Different pension commitments often exist for different personnel categories (blue-collar workers, white-collar workers, management, etc.) of the same company or a group of affiliated companies. In Defined Contribution plans, the premium percentage increases to a higher category with each promotion, while in Defined Benefit plans, the coefficients in the ‘target formula’ increase because of the transfer to a higher plan.
Previously, the full insurance contracts of the promoted employee were simply transferred to the new, higher pension regulations without the loss of any insurance conditions.
However, the legislature has given a broader interpretation to the concept of ‘exit’. An employee is now entitled to make choices concerning their acquired rights, not only when leaving the employer but also when exiting one set of pension regulations as a result of promotion and transferring to a new set of pension regulations at the same employer. The intention of the legislature is to give employees who transfer internally the option of also insuring their accrued pension entitlements in case of death.
Nonetheless, this well-intended, additional option can lead to nasty financial consequences in some cases. After all, making the existing contracts paid-up when exiting the old pension regulations and creating new contracts in accordance with the new pension regulations not only increases the number of contracts, but also results in the new contracts starting under new insurance conditions. In current financial markets, with their decreasing interest guarantees, this means that the old, high interest guarantees, which also apply in some cases to future premiums, cease to exist. A promotion under such circumstances could lead to surprisingly low interest guarantees, and lower insured capital.
These adverse effects can be avoided by establishing what is known as a ‘multi-organiser pension system’ for different group companies and/or drawing up a single set of pension regulations for the different pension plans of a company’s different personnel categories. It is thus definitely worthwhile analysing such a situation and avoiding unfavourable financial consequences for the employee and/or employer!