The Dutch pension system
The Dutch pension system is made up of three tightly connected pillars, and changes to any pillar will affect your pension in the Netherlands.
The Dutch pension system is made up of three tightly connected pillars. Interferences with one pillar almost always have consequences for the other two.
Further characteristics of the Dutch pension system are the mandatory participation, financing through capital funding and the triangular relation between employer, employee and pensions provider.
Anyone who lives or works in the Netherlands is insured for the state pension AOW. This is a basic provision, which entitles a single pensioner to a monthly gross payment of around EUR 1,000 and a married person to around EUR 700 (excluding holiday allowance). The AOW is built up over 50 years. An individual aged between 15 and 65, who is entitled to a Dutch pension, loses 2 percent of the pension for every year out of this fifty that they haven't lived in the Netherlands. From 1 April 2012, state pensions will commence on the actual day that a person reaches the age of 65 – rather than the first day of the month when they are due to retire.
Almost every employee can claim a pension through the second pillar, which is built up via the employer. This labour-based pension is additional to the AOW, and so adds to it. Besides an old-age pension, most pension plans provide benefits for surviving relatives. Sometimes, it includes a right to benefits for inability to work.
The most common pension scheme is an old-age pension, based on the average salary a worker has built up during their entire career. These average-salary schemes have almost totally replaced the final salary schemes, based on employees' last salary. Most common are DB schemes.
The Dutch state encourages saving for a pension, by not taxing the right to a pension, the so-called pension claim. However, the final benefit is liable to tax. This is called the ‘reverse rule'. The fiscal legislation requires that the right to AOW is taken into account for determining the pension amount.
An employee's pension must be placed outside the company of the employer, either with an industry-wide pension fund, a company scheme or occupational scheme, or a life insurer. This way, the worker's rights are protected should the employer go bankrupt.
The industry-wide pension fund carries out the pension plan for all workers in an industrial sector, for example the building industry or the care sector. A company pension fund is tied to one employer or a conglomerate of companies.
Occupational pension funds for professionals carry out the pension plans of the self-employed in the same profession, such as medical consultants or notaries. This paper only addresses industry-wide schemes.
Workers can individually compensate a pension shortfall within the third pillar through an annuity. The contributions to a life insurer or a bank, can -- within limits -- be deducted from tax. However, the future annuity benefit will be taxed.
Pension in the Netherlands
The age for old age pension in the Netherlands is 65, but will increase to 66 in 2018 and to 67 in 2021. In 2022, the age will increase again to 67 and three months.
Supplementary pension schemes are available and may even be required for some occupations — the ABP pension fund, for example, is required for those that work in the educational or government sectors.
Approximately 90 percent of employers offer an occupational pension scheme, which is handled by an outside pension provider. Individuals may choose to supplement the Dutch mandatory pension scheme with their own private pension provisions, which can be undertaken by a bank or insurance company. Self-employed individuals are automatically covered by the AOW state pension, but supplemental pension plans are available through individual insurance policies.
How much of the state pension fund you receive depends upon a number of factors, including how long you have lived and been insured in the Netherlands as well as your living arrangements. Every year that you live in the Netherlands, you build 2 percent of your state pension. If you’ve built 100 percent of your AOW pension fund and live alone, for example, you would receive a net total of EUR 1,081.77 without tax credit as of July 2016. Pension recipients also receive a holiday allowance of EUR 72.48 gross per month, which is paid out in May. The SVB outlines further pension rates at its website.
The death of your partner — married or cohabitating — may entitle you to Anw survivor benefits from the Dutch government, provided your partner lived or worked in the Netherlands, you are not yet of the AOW state pension age, and you either have a child younger than 18 or you are at least 45 percent disabled. Those who had no other income receive full survivor benefits; other income may be partially or totally deducted from the benefits.
There are some exceptions to eligibility, such as an existing terminal illness. You may check if you are eligible for Dutch survivor benefits at the SVB website. These benefits may also be available to children, ages 21 and younger, of deceased parents.
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