New law leads to less fragmented pensions
The Small Pension Value Transfer Act, which recently came into effect, leads to less fragmentation and a better overview for participants and simplification of administration.
The Pension Federation and the Dutch Association of Insurers have been closely involved in the creation of this law, which, among other things, stipulates that small pensions may be automatically combined into one larger pension from 1 January 2019. For employees who often change jobs, this means that their small pensions can be combined into one large pension, which also leads to lower administration costs.
The Association and the Pension Federation are pleased that the first phase of the law has now entered into force. This concerns the sections on collective value transfer and the right of objection when adjusting to the target retirement age for tax purposes, international value transfer and pension equalization in the event of divorce. Both umbrella organizations today informed all pension providers in detail about how they can implement the automatic value transfer and which process steps are required for this.
Because the provisions in the law for automatic value transfers will come into force on 1 January 2019, the pension sector will have time to prepare for this. Provisions in the law regarding the cancellation of very small pensions, less than 2 euros gross per year, will also only come into force on 1 January 2019. Allowing these very small entitlements to lapse will reduce the administrative burden for all pension participants. Minister Koolmees wants to offer participants with pensions below the 2 euro limit in 2018 the opportunity to submit a request for commutation or value transfer. The pension sector and SZW are working together on a plan to bring this last opportunity to the attention of participants.
The reason why I refrained from merging is the hefty price tag attached to it. The pension insurers obviously work for a reason and charge high costs for transfer.
This has a negative effect on the amount to be transferred, especially if the pension amount has been accrued over a relatively short period. Inform yourself thoroughly how much and what costs are associated with transferring your pension. Moreover, it is impossible to predict in advance which pension will be partially or fully indexed afterwards, which means you could be doing yourself a disservice.