The statutory right to value transfer for new employees is a business economic risk for small businesses in The Netherlands.
The statutory right to value transfer for new employees is a business economic risk for small businesses in The Netherlands. The differences between the statutory transfer value and the purchase price for incoming value transfers have a heavy financial impact on many employers. Delta Lloyd is the first insurance provider to offer the option of seriously mitigating the risks implicit in incoming value transfers by taking advantage of the market value approximation method.
Defining value transfer when giving advice
Fearful of high supplementary purchase prices, which result from the statutory definitions of value transfer, especially smaller SME employers consider relinquishing a salary period of service arrangement. Advisors and employers are afraid that the supplementary purchase prices for incoming value transfers will break the bank. Although it offers less security to their employees, these employers judge that they should opt for capital or investment insurance. With these arrangements in place, there is of course no question of the employer providing supplementary financing for the value transfer.
Delta Lloyd offers a solution
Delta Lloyd can mitigate the risks by keeping down the level of the supplementary purchase price by applying an interest rate rebate in advance to the purchase price. The interest rate rebate is paid out of the future profit-sharing from these claims. Anticipated interest rate reduction is a derivative of market interest rates, through which new statutory interest rate calculation is estimated. As a consequence of this, the purchase price is considerably lower in practice. All future interest profit sharing for claims purchased through value transfer is therefore actually already paid on purchase. The consequence of this is that these purchases are not included in the definition of the total interest profit sharing provision. In the attached worked example the employer is required to pay around 67% less at the time of an incoming value transfer.
Consequences for participants' capacity to pay bonuses?
If an arrangement for a bonus payment applies to the contract, this bonus also applies to the elements purchased through value transfer. If it relates to a bonus payment arrangement which is not (solely) dependent on profit-sharing, then there are no further consequences in terms of the Delta Lloyd solution. If it relates to a bonus payment arrangement which is solely dependent on profit-sharing, this may have a negative effect on the capacity to pay bonuses.
The Delta Lloyd solution can also be applied here by making use of the financial capacity resulting from outgoing value transfer.
If outgoing value transfer does apply to a bonus payment arrangement which is solely dependent on profit-sharing, the difference between the redemption value and the statutory transfer value can be used for the future payment of bonuses.
Outgoing value transfer in that case has a positive effect on the capacity to pay bonuses. Taken as an average - and naturally over a longer period of time - the balance of incoming and outgoing value transfers is often similar and therefore the Delta Lloyd solution in the longer term has only a minor effect on the bonus payment arrangement.
Options for security
Through this method of market value approximation a salary period of service arrangement remains an attractive alternative, on the basis of the security it provides to both employers and employees. The market value transfer is offered in the Secured Pension Plan (mid- and final-salary arrangement) and the Balance Pension Plan. The Balance Pension Plan offers guaranteed entitlements on the basis of a calculable available premium (grade 2 or grade 4). In this way the employer knows exactly what amount he is paying in each period for his employees' pensions. The premiums are used directly on receipt in order to purchase pension rights. This avoids both the investment risk and the interest rate risk at the pensionable date for the employee. An additional premium threshold rebate of 4% applies to the Balance Pension Plan. This applies to pension plans lasting for five years, which have been offered since 1 May and were closed in 2008. The scheme runs until the end of the year.
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Further information:
Marc Smulders
Spokesman for Delta Lloyd Insurance
Telephone: (020) 594 27 07
E-mail: pers@deltalloyd.nl