A
0%
Over 50,000 and up to 100,000
7%
13%
Over 10,000 and up to 20,000
13%
13%
Over 1,000 and up to 2,500
20%
20%
Up to 250
13%
0%
5%
10%
15%
20%
25%
30%
35%
67% of the Italy-based organisations participating in the survey had
over 1000 employees in Italy.
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Pension coverage
Table 6.2.B shows the distribution of the 15 Italy-based organisations
by the extent of pension coverage (the percentage of their Italy
workforce covered by each organisation’s pension schemes).
Ttable 6.2.B
All 100%
14%
Over 90%and less than
100%
29%
Over 70% and up to
90%
29%
Over 50% and up to
70%
14%
Over 30% and up to
50%
7%
Up to 5%
7%
0%
5%
10%
15%
20%
25%
30%
35%
The table shows that there are significant gaps in coverage, with 14%
of organisations indicating coverages below 50%.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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6.3 Italy – Typology of funding and benefit practices
Type of scheme
Table 6.3.A shows the distribution – by type of benefit design – of the
18 Italy-based schemes covered by the survey.
Table 6.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
11%
Defined contributions
Employee carries all
risks
78%
Hybrid
Risks shared between
employee/employer
11%
Open or closed to new
entrants: Defined
Benefits
33% of Italy-based Defined Benefits schemes were open to new
entrants and 67% were closed. – all occuring before 2005.
Open or closed to new
entrants: Defined
Contributions
Table 6.3.B shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 6.3.B
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
81
87
6
6
12
6
81% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
Only 12% of Defined Contributions schemes were closed to new
entrants. This appears to be part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
6% of Defined Contributions schemes were opened to new entrants
in/after 2005, demonstrating the continuing shift from Defined
Benefits to Defined Contributions.
Open or closed to new
entrants: Hybrid
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Of the relatively small number of Hybrid schemes, 50% were opened
to new entrants and 50% were closed to new entrants.
122
Method of funding
Table 6.3.C shows the method of funding employed for Italy-based
schemes participating into the survey. The limited number of
participating scheme and their sectorial bias, most in the bank sector,
explain the over representation of unfunded DB scheme resulting from
the survey. This certainly does not reflect a fair representation of the
funding system typology.
Table 6.3.C
Method of
funding
Funded via
separate legal
entity
Defined Benefits
-
Funded via
insurance
contract
Unfunded
Size of schemes by
headcount
Defined
Contributions
54%
Hybrid
50%
-
31%
-
100%
15%
50%
100%
100%
100%
Table 6.3.D shows the distribution of Italy-based schemes by the size
of the approximate headcount of employees in the scheme, separately
for each benefit design.
Table 6.3.D
Defined
Benefits
%
-
Defined
Contributions
%
14
Hybrid
%
50
14
-
Over 1,000 and up to
2,500
-
21
-
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
Over 100,000
-
7
50
50
7
50
-
7
-
-
14
-
-
7
-
-
7
-
100
100
100
Headcount of
employees in each
scheme
Up to 250
Over 250 and up to
1,000
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-
Pension age for early
leavers
Table 6.3.E shows the distribution of Italy-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 6.3.E
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
100
100
Defined
Contributions
%
78
7
14
100
Hybrid
%
100
100
Pension ages for early leavers in Italy-based schemes are mostly under
60.
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6.4 Italy – Conditions of acquisition of pension rights
Waiting period before
joining
Table 6.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 6.4.A
Waiting Period
Defined Benefits
%
100
None
Minimum age before
joining
Defined
Contributions
%
62
Hybrid
%
50
1 – 6 months
-
31
-
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
50
Over 2 years and
up to 5 years
-
8
-
100
100
100
Table 6.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 6.4.B
Minimum age
Defined Benefits
%
100
No minimum age
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Defined
Contributions
%
100
Hybrid
%
50
Less than 20
-
-
50
Age 20 - 21
-
-
-
Age 22 - 23
-
-
-
Age 24 - 25
-
-
-
100
100
100
125
Headcount of
employees in waiting
period
Table 6.4.C shows the distribution of Italy-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 6.4.C
Defined
Benefits
%
100
Defined
Contributions
%
60
Hybrid
%
Over 100 and up to 250
-
20
-
Over 250 and up to 500
-
10
-
Over 500 and up to
1,000
Over 1,000 and up to
2,000
-
-
-
-
10
-
100
100
100
Headcount in waiting
period
Up to 100
100
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age.
Vesting conditions
Table 6.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 6.4.D
Vesting Period
Defined Benefits
%
None
50
Hybrid
%
-
1 – 6 months
-
14
-
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
-
Over 2 years and
up to 5 years
-
14
-
Over 5 years and
u to 10 years
-
21
100
50
14
-
100
100
100
Over 10 years
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Defined
Contributions
%
36
126
6.5 Italy – Treatment of dormant pension rights
Table 6.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design. In most cases a revaluation is allowed in particular within the
context of DC schemes, on the basis of investment return earned on
assets.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 6.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Defined
Contributions
%
15
Hybrid
%
-
Revaluation made in line with the
adjustment of pension benefits in
payment
-
-
100
Revaluation is set as a nominal sum
(fixed amount)
-
-
-
50
8
100
Revaluation made in accordance with
inflation rate
-
8
100
Revaluation made in accordance with
pay rises/earnings development
-
-
-
50
85
-
-
-
-
50
-
-
-
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
Revaluation made on the basis of
investment returns earned on assets
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
No revaluation
Other
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Defined
Benefits
%
-
127
6.6 Italy – Transferability of pension rights
Availability of
transfer-in rights
Table 6.6.A shows the availability of rights of an employee to transfer
pension rights into their Italy-based scheme when joining their
employer, separately for each benefit design.
Table 6.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Not permitted
Type of benefit
provided for a
transfer payment
100
Defined
Contributions
%
7
Hybrid
%
-
Permitted at
discretion of
employer/trustee
-
-
-
Permitted if right
exercised within
specified time
limits
-
21
100
Permitted at all
times
-
71
-
100
100
100
Table 6.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 6.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
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Defined Benefits
%
Defined
Contributions
%
Hybrid
%
n/a
25
50
Restricted to DC
benefit
n/a
50
-
Restricted to DB
benefit
n/a
-
50
Not permitted
n/a
25
-
n/a
100
100
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Availability of
transfer-out rights
Table 6.6.C shows the availability of rights of an employee to transfer
pension rights out of their Italy-based scheme, separately for each
benefit design.
Table 6.6.C
Availability of
transfer-out
rights
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Defined Benefits
%
Defined
Contributions
%
7
Hybrid
%
Not permitted
-
Permitted at
discretion of
employer/trustee
-
14
-
Permitted if
rights exercised
within specified
time limits
50
43
50
Permitted at all
times
50
36
50
100
100
100
129
-
6.7 Italy – Evolution of scheme conditions
Changes within the
last three years
Table 6.7.A shows the percentage of Italy-based schemes in the survey
which have changed specific conditions, separately for each benefit
design.
Table 6.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
50
29
-
Waiting Period
-
-
50
Vesting Period
-
21
-
Treatment of
preserved
benefits
-
15
-
Availability of
transfer rights
-
36
-
Table 6.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 6.7.B
Type of change
in last 3 years
Defined Benefits
%
Reducing
eligibility
requirements
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0
Defined
Contributions
%
40
Hybrid
%
n/a
Reducing the
waiting period
n/a
n/a
-
Reducing the
vesting period
n/a
40
n/a
Increasing the
revaluation rate
for preserved
benefits
n/a
67
n/a
Increasing the
availability of
transfer rights
n/a
80
n/a
130
These tables show that a significant percentage of schemes have
changed one or more of their eligibility, vesting and waiting period
conditions.
Changes within the
next 3 years
Table 6.7.C shows the percentage of Italy-based schemes in the survey
which are planning to change specific conditions, separately for each
benefit design.
Table 5.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
-
8
-
Waiting period
-
8
-
Vesting period
-
8
-
Treatment of
preserved
benefits
-
21
-
Availability of
transfer rights
-
15
-
Table 6.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 6.7.D
Type of planned
change in next 3
years
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Defined Benefits
%
Reducing
eligibility
requirements
n/a
Defined
Contributions
%
0
Reducing the
waiting period
n/a
100
n/a
Reducing the
vesting period
n/a
50
n/a
Increasing the
revaluation rate
for preserved
benefits
n/a
100
n/a
Increasing the
availability of
transfer rights
n/a
100
n/a
131
Hybrid
%
n/a
6.8 Italy – Information and Communication
Communicating with
members in service
Chart 6.8.A shows the percentage of Italy-based Defined Contributions
schemes which communicate with members in service, according to
method of communication.
Table 6.8.A
How do you communicate with Defined Contributions scheme
members? - Members in service - Italy
Emails
71%
Online Intra-Net (Generic Material)
71%
Online Secured Portal (Including Personal Records)
57%
Telephone Helpline
50%
Paper-Based Benefit Statements
43%
Paper-Based New sletters
43%
Workplace Adviser
43%
Electronic Noticeboards
29%
Paper-Based Booklets
29%
Seminars
21%
One-To-One Briefing
0%
14%
20%
40%
60%
80%
100%
The number of Italy-based Defined Benefits and Hybrid schemes
responding to communicating to members in service was too small to
draw conclusions.
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Chart 6.8 B shows the percentage of Italy-based Defined Contributions
schemes which communicate with members with preserved benefits,
according to method of communication.
Table 6.8.B
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - Italy
Emails
70%
Paper-Based New sletters
60%
Telephone Helpline
60%
Online Secured Portal (Including Personal Records)
50%
Online Intra-Net (Generic Material)
40%
Electronic Noticeboards
30%
Paper-Based Benefit Statements
30%
Paper-Based Booklets
30%
One-To-One Briefing
30%
Workplace Adviser
20%
Seminars
10%
0%
20%
40%
60%
80%
100%
The number of Italy-based Defined Benefits and Hybrid schemes,
responding to communicating to members with preserved benefits, was
too small to draw conclusions.
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7. Netherlands
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7.1 Netherlands – Country Overview
Supplementary
pension coverage in
the Netherlands
Supplementary pensions (second pillar provisions) in the Netherlands
are well developed. Supplementary pensions cover a full range of
benefit design (DB, DC, Hybrid). All pension schemes in the second
pillar are funded schemes. Commonly, second pillar pension schemes
provide for retirement, death-in-service and disability.
Proportion of Dutch
workforce covered
In the Netherlands, approximately 95% of the employees (6.3 million)
participate in a second pillar pension scheme.
Second pillar pensions are arranged in three different ways.
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Industry-wide, multi-employer pension scheme. Approximately 4
million private-sector employees and 1 million civil servants are
covered by compulsory, industry-wide, multi-employer pension
schemes.
•
Self-administered company pension scheme. Larger companies
(with approximately 200 or more employees) often have selfadministered pension schemes. In total, larger company pension
schemes cover about 800,000 employees.
•
Second pillar pension schemes may be carried out by an insurer.
For approximately 500,000 employees, pension schemes have been
set up by their employer through insurance policies. In general,
these pension schemes are more modest than those of pension
funds and more often based on defined contributions.
135
Benefit design
Most Dutch pension schemes are defined benefit. In the past, the
majority of these defined benefit schemes used to be final pay
schemes. As shown in Table 7.1, the number of participants in final
pay schemes sharply declined from 60% in 1999 to 10% (630,000
participants) in 2006. The number of participants in average pay
schemes has risen in the same period, from 31% to 76% (4.7 million
participants) in 2006.
Table 7.1 – percentage of participants in Dutch pension schemes
Type of design
1999
2002
Final pay
60%
54%
Average pay
31%
32%
Mixed scheme
6%
7%
Defined
1%
3%
contribution
Other
2%
4%
Total
100%
100%
Source: De Nederlandsche Bank, pensioenmonitor 2006.
2006
10%
76%
7%
4%
3%
100%
ok
DC schemes form a minor part of schemes offered. However, beside
pension funds, corporate pension schemes can also be contracted with
an insurer. Approximately 500,000 employees participate in an insured
pension scheme, more often based on DC.
Financing methods
All pension plans in the second pillar are funded schemes. Pension
funds in the Netherlands are subjected to tests of funding adequacy and
additional reporting and disclosure requirements under the Financial
Assessment Framework (Financieel Toetsingskader, FTK). The FTK
is a key element of the new Pension Act, which became effective on
1 January 2007.
The objective of the FTK is a better matching of a pension fund’s
liabilities and its assets in both the short and the long term. The
valuation of the investments and the liabilities is based on realistic
value principles. Furthermore, under the FTK, the foreseeable trend in
the life expectancy rates must be taken into account when determining
the provision for pension liabilities.
Key elements of the FTK rules require that pension funds:
• Show that their risk of falling below the required 100% funding ratio
is no more than 2.5%
(i.e., once every 40 years);
• Bring their funding level in line with the above requirements within
no more than 15 years in the case of “reserve” deficit (shortfall in the
reserve for general risk or the reserve for investment risk);
• Inform their members in explicit terms whether pensions are indexed
and whether there are conditions to be fulfilled for the indexation of
benefits; and
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• Use, in their communications to members, standard wording (to be
provided by the government) on the type of indexation of pensions
in payment.
Impact of the recent
Pensions Act
Most Netherlands-based organisations have changed their pension
policy in the past few years, to address the new requirements in the
recent Pensions Act.
Further details are given in section 7.9 below.
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7.2 Netherlands – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 400 Netherlands-based organisations were approached to
complete the on-line pension survey. Responses were received from 37
organisations, covering 48 pension schemes.
Written pension policy 100% of these Netherlands-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
These have been tailored to apply:
• at Netherlands level for 97% of policies
• at European level for none of the policies
• at Global Level for 3% of policies
16% of the 37 Netherlands-based organisations plan to change their
pension policy within the next 3 years.
Table 7.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 7.2.A
To reduce administrative burdens and
management time
50%
To cope with new legislative requirements
33%
To reduce immediate benefit costs
33%
Other (please specify)
17%
To improve recruitment and retention
17%
To better meet employee expectations
17%
To achieve better long-term sustainability of
benefit costs
To re-align pension policy to corporate
strategy
17%
17%
To improve pension scheme governance
17%
To ensure greater consistency and
coherence
of at
pension
scheme's
terms and
coherence
the European
level
17%
0%
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20%
138
40%
60%
80%
100%
Size of organisations
in the survey
Table 7.2.B shows the distribution of the 37 Netherlands-based
organisations by approximate head-count of their workforce in the
Netherlands.
Table 7.2.B
Over 100,000
0%
Over 50,000 and up to 100,000
3%
Over 20,000 and up to 50,000
11%
Over 10,000 and up to 20,000
17%
Over 5,000 and up to 10,000
6%
Over 2,500 and up to 5,000
6%
Over 1,000 and up to 2,500
8%
Over 250 and up to 1,000
31%
Up to 250
19%
0%
5%
10%
15%
20%
25%
30%
35%
50% of the Netherlands-based organisations participating in the survey
had over 1000 employees in the Netherlands.
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Table 7.2.C shows the distribution of the 37 Netherlands-based
organisations by the extent of pension coverage (the percentage of their
Netherlands workforce covered by each organisation’s pension
schemes).
Pension coverage
Table 7.2.C
69%
All 100%
Over 90%and less
than 100%
19%
Over 70% and up to
90%
6%
Over 50% and up to
70%
6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
The table shows that there is generally a high level of coverage, with
88% of organisations indicating coverages above 90%.
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7.3 Netherlands – Typology of funding and benefit practices
Type of scheme
Table 7.3.A shows the distribution – by type of benefit design – of the
48 Netherlands-based schemes covered by the survey.
Table 7.3.A
Open or closed to new
entrants: Defined
Benefits
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
63%
Defined contributions
Employee carries all
risks
15%
Hybrid
Risks shared between
employee/employer
23%
Table 7.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 7.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
70
13
3
13
83
16
70% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
13% of the Defined Benefits schemes were opened to new entrants
after 2005 and remain open. Many of these relate to organisations who
have introduced lower-cost benefits, replacing existing Defined
Benefits schemes.
16% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
Open or closed to new
entrants: Defined
Contributions
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Of the relatively small number of Defined Contributions schemes, 72%
remain open to new entrants and 28% were closed to new entrants.
141
Open or closed to new
entrants: Hybrid
Table 7.3.C shows the distribution of Hybrid schemes by the timing of
their open/closed status.
Table 7.3.C
Hybrid
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Hybrid schemes
27
63
36
36
36
27% of Hybrid schemes were opened to new entrants before 2005 and
remain open.
36% of Hybrid schemes were closed to new entrants after 2005.
36% of Hybrid schemes were opened to new entrants after 2005.
Method of funding
Table 7.3.D shows the method of funding employed for Netherlandsbased schemes.
Table 7.3.D
Method of
funding
Funded via
separate legal
entity
Defined Benefits
80%
Defined
Contributions
71%
Hybrid
82%
20%
29%
18%
-
-
-
100%
100%
100%
Funded via
insurance
contract
Unfunded
The majority of pension schemes were funded via a separate legal
entity.
There were no unfunded schemes. Dutch legislation requires fully
funding of supplementary pensions.
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Size of schemes by
headcount
Table 7.3.E shows the distribution of Netherlands-based schemes by
the size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 7.3.E
Headcount of
employees in each
scheme
Defined
Benefits
%
20
Defined
Contributions
%
43
Hybrid
%
33
-
18
Over 1,000 and up to
2,500
3
-
27
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
Over 100,000
10
14
-
7
-
9
17
14
-
7
29
-
3
-
-
-
-
-
100
100
100
Up to 250
Over 250 and up to
1,000
Pension age for early
leavers
45
Table 7.3.F shows the distribution of Netherlands-based schemes by
the earliest pension age from which preserved benefits are payable
without reduction, for employees who leave service voluntarily. This is
shown separately for each benefit design.
Table 7.3.F
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
13
10
7
70
100
Defined
Contributions
%
14
29
57
100
Hybrid
%
9
18
9
9
55
100
Pension ages for early leavers in Netherlands-based schemes tend to be
either 60 or 62.
Up to 2006, a large number of early retirement plans existed. Due to
changes in Dutch Tax legislation, early retirement plans (usually at age
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60 or 62) are no longer accessible for employees who are born after
January 1st, 1950.
Most supplementary pension schemes have an official retirement age
of 65. A large number of pension schemes offer possibilities to
advance the retirement age (generally between 60 and 65) and to defer
the retirement age (up to age 70).
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7.4 Netherlands – Conditions of acquisition of pension rights
Waiting period before
joining
Table 7.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 7.4.A
Waiting Period
Defined Benefits
%
90
None
Defined
Contributions
%
100
Hybrid
%
100
1 – 6 months
3
-
-
7 – 12 months
7
-
-
Over 1 year and
up to 2 years
-
-
-
100
100
100
From 2008 onwards, the length of the waiting period will by law be
limited to a maximum of two months. For disability pensions and
death-in-service provisions, no waiting period is allowed.
Minimum age before
joining
Table 7.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 7.4.B
Minimum age
Defined Benefits
%
50
No minimum age
Defined
Contributions
%
71
Hybrid
%
55
Less than 20
3
-
9
Age 20 - 21
20
14
18
Age 22 - 23
10
-
9
Age 24 - 25
10
14
9
Age 26 - 30
7
-
-
100
100
100
From 2008 onwards, the Pension Act will prohibit the exclusion of
employees on age grounds for all employees aged 21 and older.
prohibits to exclude employees of age 21 and older from a pension
plan. Table 7.4 B shows that a significant percentage of the Dutch
pension schemes should be updated, to meet this requirement.
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Headcount of
employees in waiting
period
Table 7.4.C shows the distribution of Netherlands-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 7.4.C
Headcount in waiting
period
Defined
Benefits
%
80
Defined
Contributions
%
100
Hybrid
%
Over 100 and up to 250
-
-
-
Over 250 and up to 500
-
-
-
Over 500 and up to
1,000
Over 1,000 and up to
2,000
Over 2,000 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000
-
-
-
13
-
-
7
-
-
-
-
11
-
-
-
100
100
100
Up to 100
89
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age.
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Vesting conditions
Table 7.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 7.4.D
Vesting Period
Defined Benefits
%
None
90
Defined
Contributions
%
83
Hybrid
%
100
1 – 6 months
-
17
-
7 – 12 months
7
-
-
Over 1 year and
up to 2 years
-
-
-
Over 2 years and
up to 5 years
-
-
-
Over 10 years
3
-
-
100
100
100
Statutory requirements apply to all Netherlands-based schemes:
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•
From 2008 onwards, the vesting period for old age pension
schemes cannot exceed two months. An employee becomes a
member within two months after he is employed. An exception is
made for employees who are under the age of 21. It is allowed to
exclude these employees from the pension plan, until their 21st
birthday.
•
No vesting period is allowed for death-in-service pensions and
disability pensions.
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7.5 Netherlands – Treatment of dormant pension rights
Table 7.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design. Only 3% of DB and 27% of Hybrid scheme do not offer any
form of revaluation.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 7.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Revaluation made in line with the
adjustment of pension benefits in
payment
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Defined
Benefits
%
13
Defined
Contributions
%
-
Hybrid
%
18
43
17
55
Revaluation is set as a nominal sum
(fixed amount)
3
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
3
17
-
Revaluation made in accordance with
inflation rate
27
50
9
Revaluation made in accordance with
pay rises/earnings development
23
17
9
Revaluation made on the basis of
investment returns earned on assets
7
67
36
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
3
-
-
No revaluation
3
-
27
Other
3
-
-
148
The Pension Act provides for the retention of accrued pension benefits
upon termination of the participation in a pension scheme. In the case
of defined benefit agreements and capital agreements the accrued
pension rights remain intact. Upon termination of participation the
accrued rights must be fully funded.
Dormant pension rights can be discharged as payment of a capital sum
to the outgoing employee if and only if the pension benefit is Euro 400
or less on an annual basis.
The Dutch legislation requires no revaluation (indexation) of pension
rights. However, if deferred pensions are revalued, the revaluation
should be the same as the revaluation of pensions in payment.
A common basis for revaluation of dormant pension rights is the
Consumer Price Index, or Wage Index.
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7.6 Netherlands – Transferability of pension rights
Availability of
transfer-in rights
Table 7.6.A shows the availability of rights of an employee to transfer
pension rights into their Netherlands-based scheme when joining their
employer, separately for each benefit design.
Table 7.6.A
Availability of
transfer-in
rights
Type of benefit
provided for a
transfer payment
Defined Benefits
%
Defined
Contributions
%
-
Hybrid
%
Not permitted
7
-
Permitted at
discretion of
employer/trustee
3
-
-
Permitted if right
exercised within
specified time
limits
33
14
55
Permitted at all
times
57
86
45
100
100
100
Table 7.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 7.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
67
71
90
Restricted to DC
benefit
7
14
-
Restricted to DB
benefit
23
14
10
3
-
-
100
100
100
Not permitted
Almost all Netherlands-based schemes permit transfer-in rights, with
some applying time-limit conditions.
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By Dutch legislation, the possibility of individual transfer-in rights
transfer-out rights must be offered for all pension rights acquired after
July 8, 1994.
An employee who would like to transfer his pension rights, should
exercise his transfer-right within six months after joining a new
employer.
Availability of
transfer-out rights
Table 7.6.C shows the availability of rights of an employee to transfer
pension rights out of their Netherlands-based scheme, separately for
each benefit design.
Table 7.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Defined
Contributions
%
-
Hybrid
%
Not permitted
3
-
Permitted at
discretion of
employer/trustee
3
-
-
Permitted if
rights exercised
within specified
time limits
40
29
27
Permitted at all
times
53
71
73
100
100
100
Almost all Netherlands-based schemes permit transfer-out rights, with
some applying time-limit conditions.
By Dutch legislation, the possibility of individual transfer-in rights and
transfer-out rights must be offered for all pension rights acquired after
July 8, 1994. An employee who would like to transfer his pension
rights, should exercise his transfer-right within six months after joining
a new employer.
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7.7 Netherlands – Evolution of scheme conditions
Changes within the
last three years
Table 7.7.A shows the percentage of Netherlands-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 7.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
17
14
36
Waiting Period
13
14
18
Vesting Period
7
14
18
20
33
18
3
17
-
Treatment of
preserved
benefits
Availability of
transfer rights
Table 7.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 7.7.B
Type of change
in last 3 years
Hewitt Associates
Defined Benefits
%
Reducing
eligibility
requirements
50
Defined
Contributions
%
100
Reducing the
waiting period
67
100
100
Reducing the
vesting period
50
-
67
Increasing the
revaluation rate
for preserved
benefits
20
100
50
Increasing the
availability of
transfer rights
67
100
n/a
152
Hybrid
%
60
A significant proportion of schemes have made changes to their
scheme conditions.
For the most part, these changes have been favourable to employees.
Changes within the
next 3 years
Table 7.7.C shows the percentage of Netherlands-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 7.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
17
-
9
Waiting period
4
-
9
Vesting period
-
-
-
Treatment of
preserved
benefits
4
-
-
Availability of
transfer rights
-
14
-
Table 7.7.D shows, for schemes which have made changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 7.7.D
Reducing
eligibility
requirements
83
Defined
Contributions
%
n/a
Reducing the
waiting period
100
n/a
100
Reducing the
vesting period
n/a
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
-
n/a
n/a
n/a
100
n/a
Type of planned
change in next 3
years
Defined Benefits
%
Increasing the
availability of
transfer rights
Hybrid
%
100
Only a small proportion of the Netherlands-based schemes are
planning changes. The planned changes are invariably favourable to
employees.
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7.8 Netherlands – Information and Communication
Communicating with
members in service
Chart 7.8.A shows the percentage of Netherlands-based Defined
Benefit schemes which communicate with members in service,
according to method of communication.
Table 7.8.A
How do you communicate with Defined Benefits scheme
members? - Members in service - Netherlands
Paper-Based Benefit Statements
73%
One-To-One Briefing
73%
Online Intra-Net (Generic Material)
65%
Paper-Based Booklets
65%
Telephone Helpline
58%
Paper-Based New sletters
54%
Emails
42%
Online Secured Portal (Including Personal Records)
42%
Workplace Adviser
35%
Electronic Noticeboards
27%
Workplace Notice Boards
23%
Seminars
19%
0%
20%
40%
60%
80%
100%
There was only a relatively small sample of Defined Contribution and
Hybrid schemes. Across all these schemes, they made use of most
methods of communication for members in service.
As soon as an employer has concluded a pension agreement with an
employee, the employee should receive information about the contents
of the basic pension scheme and the granting of any supplements.
From 2008 onwards, employees who participate in an industry-wide or
corporate second pillar pension scheme should annually receive a
paper-based statement on the acquired pension benefits, the
prospective benefits, any supplements granted, and value increase of
the acquired pension benefits.
Employees who participate in an insured second pillar pension
schemes should receive an annually paper-based benefit statement
from 2009 onwards.
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Communicating with
members with
preserved benefits
Chart 7.8.B shows the percentage of Netherlands-based Defined
Benefits schemes which communicate with members with preserved
benefits, according to method of communication.
Table 7.8.B
How do you communicate with Defined Benefits scheme members?
- Members with preserved benefits - Netherlands
Paper-Based Benefit Statements
65%
Telephone Helpline
61%
One-To-One Briefing
57%
Paper-Based New sletters
43%
Online Intra-Net (Generic Material)
35%
Paper-Based Booklets
35%
Emails
26%
Online Secured Portal (Including Personal Records)
13%
Electronic Noticeboards
13%
Seminars
9%
Workplace Notice Boards
4%
Workplace Adviser
4%
0%
20%
40%
60%
80%
100%
There was a relatively small sample of Defined Contributions and
Hybrid schemes. Across all these schemes, they made use of most of
the communication methods for members with preserved benefits, with
many using paper-based benefit statements and telephone helplines.
From 2008 onwards, members with preserved benefits should receive a
paper-based benefit statement every five years. This statement should
contain information about the acquired pension benefits and value
increase of the acquired pension benefits.
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7.9 Netherlands – Concluding remarks
Pension coverage
Supplementary pensions in the Netherlands are well developed. About
95% of the employees (6.3 million) participate in a supplementary
pension scheme. Supplementary pensions cover a full range of benefit
designs: DB (86%), DC (4%) or mixed schemes/other (10%). All
supplementary pensions are funded.
Early retirement plans Up to 2006, a large number of early retirement plans existed with
pensions paid early from age 60 or 62. Due to changes in Dutch Tax
legislation, early retirement plans are no longer accessible for
employees who are born after January 1st, 1950. Most supplementary
pension schemes have been changed in recent years to cope with the
Tax legislation. Most plans now have an official retirement age of 65,
with possibilities to advance the retirement age.
Changes in pension
policy
Furthermore, a new Pension Act came into force in the Netherlands
with effect from January 2007. To cope with the new legislative
requirements, most Netherlands-based organizations have already
changed their pension policy in the past few years.
Only about 16% of the 37 Netherlands-based organizations plan to
change their pension scheme within the next three years - mainly to
reduce administrative burdens and management time.
Impact of the recent
Pensions Act
The Pension Act includes:
• Limitation of the waiting period to two months. This survey shows
that more than 90% of pension schemes already meet this
requirement (see 7.4).
• Age-related participation in supplementary pension schemes. From
2008 onwards, the Pension Act prohibits the exclusion of employees
aged 21 and older from pension schemes. More than 20% of
schemes in this survey should be updated to meet this requirement
(see 7.4).
• Unlimited retention of deferred members’ rights. The Pension Act
provides for the retention of accrued pension benefits upon
termination of scheme participation. The Dutch legislation requires
no revaluation (indexation) of pension rights. However, if deferred
pensions are revalued, the revaluation should be the same as the
revaluation of the pensions in payment. A common basis for
revaluation is the Consumer Price Index or the Wage Index (see
7.5).
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• Transferability of pension rights. Individual transfer-in and transferout rights have existed since July 8, 1994. Almost all Netherlandsbased schemes from the survey report the allowance of transfer-in
and transfer-out rights, with some applying time-limit conditions
(usually six months, as stated in the Pension Act) (see 7.6).
• Information about accrued rights of (deferred) participants. As soon
as an employer has concluded a pension agreement with an
employee, the employee should receive information about the
contents of the basic pension plan and the granting of any
supplements. From 2008 onwards, employees who participate in an
industry-wide of corporate second pillar pension plan should
annually receive a paper-based statement on the acquired pension
benefits, the prospected benefits, any supplements granted, and
value increase of the acquired pension benefits. Employees who
participate in an insured second pillar pension schemes should
receive an annually paper-based benefit statement from 2009
onwards. At this moment, 73% of the 37 organisations offer a paperbased benefit statement. This number should go up to a 100% in
2009. Members with preserved benefits should receive a paperbased benefit statement every five years. At this moment, 65%
receive such a written statement (see 7.8).
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8. Poland
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8.1 Poland – Country Overview
Pension System
In 1999 Poland established a new pension system, based on the
division of compulsory pension contributions between:
•
Mandatory Pillar I – account maintained by the reformed Social
Insurance Agency (ZUS).
•
Mandatory Pillar II – account with an open pension fund.
In order to secure an adequate standard of living, retirement income
can be supplemented with group and individual savings. The source of
additional income for future pensioners can be:
Type of pension
schemes
•
Voluntary Pillar III – Employee Pension Programs (established
and run pursuant to the Law of April 20, 2004 on Employee
Pension Programs (which replaced on 1 June 2004 the Act of 22
August 1997 on Employee Pension Programs).
•
Voluntary Pillar IV – Non-qualified pension plans and other
savings.
According to a Hewitt study carried out in 2006, about 30% of
companies already offer a company-sponsored pension scheme to their
employees and the number of companies offering this kind of benefit is
growing. These schemes are exclusively defined contribution in nature
and in general can be offered in two different forms:
•
Employee Pension Programs (EPP) - pension schemes ruled by
strict statutory regulations (know as qualified plans) and registered
with the Polish Financial Services Authority.
•
Non-qualified pension plans - Long-term investment plans which
do not fall under the third pillar of the statutory regime. The
employer is not subject to any legal restrictions on the design of
these Pillar IV plans.
Pillar III pension scheme
Hewitt Associates
Percentage of companies
11%
Other than Pillar III Pension Scheme
16%
Do not have a pension scheme but
intend to implement one in the near
future
3%
159
Benefit Design
All EPP qualified schemes and non qualified plans are created as a
defined contribution scheme – with all the financing risk carried by the
scheme member.
EPP qualified schemes
Participation in EPPs is voluntary. Funds accumulated under EPPs are
contributed by both employers and employees:
• base contributions are funded by the employer – at a level not
exceeding 7% of the participant’s salary (with the employer
receiving a rebate on social security contribution up to 7% of each
participant’s salary),
• additional contributions are funded by the employee – at a level
defined in the company agreement.
The law provides for EPPs to be established using one of four possible
financial institutions:
• Employee Pension Fund - managed by an employee pension society
(non-profit joint stock company created by the employer).
• Investment fund society.
• Insurance company.
• Foreign management where assets can be managed by any foreign
financial institution, which has received authorisation from the
Polish Financial Services Authority).
Establishing an EPP requires the following agreements:
•
Company agreement (between the employer and unions or
employee representatives), with the employer receiving a power of
delegation to operate with financial institutions
•
Direct agreement between the employer and the chosen financial
institution.
From a taxation perspective, EPP applies the “TEE” approach – where
contributions are taxed, while investment returns and benefits in
payment are not taxed.
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Graph 8.1.A
Number of active EPP 2001 - 2006
1200
1000
800
600
974
904
400
200
150
182
207
2001
2002
2003
342
0
2004
2005
2006
Graph 8.1.A shows the number of organisations who have established
EPPs since 2001. At the end of 2006 there were 974 active programs.
Graph 8.1.B shows the number of EPPs categorised by the type of
financial institution managing the pension assets, where:
•
IC means insurance company
•
IF means investment fund society
•
EPF means Employee Pension Fund.
Group 8.1.B
Number of EPP by forms
1000
900
800
700
600
706
IC
500
IF
400
EPF
300
200
100
202
17
56
77
33
70
79
82
74
51
91
49
2001
2002
2003
2004
0
Data: PFSA EPP Register
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161
170
194
28
26
2005
2006
Non qualified plans
The Pillar IV plans are not subject to registration at the Polish
Financial Services Authority or to any separate regulations. The
employer has a free choice to define membership criteria, amount of
contribution, payouts forms or implement any additional provisions
like vesting or matching mechanism. This makes Pillar IV plans a
burden - free tool for the employer. On the other side the lack of tax
incentives is seen as its essential minus.
Organisations offering their employees Pillar IV plans have in practice
chosen two types of non-qualified plans. These are shown in Table
8.1.C (based on Hewitt Research 2006).
Table 8.1.C
Percentage of organisations
42%
Type of non-qualified plan
Group Insurance with
Endowment
58%
Investment Fund
Total
100%
Table 8.1.D shows the percentage of organizations offering Pillar
IV non-qualified plans, according to the minimum level of job
required before an employee is eligible to join the plan.
Table 8.1.D
Minimum job position
Financing methods
Percentage of organisations
Top Management
27%
Professionals
9%
Other General Salaried Staff
27%
Manual Workers
36%
Total
100%
All schemes (qualified and non qualified plans) are funded - where the
objective is to build up assets via financial institutions usually
independent of the sponsoring employer.
Financial institutions managing the assets of EPPs and non-qualified
plans are permitted to run schemes for their own employees, investing
pension assets in their own funds.
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8.2 Poland – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 100 Poland-based organizations were approached to complete
the on-line pension survey. Responses were received from 10
organizations, covering 10 pension schemes.
Written pension policy All participants organizations have a written policy establishing
eligibility, terms and conditions for their pension schemes (This is a
legal requirements).
The policy has been tailored to apply:
• at Poland level for 88% of policies
• at European level for 12% of policies
• at Global Level for none of the policies
One of the 10 Poland-based organizations plans to change their
pension policy within the next 3 years (no reasons for changing were
given).
Size of organisations
in the survey
Table 8.2.A shows the distribution of Poland-based organizations by
approximate head-count of their workforce in Poland.
Table 8.2.A
Over 50,000 and up to 100,000
0%
Over 20,000 and up to 50,000
11%
Over 10,000 and up to 20,000
22%
Over 5,000 and up to 10,000
11%
Over 2,500 and up to 5,000
33%
Over 1,000 and up to 2,500
11%
Up to 250
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
89% of the Poland-based organisations had over 1000 employees in
Poland.
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Table 8.2.B shows the distribution of Poland-based organizations by
the extent of pension coverage (the percentage of their Poland
workforce covered by each organization’s pension schemes).
Pension coverage
Table 8.2.B
Over 90%and less
than 100%
11%
Over 70% and up to
90%
56%
Over 50% and up to
70%
11%
Over 5% and up
to10%
22%
0%
10%
20%
30%
40%
50%
60%
The table shows that there are significant gaps in coverage, with 22%
of organizations indicating coverages below 10%.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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8.3 Poland – Typology of funding and benefit practices
Type of scheme
Table 8.3.A shows the distribution – by type of benefit design – of the
10 Poland-based schemes covered by the survey.
Table 8.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
10%
Defined contributions
Employee carries all
risks
90%
Hybrid
Risks shared between
employee/employer
_
Open or closed to new
entrants: Defined
Benefits
There was one Poland-based Defined Benefits scheme which was open
to new entrants.
Open or closed to new
entrants: Defined
Contributions
Table 8.3.B shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 8.3.B
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
75
25
100
0
-
75% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
There were no Defined Contributions schemes closed to new entrants.
25% of Defined Contributions schemes were opened to new entrants in
2005.
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Method of funding
Table 8.3.C shows the method of funding employed for Poland-based
schemes.
Table 8.3.C
Method of
funding
Defined Benefits
%
Funded via
separate legal
entity
100
Defined
Contributions
%
75
Hybrid
%
-
Funded via
insurance
contract
-
25
Unfunded
-
-
-
100
100
-
-
100% of Defined Benefits schemes and 75% of Defined Contributions
schemes in the survey were funded via a separate legal entity – either
an investment fund or an Employee Pension Fund.
Size of schemes by
headcount
Table 8.3.D shows the distribution of Poland-based schemes by the
size of the approximate headcount of employees in the scheme,
separately for each benefit design.
Table 8.3.D
Headcount of
employees in each
scheme
Defined
Benefits
%
-
Defined
Contributions
%
13
Hybrid
%
Over 250 and up to
1,000
-
25
-
Over 1,000 and up to
2,500
-
25
-
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
-
-
-
100
13
-
-
13
-
-
13
-
-
-
-
100
100
Up to 250
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-
Not provided
Pension age for early
leavers
Table 8.3.E shows the distribution of Poland-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 8.3.E
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
100
100
Defined
Contributions
%
100
100
Hybrid
%
Not provided
Pension ages for early leavers in Poland-based schemes tend to be
either 60 or 65 (but people born before 1949 can retire under pre-1997
rules at the age of 55).
The Defined Contributions schemes provide unreduced benefits from
ages 60 – reflecting benefits calculated on a money-purchase basis.
(Disbursement rule: 60 years old, on request).
There is one exception: people born before 1949 – who have been
granted early retirement status by the Social Insurance Agency - can
retire on pension from as early as age 55.
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8.4 Poland – Conditions of acquisition of pension rights
Waiting period before
joining
Table 8.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 8.4.A
Waiting Period
Defined Benefits
%
None
-
1 – 6 months
Minimum age before
joining
Defined
Contributions
%
13
Hybrid
%
-
100
63
-
7 – 12 months
-
13
-
Over 1 year and
up to 2 years
-
13
-
100
100
Not provided
Table 8.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design
Table 8.4.B
Minimum age
Defined Benefits
%
100
No minimum age
Hybrid
%
-
Less than 20
-
Age 20 - 21
-
-
-
Age 22 - 23
-
-
-
Age 24 - 25
-
-
100
Hewitt Associates
Defined
Contributions
%
100
168
-
100
Not provided
Headcount of
employees in waiting
period
Table 8.4.C shows the distribution of Poland-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 8.4.C
Defined
Benefits
%
100
Defined
Contributions
%
63
Hybrid
%
Over 100 and up to 250
-
5
-
Over 250 and up to 500
-
-
-
Over 500 and up to
1,000
Over 1,000 and up to
2,000
-
25
-
-
13
-
100
100
Headcount in waiting
period
Up to 100
-
Not provided
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age.
Vesting conditions
Table 8.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 8.4.D
Vesting Period
Defined Benefits
%
None
-
1 – 6 months
Hybrid
%
-
100
-
-
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
-
Over 2 years and
up to 5 years
-
-
-
Over 10 years
-
-
100
Hewitt Associates
Defined
Contributions
%
100
169
100
Not provided
8.5 Poland – Treatment of dormant pension rights
Table 8.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design.In the case of DB scheme, the revaluation is made in line with
adjustment of pension benefit in payment while in the case of DC
schemes, on the basis of investment returns earned on assets.
Revaluation of
preserved benefits
Table 8.5.A
Revaluation method
Defined
Benefits
%
Hybrid
%
Revaluation made in line with the
adjustment of the rights of active
members
-
Revaluation made in line with the
adjustment of pension benefits in
payment
100
-
-
Revaluation is set as a nominal
sum (fixed amount)
-
-
-
Revaluation made on the basis of
a fixed rate of revaluation defined
in the rules of the pension scheme
-
-
-
Revaluation made in accordance
with inflation rate
-
-
-
Revaluation made in accordance
with pay rises/earnings
development
-
-
-
Revaluation made on the basis of
investment returns earned on
assets
-
100
-
Vested rights are not preserved
but are instead discharged as
payment of a capital sum equivalent to the value of the
vested pension rights - to the
outgoing employee
-
-
-
No revaluation
-
-
-
10
-
-
Other
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Defined
Contribution
s
%
-
170
-
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8.6 Poland – Transferability of pension rights
Availability of
transfer-in rights
Table 8.6.A shows the availability of rights of an employee to transfer
pension rights into their Poland-based scheme when joining their
employer, separately for each benefit design.
Table 8.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Defined
Contributions
%
50
Hybrid
%
Not permitted
-
Permitted at
discretion of
employer/trustee
-
13
-
Permitted if right
exercised within
specified time
limits
-
25
-
100
13
-
100
100
Permitted at all
times
-
Not provided
In over 60% of Defined Contributions schemes, transferred rights are
either not permitted or only permitted with employer/trustee discretion.
Transfer rights (after termination of job contract) are possible only
between the same kind of scheme, if the importing or exporting
scheme is a qualified plan.
For non qualified plans, any restrictions depend entirely on the plan
contract.
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Type of benefit
provided for a
transfer payment
Table 8.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 8.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
Defined Benefits
%
Defined
Contributions
%
-
-
Restricted to DC
benefit
-
100
-
Restricted to DB
benefit
100
-
-
Not permitted
-
-
100
Availability of
transfer-out rights
Hybrid
%
100
Not provided
Table 8.6.C shows the availability of rights of an employee to transfer
pension rights out of their Poland-based scheme, separately for each
benefit design.
Table 8.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
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100
Defined
Contributions
%
75
Hybrid
%
-
Permitted at
discretion of
employer/trustee
-
-
-
Permitted if
rights exercised
within specified
time limits
-
25
-
Permitted at all
times
-
-
100
100
173
Not provided
8.7 Poland – Evolution of scheme conditions
Past and future
changes
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None of the participating organisations introduced any change into
their scheme over the last three years. Two organisations with a DC
scheme are planning, to change the treatment of preserved benefits
over the next three years.
174
8.8 Poland – Information and Communication
Communicating with
members in service
Chart 8.8.A shows the percentage of Poland-based Defined
Contributions schemes which communicate with members in service,
according to method of communication.
Table 8.8.A
How do you communicate with Defined Contributions scheme
members? - Members in service - Poland
Emails
100%
Online Intra-Net (Generic Material)
100%
Paper-Based Benefit Statements
100%
88%
One-To-One Briefing
Paper-Based New sletters
63%
Workplace Notice Boards
50%
38%
Telephone Helpline
Electronic Noticeboards
25%
Workplace Adviser
25%
Online Secured Portal (Including Personal Records)
13%
Paper-Based Booklets
13%
Seminars
13%
0%
20%
40%
60%
80%
100%
The numbers of Poland-based Defined Benefits and Hybrid schemes,
responding to communicating to members in service, were two small
to draw any conclusions.
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Communicating with
members with
preserved benefits
Chart 8.8 B shows the percentage of Poland-based Defined
Contributions schemes which communicate with members with
preserved benefits, according to method of communication.
Table 8.8.B
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - Poland
83%
Paper-Based Benefit Statements
Telephone Helpline
67%
One-To-One Briefing
67%
50%
Emails
33%
Online Intra-Net (Generic Material)
Electronic Noticeboards
17%
Paper-Based New sletters
17%
Workplace Notice Boards
17%
Seminars
17%
Workplace Adviser
17%
0%
20%
40%
60%
80%
100%
The numbers of Poland-based Defined Benefits and Hybrid schemes,
responding to communicating to members with preserved benefits,
were too small to draw any conclusions.
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8.9 Poland – concluding Remarks
Coverage
Supplementary Employee Pension Programs (qualified plans) cover
only 2.3% of all employees in Poland. At the end of 2006 qualified
plans had 281,000 participants (up from 55,200 in 2001). This
compares with 12,353,327 employees who paid contributions to the
mandatory Pillar I and Pillar II system.
There is no information available about coverage in non-qualified
plans, which are not monitored by the Polish Financial Services
Authority.
Trends in benefit
design
Since the last pension reform, the new pension system in Poland is
based on defined contribution rules. Almost 90% of plans are defined
contribution including all Employee Pension Programs.
Method of funding
A growing number of EPPs are in the form of insurance contracts,
which are the most popular for small companies or individuals. The
biggest amount of assets are invested in Employee Pension Funds (non
profit entity established by employer - to invest EPP contributions).
Investment funds collect contributions from the rest of the EPPs.
Non-qualified plans are funded using insurance contracts and
investment funds.
Waiting period
For the qualified EPPs there is a minimum waiting period of 3 months
(established by the EPP Act), and written in the company agreement.
For non-qualified plans, the waiting period is defined by the contract
governing the plan.
Vesting conditions
Vesting restrictions are not allowed in qualified EPPs.
Availability of
transfer rights
By the EPP Act the transfer of pension rights (after termination of job
contract) in and out are permitted only between the same type of plan –
from qualified plan into another qualified plan or IRA (individual
retirement account).
There is no possibility to transfer rights and assets from non-qualified
into qualified plans and from qualified into non-qualified plans.
Communication
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The most popular methods of communication are e-mails, intranet,
paper statements and one to one briefing.
177
For qualified EPPs, legislation requires communication with members
of all program changes which are registered with the Polish Financial
Services Authority.
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9. Spain
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179
9.1 Spain – Country Overview
Supplementary
pension coverage in
Spain
Supplementary pensions have become of increasing importance during
the last decade, in particular since 1987, when the first pension law was
issued.
Proportion of Spanish According to the latest information supplied by the National Statistic
Institute in 2005 the number of employees affiliated to the Social
workforce covered
Security was 17,835,400.
The most recent information for 2006 published by the Insurance
Authorities indicates that 1,814,362 employees had subscribed to a
pension scheme (company or professional) and 5,464,276 employees
an insurance contract13. These statistics include double counting
because employees can participate in more than one scheme.
In addition to the previous numbers, there are employees who
participate in Mutual Welfare Societies and in pension schemes funded
through internal book reserves.
Benefit design
The types of benefit design include:
•
defined benefit schemes where all the financing risks are allocated
entirely to the sponsoring employer
•
defined contribution schemes where all the financing risks are
allocated entirely to the scheme member
•
hybrid schemes where the financial risks are shared in a variety of
ways between the sponsoring employer and scheme members.
Benefit design in the
public sector
Supplementary pensions for public sector employees can be
established through qualified pension schemes or other authorised
vehicles (i.e. company pension schemes - planes de prevision social
empresarial). Public sector employees have been mainly covered by
defined contribution schemes.
Benefit design in the
private sector
In Spain, as in many other countries, there is a clear trend to defined
contribution schemes. According to the latest 2006 report published by
the Insurance Authorities (“Dirección General de Seguros y Fondos de
Pensiones”), on company qualified pension schemes, 72% of the
participants are members of defined contribution schemes while only
1% participate in a defined benefit scheme - the remaining 27%
13
Data included in the latest Annual Report for 2006 published by the National Authority (Dirección General de Seguros
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180
participating in hybrid plans).
In the case of qualified schemes promoted by associations or trade
unions – “planes asociados” - the corresponding percentages are:
Financing methods
•
Defined contribution schemes
•
Defined benefit schemes
•
Hybrid schemes
79.3%
0.1%
20.6%
Since November 2002, the vehicles for funding company pension
commitments are mainly limited to three:
• Qualified Pension Funds (QPF). These are special portfolios without
legal status created to fund pension schemes; managed by fund
managers and deposited in trustees. The main applicable legislation
is Royal Decree 1/2002 and 304/2004.
• Collective Insurance Contract. These are collective life insurance
contracts that comply with the requirements established in the first
additional disposition to the Pension Plans and Funds Law. For
example: employees are the insured, companies are the
policyholders, the surrender and reduction rights can only be
exercised to maintain the funding level in line with the pension
commitments, investment returns are individually accounted, etc.)
• Mutual Welfare Societies . This is a special vehicle only used by
specific organisations, such as employees working in airlines
(Mutualidad de Loreto), Nestlé employees in Spain, Fasa-Renault
employees in Spain, etc.
Recently a new vehicle for funding company pension commitments
was approved, known as “company pension plan / planes de prevision
social empresarial”. This vehicle complies with the same principles as
qualified pension schemes and has the same tax treatment although it is
funded through an insurance product.
Exceptionally, banks, insurance companies and stock exchange
agencies are allowed to keep internal book reserves for funding their
pension commitments for employees hired before May 1996.
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9.2 Spain – Nature and scope of pension schemes
Coverage of European
Commission survey
Over 200 Spain-based organisations were approached to complete the
on-line pension survey. Responses were received from 16
organisations, covering 19 pension schemes.
Written pension policy 94% of these Spain-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at Spain level for 87% of policies
• at European level for 7% of policies
• at Global Level for 7% of policies
38% of the 16 Spain-based organisations plan to change their pension
policy within the next 3 years.
Table 9.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 9.2.A
83%
To better meet employee expectations
To re-align pension policy to corporate
strategy
67%
50%
To improve recruitment and retention
To ensure greater consistency and
coherence ofatpension
scheme's
terms and
the european
level
33%
To cope with new legislative requirements
33%
To reduce immediate benefit costs
17%
To reduce administrative burdens and
management time
17%
To improve pension scheme governance
17%
0% 10 20 30 40 50 60 70 80 90
% % % % % % % % %
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Size of organisations
in the survey
Table 9.2.B shows the distribution of the 16 Spain-based organisations
by approximate head-count of their workforce in Spain.
Table 9.2.B
Over 100,000
6%
Over 20,000 and up to 50,000
19%
Over 10,000 and up to 20,000
13%
Over 5,000 and up to 10,000
6%
Over 2,500 and up to 5,000
13%
Over 1,000 and up to 2,500
6%
Over 250 and up to 1,000
19%
Up to 250
19%
0%
5%
10%
15%
20%
25%
30%
62% of the Spain-based organisations participating in the survey had
over 1,000 employees in Spain.
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Pension coverage
Table 9.2.C shows the distribution of the 16 Spain-based organisations
by the extent of pension coverage (the percentage of their Spain
workforce covered by each organisation’s pension schemes).
Table 9.2.C
All 100%
21%
Over 90%and less than 100%
21%
Over 70% and up to 90%
21%
Over 30% and up to 50%
7%
Over10% and up to 20%
7%
21%
Up to 5%
0%
5%
10%
15%
20%
25%
The table shows that there are significant gaps in coverage, with 35%
of organisations indicating coverages below 50%.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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9.3 Spain – Typology of funding and benefit practices
Type of scheme
Table 9.3.A shows the distribution – by type of benefit design – of the
19 Spain-based schemes covered by the survey.
Table 9.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
21%
Defined contributions
Employee carries all
risks
58%
Hybrid
Risks shared between
employee/employer
21%
Although over 20% of schemes are Defined Benefits, a large
proportion of these Defined Benefits schemes relate to organisations
who have also set up Defined Contributions or Hybrid schemes for
their new entrants.
Open or closed to new
entrants: Defined
Benefits
Table 9.3.B shows the distribution of Defined Benefits schemes by the
timing of their open/closed status.
Table 9.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
40
60
-
40
60
40% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open.
60% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions
Table 9.3.C shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 9.3.C
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
54
85
31
15
15
-
54% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
31% of Defined Contributions schemes were opened to new entrants
after 2005.
Only 15% of Defined Contributions schemes were closed to new
entrants. This appears to be part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
Open or closed to new
entrants: Hybrid
Of the relatively small number of Hybrid schemes, 67% were opened
to new entrants before 2005 and 33% were opened to new entrants
after 2005. None were closed to new entrants.
Method of funding
Table 9.3.D shows the method of funding employed for Spain-based
schemes.
Table 9.3.D
Method of
funding
Funded via
separate legal
entity
Defined Benefits
-
Defined
Contributions
64%
Hybrid
75%
Funded via
insurance
contract
67%
36%
-
Unfunded
33%
-
25%
100%
100%
100%
The unfunded plans relate to financial institutions, insurance
companies and stock exchange agencies that are allowed to finance
through internal book reserves those pension commitments assumed
prior to May 1996.
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Size of schemes by
headcount
Table 9.3.E shows the distribution of Spain-based schemes by the size
of the approximate headcount of employees in the scheme, separately
for each benefit design.
Table 9.3.E
Headcount of
employees in each
scheme
Defined
Benefits
%
33
Defined
Contributions
%
60
Hybrid
%
33
20
50
Over 1,000 and up to
2,500
-
-
-
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
-
-
-
33
-
-
-
10
25
-
10
25
-
-
-
100
100
100
Up to 250
Over 250 and up to
1,000
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-
Pension age for early
leavers
Table 9.3.F shows the distribution of Spain-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 9.3.F
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
100
100
Defined
Contributions
%
27
36
36
100
Hybrid
%
25
75
100
Pension ages for early leavers in Spain-based schemes tend to be either
60 or 65.
A number of schemes provide unreduced benefits from ages under 60
– particularly for Defined Contributions schemes where the benefits
are calculated on a money-purchase basis.
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188
9.4 Spain – Conditions of acquisition of pension rights
Waiting period before
joining
Table 9.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
Table 9.4.A
Waiting Period
Defined Benefits
%
50
None
Defined
Contributions
%
45
Hybrid
%
50
1 – 6 months
-
-
25
7 – 12 months
-
27
-
Over 1 year and
up to 5 years
-
27
25
50
-
-
100
100
100
Over 5 years and
up to 10 years
All qualified pension schemes are required to limit waiting periods to a
maximum of 2 years.
No statutory requirements apply to insurance contracts.
Minimum age before
joining
Table 9.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design.
Table 9.4.B
Minimum age
Defined Benefits
%
100
No minimum age
Hewitt Associates
Defined
Contributions
%
100
Hybrid
%
100
Less than 20
-
-
-
Age 20 - 21
-
-
-
Age 22 - 23
-
-
-
Age 24 - 25
-
-
-
100
100
100
189
Headcount of
employees in waiting
period
Table 9.4.C shows the distribution of Spain-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 9.4.C
Defined
Benefits
%
100
Defined
Contributions
%
86
Hybrid
%
Over 100 and up to 250
-
0
-
Over 250 and up to 500
-
-
-
Over 500 and up to
1,000
Over 1,000 and up to
2,000
-
-
-
-
14
-
100
100
100
Headcount in waiting
period
Up to 100
100
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period.
Vesting conditions
Table 9.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 9.4.D
Vesting Period
Defined Benefits
%
None
50
Defined
Contributions
%
100
Hybrid
%
50
1 – 6 months
-
-
25
7 – 12 months
-
-
-
Over 1 year and
up to 2 years
-
-
25
Over 2 years and
up to 5 years
-
-
-
Over 5 years and
up to 10 years
50
-
-
100
100
All qualified pension plans are required to provide immediate and full
vesting.
No statutory requirement applies to insurance contracts where the
premium is not considered taxable income for participating employees.
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9.5 Spain – Treatment of dormant pension rights
Table 9.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design. In one third of DB and for half hybrid scheme therfe is no
revaluation. For most DC schemes the revaluation is made on the basis
of investment returns earned on assets.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Table 9.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
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Defined
Benefits
%
-
Defined
Contributions
%
-
Hybrid
%
-
Revaluation made in line with the
adjustment of pension benefits in
payment
-
-
-
Revaluation is set as a nominal sum
(fixed amount)
-
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
-
-
-
Revaluation made in accordance with
inflation rate
-
-
-
Revaluation made in accordance with
pay rises/earnings development
-
-
-
Revaluation made on the basis of
investment returns earned on assets
-
82
50
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
33
18
-
No revaluation
33
-
50
Other
33
-
-
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9.6 Spain – Transferability of pension rights
Availability of
transfer-in rights
Table 9.6.A shows the availability of rights of an employee to transfer
pension rights into their Spain-based scheme when joining their
employer, separately for each benefit design.
Table 9.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Not permitted
100
Defined
Contributions
%
18
Hybrid
%
25
Permitted at
discretion of
employer/trustee
-
45
25
Permitted if right
exercised within
specified time
limits
-
-
-
Permitted at all
times
-
36
50
100
100
100
In over half of Spain-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion.
Type of benefit
provided for a
transfer payment
Table 9.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 9.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
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Defined Benefits
%
Defined
Contributions
%
Hybrid
%
n/a
64
25
Restricted to DC
benefit
n/a
18
-
Restricted to DB
benefit
n/a
-
-
Not permitted
100
18
75
n/a
100
100
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Availability of
transfer-out rights
Table 9.6.C shows the availability of rights of an employee to transfer
pension rights out of their Spain-based scheme, separately for each
benefit design.
Table 9.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
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100
Defined
Contributions
%
55
Hybrid
%
50
Permitted at
discretion of
employer/trustee
-
18
25
Permitted if
rights exercised
within specified
time limits
-
9
-
Permitted at all
times
-
18
25
100
100
100
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9.7 Spain – Evolution of scheme conditions
Changes within the
last three years
Table 9.7.A shows the percentage of Spain-based schemes in the
survey which have changed specific conditions, separately for each
benefit design.
Table 9.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
-
-
25
Waiting Period
-
-
25
Vesting Period
-
-
25
Treatment of
preserved
benefits
-
-
25
Availability of
transfer rights
-
-
33
Table 9.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 9.7.B
Type of change
in last 3 years
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Defined Benefits
%
Defined
Contributions
%
n/a
Hybrid
%
Reducing
eligibility
requirements
n/a
Reducing the
waiting period
n/a
n/a
100
Reducing the
vesting period
n/a
n/a
100
Increasing the
revaluation rate
for preserved
benefits
n/a
n/a
0
Increasing the
availability of
transfer rights
n/a
n/a
50
194
100
These tables show that a significant percentage of Hybrid schemes
have changed their eligibility, vesting and waiting period conditions.
For the most part, these changes have been favourable to employees.
Changes within the
next 3 years
Table 9.7.C shows the percentage of Spain-based schemes in the
survey which are planning to change specific conditions, separately for
each benefit design.
Table 9.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
50
9
-
Waiting period
33
-
-
Vesting period
33
-
-
Treatment of
preserved
benefits
33
-
-
Availability of
transfer rights
50
-
-
Table 9.7.D shows, for schemes which plan to make changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 9.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Reducing
eligibility
requirements
0
Defined
Contributions
%
100
Hybrid
%
Reducing the
waiting period
0
n/a
n/a
Reducing the
vesting period
0
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
100
n/a
n/a
Increasing the
availability of
transfer rights
100
n/a
n/a
n/a
The numbers of organisations responding to this part of the survey is
too small to draw any firm conclusions.
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9.8 Spain – Information and Communication
Communicating with
members in service
Chart 9.8.A shows the percentage of Spain-based Defined
Contributions schemes which communicate with members in service,
according to method of communication.
Table 9.8.A
How do you communicate with Defined Contributions scheme
members? - Members in service - Spain
Paper-Based Benefit Statements
56%
Paper-Based Booklets
56%
One-To-One Briefing
56%
Emails
44%
Online Secured Portal (Including Personal Records)
44%
Telephone Helpline
44%
33%
Online Intra-Net (Generic Material)
Paper-Based New sletters
33%
Electronic Noticeboards
22%
Workplace Notice Boards
22%
Seminars
22%
Workplace Adviser
22%
0%
20%
40%
60%
The numbers of Spain-based Defined Benefits and Hybrid schemes
responding to this part of the survey were too small to draw any firm
conclusions.
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Communicating with
members with
preserved benefits
Chart 9.8 B shows the percentage of Spain-based Defined
Contributions schemes which communicate with members with
preserved benefits, according to method of communication.
Table 9.8.B
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - Spain
Telephone Helpline
80%
One-To-One Briefing
60%
Emails
40%
Paper-Based Benefit Statements
40%
Online Intra-Net (Generic Material)
20%
Paper-Based New sletters
20%
Paper-Based Booklets
20%
Workplace Adviser
20%
0%
20%
40%
60%
80%
100%
The numbers of Spain-based Defined Benefits and Hybrid schemes
responding to this part of the survey were too small to draw any
conclusions.
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9.9 Spain – Concluding Remarks
Coverage
35% of organizations surveyed extend the pension coverage to less
than 50% of the workforce and around 50% of the Spanish active
population is not covered by any supplementary pension scheme. In
recent years there is an increasing trend towards a larger coverage of
the workforce in Spain.
Trends in benefit
design
During the two transition periods for external funding, many Defined
Benefits schemes were closed or switched to Defined Contributions or
Hybrid schemes, while new schemes implemented were mainly
Defined Contributions or Hybrid.
Public sector schemes are relatively new and are mainly Defined
Contribution.
Method of funding
The method of funding is primarily via a separate legal entity – either a
qualified pension fund or a collective insurance contract.
Unfunded schemes are only used in banks, insurance companies and
stock exchange agencies and for a closed group (employees hired
before May 10, 1996) due to the exceptional treatment allowed by the
pension legislation.
Waiting periods
Most schemes have very few employees in waiting periods. This is
because most schemes have a short or no waiting period and have no
minimum age.
Qualified pension plans are subject to statutory waiting requirements.
Waiting periods of no more than 2 years are permitted independently
of the type of scheme. On the other hand, no specific statutory
requirements apply to waiting periods in insurance contracts.
Vesting conditions
All qualified pension schemes are subject to statutory vesting
conditions. These require immediate and full vesting independently of
the type of scheme. This rule is also applicable to insurance contracts
where premium is considered taxable income for participating
employees.
On the other hand, no specific statutory requirements apply in
insurance contracts where premium is not considered taxable income
for participating employees.
A significant proportion of Spanish-based schemes have either no
vesting period or a short period mainly in a range between one and
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198
twenty four months. For Defined Benefit schemes longer vesting
conditions can apply.
Revaluation of
preserved benefits
The method of revaluation of preserved benefits is subject to statutory
requirements in qualified pension schemes and in insurance contracts
where premium is considered taxable income for participating
employees.
On the other hand, no specific statutory requirements apply in
insurance contracts where premium is not considered taxable income
for participating employees.
Availability of
transfer rights
In over half of Spanish-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion. In the
case of Defined Contribution schemes none of the organisations allow
transferring.
Communication
Fund managers (trustee or insurer) have the obligation to inform and
communicate with the scheme members. The most traditional methods
- such as paper-based benefit statements, booklets and one to one
briefings - are more often used.
Emails, online secure portals and telephone helplines are also widely
used.
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10. United Kingdom
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200
10.1 United Kingdom – Country Overview
Supplementary
pension coverage in
the UK
The UK has a well developed system of supplementary pension
schemes, covering a full range of benefit design and financing
methods.
Number of
supplementary
pension schemes
Supplementary pension schemes in the UK comprise:
• occupational pension schemes registered on the Pension Schemes
Registry
• Group Personal Pensions and Stakeholder plans not registered on the
Pension Schemes Registry.
The 2006 Occupational Pension Schemes Survey – published by the
Office of National Statistics in July 2007 – indicates there are 59,800
occupational schemes with employed members still accruing benefits.
63% of these schemes (37,400) are open to new entrants and 37%
(22,400) are closed. These schemes cover about 9.6 million employee
members.
The numbers of employees covered by Group Personal Pension and
Stakeholder plans is estimated to be about 4 million.
Proportion of UK
workforce covered
The numbers of employees in the UK workforce, categorised by
scheme coverage, is shown below – separately for public and private
sector employers:
Employed workforce by
scheme membership
Contributes to non-state
pension
Public
Sector
4.6m
Private
Sector
9.0m
Overall
Total
13.6m
Does not contribute to nonstate pension
0.6m
11.6m
12.2m
Total workforce
5.2m
20.6m
25.8m
Source: The Final Report of the Pensions Commission – 2004/05 data
The table shows that there remains a significant number of the
employed workforce that is not covered by any supplementary pension
schemes. This issue has been addressed by the Turner Commission
which reported in late 2005. A key proposal is the creation of a new
National Pensions Savings Scheme based on the defined contribution
design, mandatory for employers with automatic enrolment for
employees, but with an employee right to opt out.
The 2006 Occupational Pension Schemes Survey indicates that
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coverage in the public sector has increased to 5.1m members.
In contrast, coverage in the private sector has not changed significantly
– with a decline in Occupational Pension Scheme membership being
offset by an increase in Group Personal Pension and Stakeholder
membership. It is likely that well over 10 million private sector
employees in the UK are not covered by any supplementary pension
schemes.
Benefit design
Benefit design in the
public sector
The types of benefit design include:
•
defined benefit schemes where all the financing risks are allocated
entirely to the sponsoring employer
•
defined contribution schemes where all the financing risks are
allocated entirely to the scheme member
•
hybrid schemes where the financial risks are shared in a variety of
ways between the sponsoring employer and scheme members.
Public sector employers have historically – in the period up to 2005 –
provided defined benefit schemes based on final pay and length of
service, with full cost-of-living indexing of pension entitlements in
deferment and in payment.
Given the significant increase in the value of these benefits in recent
years – as a result of increased longevity and lower real interest rates –
public sector schemes are now being converted to a hybrid design.
These new hybrid schemes retain the ‘final pay’ design, but also
involve sharing risks through negotiated benefit modifications and
changes to employee contribution rates.
Benefit design in the
private sector
Recent trends in benefit design in primarily the private sector are set
out in the 2007 survey published by the Association of Consulting
Actuaries.
The 2007 survey covers over 330 schemes with over 700,000 active
members. It shows a continuing trend away from defined benefit
schemes.
This trend is particularly pronounced for employers with smaller
numbers of employees:
Number of employees
Employers with only a
defined benefit scheme
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0 - 250
251 - 999
1000+
2%
21%
34%
Employers with
defined benefit +
defined contribution
12%
59%
61%
Employers with only a
define contribution
scheme
86%
20%
5%
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Eight out of ten defined benefit schemes are now closed to new
entrants, up from seven out of ten 2 years ago.
Employers have switched to offering defined contribution schemes to
new entrants, increasingly using Group Personal Pension and
Stakeholder Plans provided by insurance companies.
The 2007 survey of the Association of Consulting Actuaries comments
that the rapid closure of defined benefit schemes in the UK means that
there are now only around 2 million employees in the private sector
covered by open defined benefit schemes, compared to 5 million
employees in the public sector.
The 2006 Occupational Pension Schemes Survey - based on a sample
of 1800 private sector schemes – confirms this assessment, indicating
that there are now only 1.6 million employees in the private sector
covered by open defined benefit schemes.
Financing methods
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The types of financing methods include:
•
Unfunded pay-as-you-go schemes. A high proportion of public
sector employees are members of such schemes, where the benefits
are guaranteed by their public sector employers. Private sector
employers also provide such schemes, typically to a small number
of senior employees.
•
Funded schemes where the objective is to build up assets in a fund
which is financially independent of the sponsoring employer.
Typically these schemes are invested in a broad range of assets –
equities, property, bonds, cash and increasingly new sectors such
as commodities, hedge funds and private equity. Funding in the
UK is via trust funds or insurance contracts.
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10.2 United Kingdom – Nature and scope of pension schemes
Coverage of European
Commission survey
Just over 200 UK-based organisations were approached to complete
the on-line pension survey. Responses were received from 54
organisations, covering 92 pension schemes.
Written pension policy 94% of these UK-based organisations have a written policy
establishing eligibility, terms and conditions for their pension schemes.
Where there is a written policy, this has been tailored to apply:
• at UK level for 88% of policies
• at European level for 4% of policies
• at Global Level for 8% of policies
26% of the 54 UK-based organisations plan to change their pension
policy within the next 3 years.
Table 10.2.A shows the reasons for changing their pension policy, and
the percentage of organisations choosing each reason:
Table 10.2.A
To re-align pension policy to corporate
strategy
50%
To reduce immediate benefit costs
43%
To achieve better long-term sustainability
of benefit costs
43%
36%
To cope with new legislative requirements
29%
To improve pension scheme governance
To ensure greater consistency and
coherence at European level
To reduce administrative burdens and
management time
To improve recruitment and retention
21%
14%
7%
0%
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20%
204
40%
60%
80%
100%
Size of organisations
in the survey
Table 10.2.B shows the distribution of the 54 UK-based organisations
by approximate head-count of their workforce in the UK.
Table 10.2.B
Over 100,000
11%
Over 50,000 and up to 100,000
4%
Over 20,000 and up to 50,000
13%
Over 10,000 and up to 20,000
17%
Over 5,000 and up to 10,000
17%
Over 2,500 and up to 5,000
19%
Over 1,000 and up to 2,500
11%
Over 250 and up to 1,000
6%
Up to 250
4%
0%
5%
10%
15%
20%
25%
90% of the UK-based organisations participating in the survey had
over 1000 employees in the UK.
Those organisations with over 100,000 employees in the UK were
mostly in the public sector.
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Pension coverage
Table 10.2.C shows the distribution of the 54 UK-based organisations
by the extent of pension coverage (the percentage of their UK
workforce covered by each organisation’s pension schemes).
Table 10.2.C
All 100%
19%
38%
Over 90%and less than 100%
Over 70% and up to 90%
15%
Over 50% and up to 70%
11%
8%
Over 30% and up to 50%
Over 20% and up to 30%
2%
Over10% and up to 20%
2%
Over 5% and up to10%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
The table shows that 57% of organisations ensure a supplementary
pension coverage for almost all their workforce (over 90% of their
employees). Another 26% of organisations cover between half and
nine-tenths, while 17% of organisations indicate coverage below 50%
of their workforce.
Reasons for lack of coverage include employees who have opted-out of
joining the pension scheme, and employees who are ineligible or in
waiting periods.
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10.3 United Kingdom – Typology of funding and benefit
practices
Type of scheme
Table 10.3.A shows the distribution – by type of benefit design – of the
92 UK-based schemes covered by the survey.
Table 10.3.A
Benefit design
Defined benefits
Allocation of risk
Employer carries all
risks
Distribution
53%
Defined contributions
Employee carries all
risks
36%
Hybrid
Risks shared between
employee/employer
11%
Although over half of schemes are Defined Benefits, a large proportion
of these Defined Benefits schemes relate to organisations who have
also set up Defined Contributions or Hybrid schemes for their new
entrants.
Open or closed to new
entrants: Defined
Benefits
Table 10.3.B shows the distribution of Defined Benefits schemes by
the timing of their open/closed status.
Table 10.3.B
Defined Benefits
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of DB schemes
25
2
18
43
12
45
55
25% of the Defined Benefits schemes were opened to new entrants
before 2005 and remain open. Over half of these relate to Public Sector
organisations or regulated utilities.
20% of the Defined Benefits schemes were opened to new entrants
in/after 2005 and remain open. A high proportion of these relate to
organisations who have introduced lower-cost benefits, replacing
existing Defined Benefits schemes.
55% of the Defined Benefit schemes have been closed to new entrants.
Most of these relate to organisations who have established Defined
Contributions or Hybrid schemes for new entrants.
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Open or closed to new
entrants: Defined
Contributions
Table 10.3.C shows the distribution of Defined Contributions schemes
by the timing of their open/closed status.
Table 10.3.C
Defined Contributions
Opened before 2005
Opened in 2005
Opened after 2005
Closed before 2005
Closed in 2005
Closed after 2005
% of Defined Contributions schemes
76
3
97
18
3
3
-
76% of Defined Contributions schemes were opened to new entrants
before 2005 and remain open.
Only 3% of Defined Contributions schemes were closed to new
entrants. This appears to be part of scheme amalgamations, rather than
actual closure of Defined Contributions schemes.
21% of Defined Contributions schemes were opened to new entrants
in/after 2005, demonstrating the continuing shift from Defined
Benefits to Defined Contributions.
Open or closed to new
entrants: Hybrid
Of the relatively small number of Hybrid schemes, 50% were opened
to new entrants before 2005 and 50% were closed to new entrants,
again before 2005.
Method of funding
Table 10.3.D shows the method of funding employed for UK-based
schemes.
Table 10.3.D
Method of
funding
Funded via
separate legal
entity
Defined Benefits
92%
Funded via
insurance
contract
Defined
Contributions
80%
Hybrid
80%
-
20%
8%
-
20%
100%
100%
100%
Unfunded
92% of Defined Benefits schemes in the survey were funded via a
separate legal entity – typically a trust fund. The remaining 8% of
Defined Benefits schemes – unfunded schemes – related to public
sector organisations.
80% of Defined Contributions schemes in the survey were funded via a
separate legal entity. The remaining 20% were funded via insurance
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Nominated Stakeholder plans.
80% of Hybrid schemes in the survey were funded via a separate legal
entity. The remaining 20% of Hybrid schemes – unfunded schemes –
related to public sector organisations.
Size of schemes by
headcount
Table 10.3.E shows the distribution of UK-based schemes by the size
of the approximate headcount of employees in the scheme, separately
for each benefit design.
Table 10.3.E
Defined
Benefits
%
8
Defined
Contributions
%
24
Hybrid
%
6
24
30
Over 1,000 and up to
2,500
22
24
10
Over 2,500 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000 and up to
20,000
Over 20,000 and up to
50,000
Over 50,000 and up to
100,000
Over 100,000
18
3
20
27
15
-
4
6
-
2
3
-
2
-
-
10
-
20
100
100
100
Headcount of
employees in each
scheme
Up to 250
Over 250 and up to
1,000
20
Public sector schemes account for the high percentages in the “Over
100,000” category.
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Pension age for early
leavers
Table 10.3.F shows the distribution of UK-based schemes by the
earliest pension age from which preserved benefits are payable without
reduction, for employees who leave service voluntarily. This is shown
separately for each benefit design.
Table 10.3.F
Pension age
Defined Benefits
%
Under 60
60
61
62
63
64
65
Over 65
6
43
2
12
37
100
Defined
Contributions
%
57
16
3
25
100
Hybrid
%
10
80
10
100
Pension ages for early leavers in UK-based schemes tend to be either
60 or 65.
A number of schemes provide unreduced benefits from ages under 60
– particularly for Defined Contributions schemes where the benefits
are calculated on a money-purchase basis.
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10.4 United Kingdom – Conditions of acquisition of pension
rights
Waiting period before
joining
Table 10.4.A shows the length of the waiting period (between
commencing employment and joining scheme) for each benefit design.
An overwhelming majority of schemes, irrespective of their benefit
design, does not impose any waiting period.
Table 10.4.A
Waiting Period
Defined Benefits
%
91
None
Minimum age before
joining
Defined
Contributions
%
79
Hybrid
%
80
1 – 6 months
4
18
10
7 – 12 months
2
3
10
Over 1 year and
up to 2 years
2
-
-
100
100
100
Table 10.4.B shows the required minimum age before a new entrant is
permitted to join the scheme, for each benefit design. There is no
minimum age for 70% of DC schemes, 49% of DB schemes and 40%
of Hybrid. When a minimum age exists this is set at below 20 years in
43% of DB and 21% of DC schemes.
Table 10.4.B
Minimum age
Defined Benefits
%
49
No minimum age
Defined
Contributions
%
70
Hybrid
%
40
Less than 20
43
21
20
Age 20 - 21
6
-
20
Age 22 - 23
-
3
10
Age 24 - 25
2
6
-
More than 35
-
-
10
100
100
100
The ”More than 35” minimum age in the Hybrid category is likely to
reflect a pension scheme where there is a low-cost starter section with
a high minimum age before members can join the main section.
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Headcount of
employees in waiting
period
Table 10.4.C shows the distribution of UK-based schemes by
approximate size of the headcount of employees who are in the waiting
period (between commencing employment and joining the pension
scheme). This is shown separately for each benefit design.
Table 10.4.C
Headcount in waiting
period
Defined
Benefits
%
97
Defined
Contributions
%
77
Hybrid
%
Over 100 and up to 250
-
9
-
Over 250 and up to 500
-
-
14
Over 500 and up to
1,000
Over 1,000 and up to
2,000
Over 2,000 and up to
5,000
Over 5,000 and up to
10,000
Over 10,000
3
9
-
-
-
-
-
5
14
-
-
-
-
-
-
100
100
100
Up to 100
71
Most schemes have very small numbers of employees in waiting
periods. This is because most schemes have a short or no waiting
period and a low or no minimum age. Many Defined Benefit schemes
are also now closed to new entrants.
Vesting conditions
Table 10.4.D shows the length of the vesting period (between joining
scheme and acquiring vested pension rights) for each benefit design.
Table 10.4.D
Vesting Period
Defined Benefits
%
Defined
Contributions
%
50
Hybrid
%
None
30
1 – 6 months
28
16
10
-
-
-
Over 1 year and
up to 2 years
36
19
70
Over 2 years and
up to 5 years
6
16
-
100
100
100
7 – 12 months
20
Statutory requirements apply to all UK-based schemes:
•
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the vesting period cannot exceed two years (calculated as the
212
aggregate of actual pensionable service in the scheme and any
qualifying service in a previous scheme from which a transfer
payment has been made)
•
the vesting period is reduced to 3 months if a transfer is chosen,
because leavers with between 3 months and 2 years’ service must
be offered the choice between their own contributions and a cash
transfer sum.
Subject to these statutory requirements, a small proportion of UKbased schemes apply either age conditions or employer discretion
before allowing vesting of pension rights.
A significant proportion of UK-based schemes have no vesting period
or a short period of between one and six months.
Those schemes indicating a vesting period of over 2 years up to 5 years
will be subject to the shorter statutory requirements.
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10.5 United Kingdom – Treatment of dormant pension rights
Table 10.5.A shows the method of revaluation of preserved benefits
between the date of ceasing pension accrual and the date of
commencement of pension benefits at retirement, for each benefit
design.
Revaluation of
preserved benefits
More than one revaluation method is indicated if this is applicable.
Inflation rate is the most used method for DB schemes (57% of cases)
and for Hybrid (70%), while the revaluation is made on the basis of
investment return on assets for 75% of DC schemes.
Table 10.5.A
Revaluation method
Revaluation made in line with the
adjustment of the rights of active
members
Revaluation made in line with the
adjustment of pension benefits in
payment
Defined
Contributions
%
3
Hybrid
%
-
15
3
-
-
-
-
Revaluation made on the basis of a
fixed rate of revaluation defined in the
rules of the pension scheme
19
3
20
Revaluation made in accordance with
inflation rate
57
-
70
Revaluation made in accordance with
pay rises/earnings development
-
-
-
Revaluation made on the basis of
investment returns earned on assets
-
75
10
Vested rights are not preserved but are
instead discharged as payment of a
capital sum - equivalent to the value of
the vested pension rights - to the
outgoing employee
-
-
-
No revaluation
2
-
-
19
16
-
Revaluation is set as a nominal sum
(fixed amount)
Other
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Defined
Benefits
%
2
214
The variety of revaluation methods reflects the range of statutory
revaluation methods applying to UK-based schemes:
•
the standard requirement for Defined Benefit schemes of 5% per
annum or, if less, the percentage increase in the Retail Price Index
•
an alternative requirement, typically adopted by Public Sector
schemes, of revaluations fully in line with the Retail Price Index
•
special fixed revaluation rates for the Guaranteed Minimum
Pension element of pension rights.
The revaluation applying to Defined Contributions schemes is
normally based on investment returns earned on assets.
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10.6 United Kingdom – Transferability of pension rights
Availability of
transfer-in rights
Table 10.6.A shows the availability of rights of an employee to transfer
pension rights into their UK-based scheme when joining their
employer, separately for each benefit design.
Table 10.6.A
Availability of
transfer-in
rights
Defined Benefits
%
Defined
Contributions
%
6
Hybrid
%
Not permitted
20
30
Permitted at
discretion of
employer/trustee
47
44
20
Permitted if right
exercised within
specified time
limits
14
3
30
Permitted at all
times
18
47
20
100
100
100
In over half of UK-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion.
Type of benefit
provided for a
transfer payment
Table 10.6.B shows the type of transferred-in benefit provided in the
receiving scheme, separately for each benefit design.
Table 10.6.B
Type of
transferred-in
benefit in
receiving
scheme
No restriction
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Defined Benefits
%
Defined
Contributions
%
Hybrid
%
19
28
25
Restricted to DC
benefit
19
66
38
Restricted to DB
benefit
45
-
25
Not permitted
17
6
13
100
100
100
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Availability of
transfer-out rights
Table 10.6.C shows the availability of rights of an employee to transfer
pension rights out of their UK-based scheme, separately for each
benefit design.
Table 10.6.C
Availability of
transfer-out
rights
Defined Benefits
%
Not permitted
-
Defined
Contributions
%
-
Hybrid
%
-
Permitted at
discretion of
employer/trustee
18
19
-
Permitted if
rights exercised
within specified
time limits
6
6
-
Permitted at all
times
76
75
100
100
100
100
Statutory requirements apply to UK-based schemes, ensuring
employees generally have an automatic right to cash transfers once
they have completed 3 months’ service in the scheme.
The circumstances where transfer-out rights can be restricted are very
limited.
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10.7 United Kingdom – Evolution of scheme conditions
Changes within the
last three years
Table 10.7.A shows the percentage of UK-based schemes in the survey
which have changed specific conditions, separately for each benefit
design.
Table 10.7.A
Specific
condition
changed in last
3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
18
12
22
Waiting Period
0
9
13
Vesting Period
25
18
11
Treatment of
preserved
benefits
10
6
11
Availability of
transfer rights
11
9
22
Table 10.7.B shows, for schemes which have made changes, the
percentage of those schemes which have made changes favourable to
employees.
Table 10.7.B
Type of change
in last 3 years
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Defined Benefits
%
Reducing
eligibility
requirements
20
Defined
Contributions
%
50
Reducing the
waiting period
100
100
100
Reducing the
vesting period
91
100
100
Increasing the
revaluation rate
for preserved
benefits
14
-
-
Increasing the
availability of
transfer rights
33
100
100
218
Hybrid
%
50
These tables show that, for the most part, between 10% and 20% of
schemes have made changes to each of these specific conditions.
Again, for the most part, these changes have been favourable to
employees.
Changes within the
next 3 years
Table 10.7.C shows the percentage of UK-based schemes in the survey
which are planning to change specific conditions, separately for each
benefit design.
Table 10.7.C
Planning to
change specific
condition in
next 3 years
Eligibility
Defined Benefits
%
Defined
Contributions
%
Hybrid
%
4
6
-
Waiting period
-
3
-
Vesting period
-
-
-
Treatment of
preserved
benefits
-
-
-
Availability of
transfer rights
2
-
-
Table 10.7.D shows, for schemes which have made changes, the
percentage of those schemes which plan to make changes favourable to
employees.
Table 10.7.D
Type of planned
change in next 3
years
Defined Benefits
%
Reducing
eligibility
requirements
67
Defined
Contributions
%
67
Reducing the
waiting period
n/a
100
n/a
Reducing the
vesting period
n/a
n/a
n/a
Increasing the
revaluation rate
for preserved
benefits
n/a
n/a
n/a
0
n/a
n/a
Increasing the
availability of
transfer rights
Hybrid
%
n/a
Only a small proportion of the UK-based schemes are planning
changes – mainly reducing eligibility requirements.
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10.8 United Kingdom – Information and Communication
Communicating with
members in service
Chart 10.8.A shows the percentage of UK-based Defined Benefits
schemes which communicate with members in service, according to
method of communication.
Table 10.8.A
How do you communicate with Defined Benefits scheme members? Members in service - UK
Paper-Based Benefit Statements
100%
Paper-Based Booklets
97%
Paper-Based New sletters
90%
Online Intra-Net (Generic Material)
74%
Telephone Helpline
64%
Emails
59%
One-To-One Briefing
56%
Workplace Notice Boards
51%
Electronic Noticeboards
41%
Seminars
38%
Online Secured Portal (Including Personal Records)
18%
Workplace Adviser
18%
0%
20%
40%
60%
80%
100%
Chart 10.8.B shows the percentage of UK-based Defined Contributions
schemes which communicate with members in service, according to
method of communication.
Table 10.8.B
How do you communicate with Defined Contributions scheme
members? - Members in service - UK
Paper-Based Benefit Statements
82%
Paper-Based Booklets
73%
Online Intra-Net (Generic Material)
64%
Telephone Helpline
64%
Paper-Based New sletters
45%
Seminars
45%
Emails
36%
Workplace Adviser
36%
One-To-One Briefing
36%
Online Secured Portal (Including Personal Records)
27%
Electronic Noticeboards
18%
Workplace Notice Boards
18%
0%
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20%
40%
60%
80%
100%
All UK-based Hybrid schemes communicated to members in service
using paper-based benefit statements, paper-based newsletters and
paper-based booklets.
Communicating with
members with
preserved benefits
Chart 10.8.C shows the percentage of UK-based Defined Benefits
schemes which communicate with members with preserved benefits,
according to method of communication.
Table 10.8.C
How do you communicate with Defined Benefits scheme
members? - Members with preserved benefits - UK
81%
Paper-Based New sletters
Paper-Based Benefit Statements
69%
Telephone Helpline
64%
47%
Paper-Based Booklets
39%
Emails
Online Intra-Net (Generic Material)
19%
Electronic Noticeboards
19%
8%
Online Secured Portal (Including Personal Records)
Workplace Adviser
3%
One-To-One Briefing
3%
0%
20%
40%
60%
80%
100%
Chart 10.8 D shows the percentage of UK-based Defined Contributions
schemes which communicate with members with preserved benefits,
according to method of communication.
Table 10.8.D
How do you communicate with Defined Contributions scheme
members? - Members with preserved benefits - UK
60%
Paper-Based Benefit Statements
50%
Paper-Based New sletters
40%
Paper-Based Booklets
30%
Telephone Helpline
Online Intra-Net (Generic Material)
20%
One-To-One Briefing
20%
Emails
10%
Online Secured Portal (Including Personal Records)
10%
Electronic Noticeboards
10%
0%
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20%
40%
60%
80%
100%
All UK-based Hybrid schemes communicated to members with
preserved benefits using paper-based benefit statements and paperbased newsletters.
General comments
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The high prevalence of communication methods reflects the statutory
requirements for communicating with scheme members in the UK.
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10.9 United Kingdom – Concluding Remarks
Coverage
Supplementary pension schemes cover over 5 million public sector
employees (close to 100% coverage) and about 9.6 million private
sector employees (less than 50% coverage).
Well over 10 million private sector employees in the UK are not
covered by any supplementary pension schemes. A new National
Pensions Savings Scheme is being created to address this lack of
coverage.
Trends in benefit
design
Recent years have been characterised by a rapid closure of Defined
Benefits schemes in the private sector, and a switch to Defined
Contributions or Hybrid schemes.
Public sector schemes are also switching to a Hybrid design in order to
control costs.
Method of funding
The method of funding is primarily via a separate legal entity known as
a trust fund. Unfunded schemes are also widely used in the public
sector.
A growing number of Defined Contributions schemes are funded via
insurance contracts – namely Group Personal Pension and Stakeholder
plans.
Waiting periods
Most schemes have very few employees in waiting periods. This is
because most schemes have a short or no waiting period and have a
low or no minimum age.
Vesting conditions
All UK-based schemes are subject to statutory vesting requirements.
These require vesting periods of no more than 2 years, reducing to 3
months if a cash transfer is chosen.
A significant proportion of UK-based schemes have either no vesting
period or a short period of between one and six months.
Revaluation of
preserved benefits
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The method of revaluation of preserved benefits is subject to statutory
requirements:
•
Defined Benefits schemes are required to revalue preserved
benefits in line with the Retail Price Index (subject if appropriate to
a cap of 5% per annum)
•
Defined Contributions schemes are free to revalue on the basis of
investment returns earned on assets
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•
Hybrid schemes use a variety of methods depending on the
particular benefit design.
The survey indicates that UK-based schemes meet these statutory
requirements and do not provide revaluations at more favourable
levels.
Availability of
transfer rights
In over half of UK-based schemes, transfer-in rights are either not
permitted or only permitted with employer/trustee discretion.
All UK-based schemes are subject to statutory transfer-out
requirements. These generally ensure employees have an automatic
right to cash transfers once they have completed 3 months’ service in
the scheme. Over three-quarters of UK-based schemes permit transferout rights at all times.
A significant proportion of Defined Contribution and Hybrid schemes
have increased the availability of transfer rights in the last 3 years.
Communication
The high prevalence of communication methods reflects the statutory
requirements for communicating with scheme members in the UK
The commonest methods are paper-based benefit statements, booklets
and newsletters. Online intra-net, emails and telephone helplines are
also widely used.
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11. Participating Organisations
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11.1 List of names*
Belgium
Baxter pension fund
Roche
IBM Belgium
Tessenderlo Chemie
Ablynx
BP
Honeywell NV
Westinghouse
Bayer SA-NV
Chevron Phillips Chemicals International nv
Tupperware Belgium NV
Randstad
GlaxoSmithKline Biologicals
Donaldson
The Bank of New York
Fuji Film Electronic Materials
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Eli Lilly
L'Oréal
St. Jude Medical
France
Schneider Electric Industries SAS
Laboratoires Servier
BIC
Areva
Compagnie de Saint-Gobain
France Telecom
*
The list includes only organisation that permitted the disclosure of their name. A number of organisations participating in the
survey have chosen to remain anonymous and their names are not reported.
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Germany
Deutsche Bank AG
Otto Group
Ge Capital Funding Servics GmbH & Co. KG
Motorola GmbH
BearingPoint GmbH
Hewlett-Packard (HP)
Stuttgarter Lebensversicherung a.G.
Thüga AG
BMW Group
Merck KgaA
Deutscher Ring Gruppe
Lufthansa German Airlines
BP oil Marketing GmbH
Volkswagen AG
Asahi Kasei Spandex Europe GmbH
MAN
DK Recycling und Roheisen GmbH
AMD
LBBW Immobilien GMBH
Bayer AG
Kemira PPC Germany GmbH
Benedikt Köster
VPV Versicherungen
DBV-Winterthur
Gasanstalt Kaiserslautern AG
Pfeiffer & May Grosshandel AG
MEDA Pharma GmbH & Co. Kg
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Ireland
Northern Trust
Eugene F Collins
EDS Ireland Ltd
CWPS
Intel Ireland
Vodafone Ireland
Blackrock Clinic
Irish Life & Permanent PLC
Pfizer Ireland Pharmaceuticals
Pramerica Systems Ireland
Pioneer Investments
Johnson & Johnson
QUINN-healthcare
O’Donnell Sweeney Eversheds
Bank of Ireland
Italy
Banca Nazionale del Lavoro
Previnet SpA
Fondo Pensione Personale della Deutsche Bank Spa
Fondo Pensione Complementare per i Dipendenti della Banca
Regionale Europea SpA
Fondo pensioni Cariplo
Watson Wyatt Italia srl
Telecom Italia S.P.A.
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Netherlands
Nordson Benelux BV
ECN
Stichting Pensioenfonds Akzo Nobel
Stichting Pensioenfonds Alcaletel Nederland
Rabobank
Stichting BMS Pensioenfonds
Technip Benelux B.V.
Invista Netherlands
Pensionfund for the ministers of protestant church in the Netherlands
Ferro (Holland) B.V.
I.F.F.-Pensioenfonds
Shell Pensioenbureau Nederland B.V.
Coca-Cola Enterprises Nederland B.V.
SBZ
ING
Reed Elsevier Nederland B.V.
Pension Fund PGB
SPF Beheer
ABN AMRO Pensionfund
Coca-Cola
Poland
Kredyt Bank S.A.
Telekomunikacja Polska S.A.
ENION S.A.
METLIFE TU Na Życie S.A.
PZU SA
PZU Życie SA
Pratt&Whitney Kalisz Sp. z o.o.
Fiat Auto Poland
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Spain
Cementos Portland Valderrivas
CAJA MADRID
Siemens S. A.
MBNA
Toys r us Iberia SA
Switzerland
Roche
United Kingdom
EDF Energy plc
Nestle UK Ltd
Whitbread Group PLC
British Energy Group plc
Aon Limited
Unilever UK
Tube Lines Limited
Investmnet Management Association
IHG
Avecia Biologics Limited
Magnox Electric Group of the ESPS
RAC Motoring Services Limited
Western Power Distribution
Northern Trust
Audit Commission
BAA
St Jude Medical UK Ltd
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11.2 Demography about participants
cbvbff
Countries Participated in the EC Survey
United Kingdom
19%
Other2%
Belgium 13%
France 6%
Spain 6%
Germany 20%
Poland 3%
Netherlands 13%
Ireland 12%
Italy 6%
M ain sector of economic activity of participant organisations
28%
Manufacturing
25%
Financial and Insurance Activities
12%
Other Service Activities
11%
Professional, Scientific and Technical Activities
6%
Information and Communication
6%
Wholesale and Retail Trade, Repair Motor Vehicles
6%
Electricity, Gas, Steam, Air Conditioning
4%
Transportation and Storage
4%
Human Health And Social Work Activities
3%
Administrative and Support Service Activities
3%
Construction
2%
Real Estate Activities
2%
Accommodation and Food Service Activities
Education
Mining and Quarrying
Arts, Entertainment and Recreation
Public Administration and Defence
Agriculture, Forestry and Fishing
0%
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1%
1%
Water Supply, Sew erage, Waste Management
1%
0,7%
0,7%
0,4%
5%
10%
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15%
20%
25%
30%
Approximate headcount of workforce in the country of respondent
and in European Union
Over 100,000
11%
5%
Over 50,000 and up to 100,000
9%
3%
Over 20,000 and up to 50,000
19%
9%
12%
11%
Over 10,000 and up to 20,000
Over 5,000 and up to 10,000
8%
10%
9%
Over 2,500 and up to 5,000
14%
12%
Over 1,000 and up to 2,500
Over 250 and up to 1,000
0%
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19%
10%
Up to 250
In Your Country-All
14%
8%
5%
10%
16%
15%
In the European Union (all 27 EU countries)-All
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20%