Self-managed pension: the benefits and burdens
By Sabina Hussl
What about pension that an entrepreneur has built up in his own BV, when there is a divorce? The Supreme Court recently made an interesting ruling on this.
The ex-spouse is entitled to equalisation of the old-age pension accrued during the marriage under the Pension Rights Equalisation Act in the event of Divorce (Wet VP). The pension accrued by a DGA in his own management also falls under this law. This pension must also be equalised in the event of divorce. This means that the pension accrued during the marriage must be divided in due course.
After the divorce, it is advisable to inform the pension provider of the divorce within two years. This will give the ex-partner the right to direct payment from the pension fund at the time the pension starts.
In the case of a pension in own management, the BV is the pension provider. The DGA and the pension provider are therefore closely intertwined and the ex-partner must see whether the claims remain well guaranteed once the DGA retires. The fear of the ex-partner is often that there will be nothing left on the final retirement date and that the direct claim on the pension provider is of no use. That is why the ex-partner often demands payment to an external insurer.
In case law this obligation to external payment has been granted. The Supreme Court ruled in 2004 that it cannot reasonably be expected of the ex-partner that the pensions are left in the BV.[1] In 2007, the Supreme Court qualified this and determined that the requirements of reasonableness and fairness generally mean that the managing director must ensure that the amount is paid to an external insurer.[2] A lack of liquid assets in the BV is no excuse for not paying the pension. The DGA is expected to release liquid assets or obtain them elsewhere, unless this would jeopardise the continuity of the BV.
The next question is what amount should be deposited?
When determining the claims of the ex-partner, the fiscal value is not decisive, but the commercial value of the old-age pension. The reservation of pension in own management is based on a fiscal system in which a minimum calculation interest rate of 4% is used. The market interest rate is now significantly lower; as of 1 January 2017, the market interest rate is 0.3% negative and as of 1 January 2016 this was barely positive, 0.2%. In this context it is important that the Supreme Court's rulings were made before the financial and economic crisis in 2008. As a result of the financial and economic crisis that followed, the market interest rate has fallen drastically. As of 1 January 2008 it was still at 4% and as of 1 January 2009 at 3.9%. This market interest rate is of crucial importance in calculating the value of pension obligations in economic traffic. The low interest rate means that much higher amounts are needed to pay in the capital to cover the claims of the other spouse than the provision included in the BV's balance sheet. In the recent past this did lead to the claims of the person entitled to equalisation being paid in to an insurance company and the DGA being left with an empty shell (and also with an enormous tax claim).
On April 14, 2017, the Supreme Court put an end to this inequality.[3] In the case that led to this ruling, the woman was the managing director of a BV. This BV had made a pension promise to the woman and the promised pension was built up by the BV under its own management. The man still claimed pension equalisation at the court of appeal and demanded payment of his share to an external insurer. The court granted the request, which meant that the BV had to pay the man's share to an external insurer. The woman appealed in cassation.
The Supreme Court first considers that the legal starting point is that spouses can claim the accrued pension to the same extent, also in the event of payment. Payment must therefore take place in such a way that the pension entitlements of the parties are in principle also insured to the same extent (or at least as much as possible). If the BV makes a pension commitment, it must ensure that it can fulfil it in due course. The BV must therefore have sufficient capital. The starting point is the commercial value of the commitment, whereby the prevailing market interest rate must be used and therefore not the fiscal pension reserve.
If, at the time of divorce, there is insufficient capital available to both pay off the ex-partner's share and leave sufficient capital in the BV to cover the claim of the managing director himself, the deficit will in principle have to be shared (proportionally). Only in this way will sufficient justice be done to the principle that the parties' claims are insured (as much as possible) to the same extent.
This ruling has made it clear that the right to a payment in the event of divorce remains, but the pain of the lack of coverage must be shared. This was not clear until this ruling.
It is now no longer possible to continue building up a pension in own management. The Senate has adopted the “Phasing out pension in own management Act”. Directors-major shareholders with a pension in own management must agree to the termination of the build-up with the BV before 1 July 2017. The director-major shareholder has until 31 December 2019 to decide to: – keep the built-up pension in own management (i.e. freeze it); or – buy out the built-up pension (with temporary tax facilities); or – convert the built-up pension into an “old age obligation”.
Please note: the bill stipulates that the (ex-)partner must expressly agree to the DGA's choice for redemption or conversion into an old-age obligation!
The Supreme Court's ruling on the principle of transferring the ex-partner's claim to an external insurer and "sharing the pain" remains of great importance in divorce situations.
Make sure you are well informed if you or your (ex-)partner have built up a pension under your own management. The lawyers of De Boorder can provide you with results- and solution-oriented advice and assistance, if necessary also in proceedings.
[1] Supreme Court 12 March 2004, ECLI:NL:HR:2004:AO1289
[2] Supreme Court 9 February 2007, ECLI:NL:HR:2007:AZ2658
[3] Supreme Court 14 April 2017, ECLI:NL:HR:2017:693