Pensions in the Netherlands

There are not many people who will be able to explain in detail how pensions work. Among many adults it is an abstract concept that is to be tackled a few decades down the road. I have to admit, I am not an exception. Once in a while, the topic resurfaces. Usually it is a letter from my employer informing me about the current affairs. I often start reading it only to lose interest after finishing the third paragraph. With the nearing elections, pensions and the age of retirement (AOW leeftijd), which is 67 years and three months at the moment, these are all hot topics again.

But how does a pension work? And is it something worth putting time and energy into at this moment?

Three Pillars

Drop the word AOW and most people will associate it with pension. But there are more pensions that may apply to you or that you wish to have. The Dutch pension scheme consists of three pillars. Not all of them necessarily apply to everyone automatically.

State Pension

Everyone living or working in the Netherlands is entitled to a state pension. This is called the AOW (algemeen ouderdomswet). Currently, when you reach the age of 67 and 3 months the AOW will pay. The amount that will be paid depends on several factors: the number of years you have been insured under the AOW scheme and whether you live alone or with someone else. When you stop working before reaching the AOW age, the income per month will be less. (For more details please check the SVB site.)

Supplementary (Occupational) Pension

But often employers have a supplementary scheme for their employees. This means that both the employer and the employee pay a monthly contribution into a pension fund. Usually, the employer pays 2/3 and the employee 1/3 of the contribution. Although most employers offer this to their employees, they are not legally required to do so. Still, about 90% of the employers in Holland have a supplementary scheme. On the website Mijnpensioenoverzicht.nl you can check whether your employer has such a scheme.

Mijn pensioenoverzicht does not only show your pension and supplementary scheme, it also calculates what your estimated pension will be compared to your present income. The conclusion could be that you will have a shortage, especially when your employer does not have a scheme. In this case, it could be wise to think of individual supplementary pensions.

Individual Supplementary Insurance

There are several ways to save money to have a comfortable retirement. You could opt for life annuity, life insurance, or simply start saving extra money. These additional insurances are optional. When you are uncertain whether a supplementary insurance is necessary or interesting for your situation, it is best to seek out help from an advisor.

3 Reasons

There are three main reasons why keeping on top of your pension is important. The first one is the best known, and that is to have an income after retiring. A less joyful reason is to provide for your beloved one time, with an income after your death. The third one is to provide yourself with an income due to health issues, when you can no longer earn the same income as before falling ill.

Can It Wait?

Of course, postponing it to a later date when retirement is nearing is an option. There is, however, a danger to it. If it turns out that the occupational supplementary and the state pension do not suffice, it might result in having to keep on working some extra years in order to save enough money. In the worst case, saving money will not be enough. This could mean that the lifestyle you would prefer after retirement is not possible and it could also result in an even more sober lifestyle compared to your current situation.

Making plans for a situation that might be more than 30 years into the future is a challenge, but the present is the best moment to make adjustments to have a decent income by the time retirement becomes a reality. Having your situation planned out and organized could also mean that retiring earlier becomes a realistic option, considering how the AOW age is being pushed back every couple of years it might be worth looking into it.

Cecile Koster

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