Bundling pensions from different employers: 7 things to watch out for

If you have a new job, you keep the pension that you have already built up with the pension fund of your previous employer. You can choose to leave the pension pot there, or you can transfer it to your new pension fund. This is also called value transfer. In this article we look at when that is a smart thing to do. Value transfer has recently become a topical option again, as many pension funds have seen their policy funding ratios rise above 100 percent in the past year. This means that for every euro in benefit obligations, the pension fund has more than 1 euro in assets (at 100 percent this ratio is exactly the same).

This is important because your old pension fund must have a policy funding ratio of 100 percent, calculated over at least 12 months, to enable value transfer. That is in the legislation. You can find out how your pension fund is doing in the recent overview of the Pension Federation. The financial position of many pension funds has recently improved, partly due to the rise in interest rates, according to the spokesperson for the Pension Federation.

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So the good news is that value transfer is possible again for many people. But when should you use that option? We went through a number of considerations with professor Theo Nijman of Tilburg University and pension think tank Netspar to take into account. Financial position of the pension fund

The financial position of a pension fund is one of the most important considerations for switching, says Nijman. “If you can switch to a fund with a higher funding ratio, I would almost always do that.”

How much money a pension fund has in cash determines whether your pension is indexed, i.e. is allowed to grow in line with wages and inflation, or whether there is a risk of discounts, whereby you will receive less pension in the future. You can request information about the financial position of another pension fund and compare it with how your current pension fund is doing.

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The financial position of your pension fund will become even more important because a new pension system will come into effect, says Nijman. Suppose: the pension fund where you are now has a funding ratio of 100 percent and you can go to one with a funding ratio of 110 percent. With the transition to the new system, you will receive much more capital with the new fund, 10 percent more, in line with the higher funding ratio. Under the old system, you receive 100 percent from the new pension fund that is in line with a funding ratio of your old pension fund. This future change makes it even more useful to carefully consider your options. The bills for the new pension system are currently before the House of Representatives.You have to find out how much pension you will receive from the new pension fund and how much your surviving dependents will receive in the event that you are no longer there. Retirement age

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One of the conditions that differs per pension fund concerns the agreements about taking early retirement.

The state pension age will rise to 67 in 2024. But suppose you want to retire three years earlier, so at 64. Does your pension fund allow this and what conditions are attached to it?

You often have to give up a few percent of your accrued pension in order to stop working early and enjoy your old age.

However, some pension funds do not allow early retirement at all. Therefore, take a good look at what would apply to you in the old and the new situation. Simplicity

In addition to financial considerations, many people opt for a value transfer to keep an overview of their pension affairs. Nijman: “Suppose you work for a while here and a while there and you accrue pension with several pension funds. Then you lose the overview. If the conditions are identical and you have a well-arranged pension with one party, it is that easy.”

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Sustainable investing

Perhaps you are concerned about the planet or simply convinced that sustainable investing is part of it. In that case, you have to find out what a pension fund’s investment policy is and whether special attention is paid to sustainability. This is the case with most pension funds. However, not every fund goes into this in depth. Therefore, check to what extent a pension fund takes sustainability into account in its investment policy and whether the fund has hard objectives. These would be signs that your new pension fund takes sustainable investing seriously. Size of your pension

The size of your pension is important for the following reason: you do not have to transfer small pensions to a new pension fund yourself. There the automatic value transfer applies. A small pension amounted to a maximum of 503.24 euros per year in 2021. Moreover, if you have a very small pension (maximum 2 euros gross per year), it will simply expire.

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The law for automatic value transfer of small pensions has recently come into effect. This therefore applies to all claims that arose on or after 1 January 2018.

Although the automatic value transfer should take place automatically, it is still good to check with the pension fund from which you are leaving whether this is indeed the case, or whether you still have to arrange a few things yourself. Job change date

Finally, the moment you change jobs can influence the possibilities for value transfer. Before 1 January 2015, the rule was that you had to submit a value transfer request within six months of your job change.Read more about pension:

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  • Pension gap due to inflation: you have to build up that much capital if you want to pay yourself an extra €2,000 per year in pension
  • Higher state pension age: you can build up as much capital yourself as people in their 30s or 50s before your pension, if you invest €400 per month.
Author: Jobly