Employers beware: temporary exemption RVU!

If, like me, you've just lived in New Zealand for two years, you suddenly start thinking about retirement. How can I spend my old age well? And can I also retire earlier so I can enjoy the beautiful nature on the other side of the world a little longer?

I knew that an employer could not simply enter into an arrangement with its employee aimed at providing a bridging benefit until the retirement date. Such an arrangement was considered an RVU, an Early Retirement Regulation, since Jan. 1, 2005. If it was, the employer owed a final tax rate of 52%. That suddenly made such an arrangement much less attractive.

But then there was the June 2019 Pension Agreement. In it, it was agreed that employers could make arrangements with older employees to stop working earlier, without this arrangement being considered an RVU. According to the government, there was a greater need for flexible retirement spending options. In addition, there had to be a solution for heavy professions in which it is very difficult for older workers to reach the ever-rising state pension age in a healthy way.

The intended effective date of the RVU exemption was Jan. 1, 2021. However, the Senate did not pass the bill containing the RVU exemption until Jan. 12, 2021. As a result, there was no RVU threshold exemption on Jan. 1, 2021. The bill does have retroactive effect to Jan. 1, 2021. This means that payments in connection with an RVU made by the employer in the period from January 1, 2021 until the moment the Senate approved the bill (January 12, 2021) will initially be subject to final taxation. This final levy can be corrected through a correction notice, provided the conditions for the RVU threshold exemption are met. The RVU exemption is a temporary measure for a period of five years."

Who can take advantage of this exemption and how does it work?

The regulation applies to employees who reach their state pension age within three years. Employers can grant RVU-exempt benefits, contributions or premiums to their employees from 2021 through 2025 up to an amount specified by law. There is a maximum amount exempt from RVU of €1,767 per month. The arrangement is subject to mutual voluntariness. Both parties must agree to the early departure. Thus, an employee who would like to continue working cannot be forced to retire early. Both employer and employee contribute to the costs of an early departure.

An example for clarification. Blair reaches his state pension age on June 19, 2024. He receives a one-time RVU benefit from his employer on July 1, 2021. The period between receiving the benefit and his state pension age is 35 months and 16 days. This period may be rounded up to whole months so that 36 months are taken into account for the threshold exemption. The exemption amounts to (36 x €1,767) €63,612. Previously, an employer owed 52% (€ 33,078!) final tax on this amount. With this exemption, that is temporarily no longer an issue.

Employers would do well to make internal regulations on the application of this exemption. These can set out the basic principles and preconditions, so that it is clear to everyone who can make use of the scheme and when. If agreements are made within the company and possibly with the trade unions about the application of the exemption, this can help a reorganization with, for example, a voluntary departure scheme go smoothly or better implement the policy on sustainable employability.

As business owner , if you would like to learn more about the temporary RVU exemption or assistance in creating a customized arrangement, we would be happy to help!