All about Dutch Pensions & Retirement

The Netherlands is frequently recognized as having one of the world’s top-ranking pension systems, according to the Melbourne Mercer Global Pension Index. This high ranking is due to the diversity of the Dutch pension system’s funding sources, its accuracy in measuring costs and contributions to ensure fair distribution, and its strong regulation by the Dutch Central Bank and the Dutch Authority for the Financial Markets.

Compared to many other countries, the Netherlands is well-prepared to address the challenges of an ageing population. This is achieved through various models of pension funding, combined with policies of solidarity and risk-sharing.

The Dutch Pension System

The Dutch pension system combines a pay-as-you-go system, where the working population funds the benefits of pensioners, with an individual investment system. In the individual investment system, collectives and individuals make high- and low-risk investments to supplement their state pension. These models are defined as the three pillars of the Dutch pension system.

The Three Pillars of the Dutch Pension System

The Dutch pension system consists of three pillars that together determine the amount of pension a person will receive upon retirement:

1. Pillar 1: The State or AOW Pension
   • The state or AOW pension (basispensioen) is paid from the age of 66 and provides basic benefit payments of up to 70% of the minimum net wage. Under the General Old Age Act (Algemene Ouderdomswet, AOW), which came into effect in 1957, all people who have lived or worked in the Netherlands between the ages of 15 and 65 are entitled to receive the state pension.
   • How Much State Pension Will I Receive?
     • The amount of state pension you receive depends on the pension rights you have built up during your working life in the Netherlands. Each year that a person pays (health) insurance in the Netherlands, they accrue 2% of the state pension benefit. People who do not work also accrue state pension rights.
   • Maximum Monthly State Pension Payments
     • To get an idea of the monthly state pension, consider the standard example of people who have lived in the Netherlands from age 15 to 65 and receive a full pension:
       • Couples living together: Around €700 each gross per month (50% of the current minimum wage).
       • People living alone: Around €1,000 gross per month (70% of the current minimum wage).
   • State Pension Must Be Combined with Other Pillars
     • The Dutch state pension provides limited financial benefits for retirees and must be supplemented with benefits from Pillar 2, Pillar 3, or both.
   • The state or AOW pension is provided by the Sociale Verzekeringsbank (SVB), which manages and implements the Dutch national insurance scheme.
2. Pillar 2: Pension Funds
   • The second source of Dutch pension benefits comes from pension schemes connected to specific industries or companies. These schemes are managed by pension funds (pensioenfonds) or insurance companies.
   • Companies pay monthly contributions into the pension funds on behalf of their employees. The capital is invested, and the return on investment pays for the benefits of current and future retirees. Employees can choose the type of scheme they prefer within their pension fund. It is important to update your employer details with your pension fund whenever you find a new job.
   • Pension Funds Are Non-Profit
     • Although pension funds may be connected to a particular company or industry, they are required by law to remain legally and financially independent and must operate as non-profit organizations. This ensures that pension funds are protected if a related company faces financial problems.

Different Types of Pension Funds in the Netherlands

There are three main types of collective pension funds in the Netherlands:

1. Industry Pension Funds
   • These cover employees working across an entire sector, such as hospitality, retail, construction, or the civil service.
2. Corporate Pension Funds
   • These are specific to a single company.
3. Independent Professional Pension Funds
   • These are for professionals like medical specialists and dentists.

Pension Funds Are Mostly Mandatory

The Dutch government mandates pension funds in most industries to ensure solidarity, stability, and a robust pension scheme for all employees. Most pension money in the Netherlands is managed by these funds, and over 90% of employees have a pension scheme through their employer.

Checking Your Pension Fund Balance

To find out how much you have accumulated in your pension scheme, contact your pension fund or check the annual statement they send you. You can also see your company’s contribution payments on your salary slip.

Moving Abroad and Your Dutch Pension Fund

If you move abroad, you can usually transfer your pension scheme (before retirement) or receive pension benefits (after retirement). However, check with your Dutch pension fund about the financial implications. Expats often lose track of their accumulated pension rights when they move countries, so it’s important to keep your Dutch pension fund administration up to date.

Pillar 3: Individual Pension Products

The third part of the Dutch pension system consists of individual pension products or supplements. These are mainly used by self-employed individuals and employees in industries without collective pension funds. Individuals can independently buy and manage pension products or investments, such as life insurance, shares, or property, and benefit from related tax breaks.

The Future Pensions Act

After years of debate, the Dutch government approved a new pension system known as the Future Pensions Act (Wet toekomst pensioenen). The transition to this new system began on July 1, 2023, but full implementation may take some time. Unions, employers, and pension providers have until January 1, 2027, to adapt their pension schemes to the new rules.

The Dutch pension system is changing to better reflect contemporary careers, as the labor market has evolved significantly over the past few decades. Employees are working longer and are more likely to switch jobs. The new system aims to be more future-proof and adaptable to these changes.

Impact on Your Pillar 2 Pension

The changes implemented will affect your Pillar 2 pension in several ways, ensuring it aligns better with modern career paths and provides more stability and security for future retirees.

Enhanced Transparency

The new pension system will provide clearer insights into your pension investments and the returns generated from those investments.

Individual Pension Funds

Instead of a single, centralized pension fund shared among all customers at each provider, the new system will offer individual pension funds for each customer. This personalized approach allows you to access detailed information about your specific pension accrual.

Age-Based Contribution Rules

Previously, all employees paid the same premiums regardless of age, which was seen as unfair. Younger employees’ premiums could be invested for a longer period, giving them more opportunities to absorb market fluctuations. The new system adjusts investment strategies based on the employee’s age, ensuring younger employees are not subsidizing the pensions of older employees. This change also reduces investment risks for older employees.

Compensation Scheme

To address potential disadvantages for employees in their mid-career (aged 40+), the Dutch government has introduced a compensation scheme to mitigate the impact of the transition to the new system.

Retirement Age in the Netherlands

The Dutch government is gradually increasing the retirement age, which is the age at which you can start receiving your pension:

• 2024: 67 years
• 2023: 66 years and 10 months
• 2022: 66 years and 7 months
• 2021: 66 years and 4 months
• 2020: 66 years and 4 months
• 2018: 66 years
• 2017: 65 years and 9 months
• 2015: 65 years

You can check your specific retirement age by entering your birth date on the SVB’s retirement calculator page.

Early Retirement in the Netherlands

Early retirement is possible, but you must finance the period until you reach the official retirement age yourself. You can also opt to receive your pension earlier, but the benefits will be lower as they need to last longer. Conversely, delaying retirement can significantly increase your pension benefits.

Living Abroad and the Dutch State Pension

You can receive the state/AOW pension if you move out of the Netherlands, but the amount depends on how long you lived in the country and when you left.

State Pension if You Move Abroad Before Retirement

If you move abroad before retiring, you will receive a reduced state pension because you will not be continuously insured for the AOW pension and will stop accruing pension rights. Additionally, you will not be covered by the Anw survivor benefit scheme for your partner if you pass away. To avoid a pension shortfall, you can opt for voluntary AOW insurance within 12 months of moving abroad.

State/AOW Pension if You Move Abroad After Retirement

If you move abroad after retiring, you can still receive the Dutch state pension (Pillar 1), depending on the country you move to. Check the SVB page on living outside the Netherlands to see if your destination affects your state pension. In some cases, you may be eligible for remigration benefits from the SVB, depending on your country of origin and family situation.