1. Raising the real retirement
age
Joris Beernaert and Corine Hoekstra discuss how the Low Countries are
rising to the challenge
In the last decade, economic and financial circumstances have put pressure on
pension regimes across Europe. Add to this the effects of ageing populations
and longer life expectancies, and it is not surprising that many European
countries are redesigning their pension regimes. The ‘accepted’ retirement age
of 65 is no longer set in stone, with many governments across Europe planning
to raise, or having already raised their retirement ages. In Iceland and Norway,
workers retire at 67; Denmark, the Netherlands and Germany plan to reach
that level in the future, with the United Kingdom pushing things even further
to 68.
This article focuses on two neighbouring countries that have invested in
raising the (effective) retirement age: Belgium and the Netherlands. The
motivation behind these reforms was the same in both cases – however, the
measures adopted by the respective governments differ, and give rise to
varying associated HR-related issues.
A.Effective retirement age until pension reforms
The Belgian state pension is a pay-as-you-go regime, with a retirement age of
65. Before the 2012 pension reforms, early retirement was possible at 60,
provided the worker could prove at least 35 pensionable years, which can
include periods of unemployment and certain career breaks. Notwithstanding
the early retirement age, the effective retirement age in Belgian is 59.6 years
for men, and 58.7 years for women. With these numbers, Belgium has the
second lowest effective retirement age of all the OECD countries. This is partly
explained by the so-called “bridge pension”, a pre-retirement regime during
which unemployment allowances are complemented by allowances paid by the
former employer. The normal retirement age in the Netherlands has been 65

2. since the introduction of the state pension (AOW) in 1957. Due to early
retirement regimes, the effective retirement age was, however, lower
(approximately 62) in the early 2000s.
B.Measures to increase the real retirement age
Statutory retirement age
The Netherlands started reforming its pension regime in 2005, taking tax
measures to discourage early retirement. Thanks to these measures, the
effective retirement age is currently 63.5 years. As of 2013, the Dutch AOW
retirement age is set to increase gradually, to 67 in 2023. As from 2024, the
AOW retirement date will be increased according to increases in the average
life expectancy.
Unlike the Netherlands, the Belgian government did not increase the state
retirement age of 65. However, the early retirement age, and seniority
requirements for early retirement, have gradually increased since 2013, and
will do so until 2016. In 2016, a worker will be entitled to retire at age 62, if
they have at least 40 pensionable years. Workers with a long career will be able
to retire at 61, if they can prove a 41 year career, or at 60, if they can prove a
career of 42 years. If a worker remains in service for at least one more year
than the earliest possible retirement date, he is entitled to a so-called “pension
bonus” (i.e. a premium for each day of employment). The new legislation also
provides transitional measures for workers who were on the eve of retirement
before the reforms were approved. The eligibility conditions for the Belgian
“bridge pension" scheme have also been restricted in order to increase the real
retirement age.
Occupational retirement age
Most Belgian occupational pension regimes provide for a normal retirement
age of 65. However, as long as an employee remains in service of the employer
(as the case may be after age 65), they must continue to accrue pension
entitlements under the pension regime. Most plans also provide for an early
retirement age, which cannot be lower than 60. The Belgian tax regime of the
occupational pension schemes was however reformed in 2013, in order to
encourage older workers to remain at work. From July 2013, if workers take
their occupational pension benefit as a lump sum (most benefits are paid out
as a once-off lump sum in Belgium) at the age of 60, the part accrued by
employer's contributions is now taxed at a flat rate of 20%, where it was taxed
at 16.5% before. If they wait a few more years, the flat rate decreases to 18%
(at age 61), 16.5% (at age 62 to 64) and 10% (at age 65 provided they remain
professionally active until that age). Since the Belgian legislator did not align
the occupational retirement age with the statutory retirement age it is
therefore possible that a (deferred) scheme member receives his occupational
pension before being entitled to state pension allowances. Raising the early
retirement age and limiting the possibilities of “bridge pension” should
certainly increase the effective retirement age. Since most of the reforms
provide for transition measures the reforms can only be evaluated on their
merits after a couple of years. It is also expected that the pension reforms will
increase the number of workers who benefit from disability allowances.
The Dutch second pillar (fiscal) retirement age increased from 65 to 67 years
in 2014. This increase is one of several tax measures to have been implemented
in 2014, all effectively resulting in a limitation of the tax facilities for pension
accrual. Under the new tax rules, employees will need two extra pensionable
years in order to reach the same pension benefits, compared to the situation
prior to 2014. Continuing a pension regime with a retirement age of 65 is
possible, if the total accrued pension does not exceed the new tax limits, based
on a retirement age of 67. Maintaining a retirement age of 65 may therefore
result in a reduction of the annual pension accrual. In practice, most
employers have implemented the new legislation by increasing the retirement
age in the pension regime to 67. In both cases, a gap exists between the first
and second pillar retirement ages, as the AOW starts at age 65 and 2 months
as of 2014. The main goal of the retirement age increase is, of course, to
encourage employees to work longer. However, the consequences of this gap
between first and second pillar retirement ages have led to some

3. implementation issues, which could in fact discourage working longer. HR
departments must be aware of these implications.
C.Implementation issues
Under Belgian employment law, it is not legal to automatically terminate an
employment contract when a worker reaches statutory retirement age. It is,
however, possible to terminate the employment contract of a worker who
reaches the statutory retirement age of 65 with a reduced notice period. In this
event, a worker is entitled to both a state pension and an occupational
pension.
Many older Dutch employment contracts automatically end at age 65, or on
the pension date as described in the pension plan rules; the so-called
‘retirement clause’. Although a distinction is made here based on age, this was
objectively justified, as the state pension and the occupational annuities
started as of age 65. However, since 2014 the state pension starts at age 65 and
2 months. An automatic termination of the employment contract on an earlier
date is no longer justified and can be successfully challenged by an employee,
based on unequal treatment, if he wants to continue working. Employment
contracts need to be in line with the new legislation and refer to the applicable
AOW retirement date (in the respective year), in order to create an effective
retirement clause. But the implementation of a correct retirement clause does
not resolve all issues. If the employment contract ends on the AOW retirement
date, the employee will face a substantial decrease in his income, if the
occupational pension provided in the plan rules start at age 67. The employee
may want to bring forward the occupational pension, in order to reduce the
income gap on his retirement date. Bringing forward the accrued pension, has
to be requested several months before the envisaged early retirement date, so
it is advisable to inform the older employees of this option in due
time. Instead of bringing forward the retirement date in the occupational
pension regime, an employee may also choose to continue working after the
AOW retirement date. If the contract automatically ends on AOW retirement
date, a new (temporary) employment contract must then be agreed upon.
Under Dutch law, a contract that directly follows an assignment for an
indefinite period is considered to be a continuation of the indefinite
assignment. This means that – even though the contract is temporary – the
employee can successfully challenge the termination of the contract. One can
imagine that employers are reluctant to offer a temporary contract to older
workers if they are at risk of not being able to end the contract without going
to Court. New legislation is currently being examined by the Dutch Senate
providing additional rules to prevent this undesired consequence of current
Dutch employment law. This means that if parties agree on a temporary
contract, directly following a contract for an indefinite term on or after the
AOW retirement date, the contract automatically ends on the agreed date,
without notice. Also, the draft legislation enables employers to end the
employment contract in the event no retirement clause exists and the
employee reaches the applicable (AOW) retirement date, without having to
seek the permission of the Employee Insurance Agency (UWV) or the Court.
The different statutory retirement ages may also give rise to issues within the
context of international employment. Since the European rules (EU
Regulations Nos. 883/04 and 1408/71) only coordinate, rather than
harmonise, the different social security regimes within the EEA and do not
apply to occupational regimes, it is perfectly possible that workers who have
had an international career are entitled to different pensions at different ages.
Moreover, asking for the payment of one pension could also impact the
possibility of early retirement in another Member State, and the tax treatment
of these payments.
D.Conclusions
Average life expectancies are increasing throughout Europe, placing a heavy
burden on European pension regimes. Governments are rapidly updating
legislation in order to encourage employees to work longer – however, in
practice, there are simply not enough suitable jobs available. Undertaking an
evaluation in a few years’ time will show us whether the measures taken have
been effective, and have led to a further increase in the effective retirement

4. age. In the meantime, the transition measures bring additional complexity to
labour and pension laws.
Joris Beernaert is a pensions lawyer with Claeys & Engels in
Antwerp.
Corine Hoekstra LL.M. is a pensions lawyer with Bergamin
Pensions Law in Rotterdam
Both firms are members of Ius Laboris, a global alliance of leading
law firms providing specialist advice in relation to employment,
employee benefits, immigration and pensions law.
This article was originally published in The Actuary and the online
version can be accessed here.