Dutch pension system explained
The Dutch pension system is made up of three tiers.
- The first tier consists of government pension provision (AOW, ‘old age’ pension).
- The second tier consists of company pension provision, accrued via one or more employers. The aim of company pension schemes is to supplement the AOW amount to a level where the final pension equals 70% of the salary.
- The third tier is optional and consists of personal future provisions schemes.
Every resident and every employee in the Netherlands accumulates approximately 2% AOW entitlement each year they have lived or worked in the Netherlands. When you leave the Netherlands, these accumulated AOW rights are retained. However, AOW payments are only made to countries with which the Netherlands has a treaty.
The pension provisions that you pay into a Dutch pension fund are marked on your salary slip with abbreviations such as ABP, OP/NP, etc. These deductions (about 7,5% of your gross salary) will take place before taxation. Besides your own contribution the employer also contributes into the Dutch pension fund. The employer’s contribution is about 17% of your gross salary.
Transfer of foreign pension savings to the Dutch pension fund or vice versa before retirement
National pension systems generally do not facilitate for a smooth connection with your new pension fund when you move abroad, therefore it is often not easy or possible to transfer your foreign pension savings to a Dutch pension fund or vice versa. Each country, whether a member or not of the European Union, has its own set of rules. In the European Union, the Netherlands is one of the few (member) countries where specific rules for international value transfers (IVT) or transition are in use. However, all international transfer procedures of pension benefits accumulated in the Netherlands to a foreign country are subject to stringent and various (mandatory) legal and fiscal conditions. There are many reasons why an IVT cannot be effectuated. Foreign insurers are not always willing to cooperate or cannot qualify for the conditions. Also tax authorities do not always approve of an IVT because pension savings have been saved before taxes when transferred income tax has to be paid on it. In this case it is not advisable to continue the process of IVT.
Filing an International Value Transfer of my pension
The first step is to ask your foreign pension fund if they are willing to cooperate in an International Value Transfer. If you are insured at ABP (the pension insurer for all civil servants, schools and universities), you may start the process for International Value Transfer via a written letter, which can be sent to: ABP Service Verzekerden, Postbus 4806, 6401 JL Heerlen. If you are not insured at ABP please check with your own pension insurer for the procedure. When your insurance company receives your request for an IVT it will contact the foreign pension fund and request an overview of your pension accruals. With this information you can ask for an offer. The offer should consist of the eligibilities towards an old age pension and a surviving dependants’ pension. This provides you with the possibility to compare the pension accruals.
National pension schemes (first tier)
There are formal agreements between EU and EFTA countries for the mutual recognition of national pension schemes made in a different EU country. In the European regulation on the coordination of social security systems (883/2004) it is arranged that all periods of insurance and labour in any EU or EFTA state will be recognized.
All member states in which a person has been insured must pay an old age pension when the insured person reaches retirement age. The calculation of the amount of the benefits takes into consideration all the periods completed in another member state.
The regulation also contains rules concerning the way in which the competent institutions calculate benefits and rules to prevent overlapping.
What about my pension?
Working in different countries often results in a lower pension, as by changing pension fund or pension system generally this has a negative influence on your pension accumulation. It depends on the fund or system that you come from and go to what the specific impact is in your situation.
What happens with my pension if I do not get an International Value Transfer of pension savings?
This will be the situation in most cases. If you have saved pension with a Dutch pension insurer, at the legal retirement age (currently 67) they will start carrying out periodical pension payments to you. The only thing you need to do is keep the Dutch pension fund informed about your legal address. You can find your pension funds on this website: www.mijnpensioenoverzicht.nl (DigiD required). Depending on your country of residence it can be determined if and where you need to pay tax on the periodical pension payments. This is stated in tax treaties that the Netherlands has with most other countries. In most situations the tax liability lies in your home country. You can always consult a tax advisor to see what applies to your specific situation.