Netherlands Guide | ExpatWise 2023

Netherlands Retirement Planning & Pensions Guide

(Please note that the PDF guide will be sent to you via email shortly).

Many expats are attracted to retiring in the Netherlands for the high standard of living, good Dutch healthcare and quality of life. However, the key to a comfortable retirement is planning, and with retirement abroad, it’s even more important you are well-prepared.

As in many other European countries, the Dutch pension system consists of three pillars:

Pillar 1 - the state pension (AOW)

Pillar 2 - the Collective Pensions (Workplace)

Pillar 3 - the private individual pension products that each person can arrange for him/herself.

Together these three pillars determine the amount of pension that a person will receive when he/she retires at the end of his/her working life.

The Netherlands as all the European countries face an aging population which will have a major impact on the design of the pension schemes. Countries with a pure pay-as-you-go system foresee problems with this system because a diminishing working population has to support an ever increasing population of retired people.

This calls for far-reaching reforms. However, even countries such as the Netherlands with a second pillar that is funded foresee difficulties.

An aging society and increasing costs of pension systems may result in the reduction of pension benefits.

Pillar 1 – The State Pension

The state or AOW pension (basispensioen) is paid from the age of 67 in 2025 and provides basic benefit payments of up to 70 percent of the minimum net wage. The From 2026 onwards the Netherlands retirement age will only be increased if life expectancy continues to rise.

Everyone who has lived or worked in the Netherlands between the age of 15 and 67 has a state pension and a right to earn a state pension benefit from the age of 67 (irrespective of nationality).

Entitlement to AOW pension is accumulated at a rate of 2% for each year of insurance leads to a 100% entitlement to the relevant pension benefit upon reaching the age, provided there are no gaps in the period of insurance.

Maximum Monthly State Pension Payments

To have a general idea of how much a person can expect to receive each month from the state pension it’s possible to look at the standard example of people who have lived in the Netherlands from age 15 to 67 and who receive a full pension:

Couples living together

€1,047.60 each gross per month (50 percent of the current minimum wage).

People living alone

€1,541.53 gross per month (70 percent of the current minimum wage).

State pension must be combined with other pillars

It is important to note that the Dutch state pension only provides limited financial benefits for retirees and must be supplemented with benefits from Pillar 2 and Pillar 3.

The state or AOW pension is provided by the Sociale Verzekeringsbank (SVB) which manages and implements the Dutch national insurance scheme.

Pillar 2 - Workplace Pension

Approximately 90 percent of employers offer occupational pension schemes, which are typically handled by an external pension provider.

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. Besides old-age pensions, private pension plans may also provide benefits for surviving relatives or benefits if you can’t work.

Company pensions take into account an AOW pension, therefore you won’t make contributions on your whole salary, but rather the AOW deductible part of it – the rates paid will depend on the pension scheme you’re signed up to.

The most common occupational pension schemes are 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 (defined benefit) schemes, although other types are growing in popularity.

Industry-wide pension funds manage the pension plans 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 typically also cover pension plans for self-employed workers in the same profession, such as medical consultants or notaries.

How much do I have with my pension fund?

To find out what pension rights you have accumulated in your collective scheme you can contact your pension fund or check the annual statement they send you. You can check your company’s contribution payments on your salary slip.

Pillar 3 - Private Pension

The third pillar is formed by individual pension products. It is recommended that individuals supplement their Dutch pension via voluntary contributions to a private pension fund, which are typically offered by banks, financial advisers and insurance companies.

International Pensions are also available which allow you to continue contributions should you move country and benefits can be paid out anywhere in the world.

Advantages of an international Pension

No Minimum age to receive the funds
Make contributions from anywhere in the world
Access to a broad range of investment funds
Contributions are flexible: you can increase, decrease, stop and restart contributions to suit your personal circumstances
Not subject to income tax at maturity
You can choose to have the entire sum of your savings paid out at once
The plan can best structured to take advantage of the favorable tax treatment offered to investors in certain countries

Retiring Early

Many of us still aspire to retire early, but in practical terms this can be difficult to achieve. If you retire in your mid-50s and live to your mid- 80s, you’re likely to be retired for as long as you have worked.

The statutory retirement age is currently 67. In the Netherlands, fiscal support for pension contributions paid to enable early retirement was terminated several years ago.

It is still possible for people to take early retirement, but you must finance this yourself. This can be achieved by maximizing contributions to a Private Pension (Pillar 3).

Some companies will offer enhanced terms to those taking early retirement, which can make it easier. “Early retirement” doesn’t necessarily mean stopping work completely. Many people will leave one career early to pursue another - even if this is only on a part-time basis.

Working Beyond Retirement

It is also possible to work longer and retire after the age of 67. In recent year the statutory obstacles to working beyond retirement age have been removed.

Postponing retirement has the reverse effect of early retirement. It is financially attractive. By working longer, more pension rights are built up, the pension benefits commences at a later stage and this means that the pension can be higher. In general the amount of pension payable will increase by about 9% for every year a person works after the retirement date.

Postponing the retirement date can therefore quickly lead to a considerable increase in pension benefits and is an attractive means of solving the problem of any pension shortfall.

Often a pension scheme will offer the option of part time retirement. In this case a person receives salary for the days worked and pension benefits for the rest of the week. So it is still possible to build up pension rights for the part of the week still worked.

Taxation

In the Netherlands, the pension accumulation period is stimulated through taxation measures. No tax is levied on pension contributions. And the growth of pension rights via the pension fund’s investment performance remains untaxed. Pension benefit is only taxed when it is received, known as the reversal rule. This delay in paying tax is even more attractive because the tax rates payable over the future pension benefit will likely be lower than the tax rates applicable to current income.

These tax advantages are a major reason as to why more than 90% of employees in the Netherlands are having a company pension. The Dutch pension system also helps to increase awareness that it is wise to start preparing financially for retirement during your active working life.

How Much Should You Be Saving Each Month In Your Private Pension?

Your goal should be to replace at least 70% of your annual pre-retirement income. You can replace it using a combination of savings, investments, pensions and rental income. Your expenses are likely to change in retirement. Many recurring expenditures will go down. You may have paid off your mortgage and other loans. Things like health care (depending where you reside) and travel, are likely to increase.

Before you start saving for retirement, make sure you have an emergency fund that covers three to six months’ worth of living expenses.

Saving 10-15% of your pre-tax income is a good amount to start with.

A financial adviser can help you maximize the returns on your savings and help you prioritize your retirement goals.

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The solutions available to protect and grow your wealth in the Netherlands will depend on where and how your assets are currently structured and your financial goals and objectives. Receive a Free Consultation with a fully qualified and regulated adviser today.

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