Understanding the Dutch Pension System

If you have chosen to settle down in the Netherlands, at a certain point you will want to consider retirement. Although pensions may not be the most glamorous of topics, whether it seems like a lifetime away or just around the corner, it’s reassuring to know what you will be entitled to once you retire.

Pension plans are often confusing, and getting to grips with the pension system in the Netherlands may seem like a daunting task for a non-native. But, the sooner you understand the Dutch pension system, the better equipped you will be when it comes time to retirement age.

In this article, I will break down the Dutch pension system, detailing where your pension income comes from, what you will be entitled to and what happens if you move abroad, so that you can more responsibly prepare for your retirement.

Benefits of Retiring in the Netherlands

You will be happy to know that the Netherlands is one of the best places in the world to retire in. Dutch pension schemes are quite robust for a number of reasons including strict regulation to protect workers, a broad spectrum of pension funding sources and a large amount of capital available for investment. The amount of money currently being managed by pension providers for employees and retirees in the Netherlands is around €1,000 billion.

It’s never too late to start saving for your future.

If you have spent a large portion of your working life here, then you will be perfectly poised to take full advantage of the best pension system in the world. However, regardless of how long you have spent here, it is important to know how the pension system works so that you can best prepare.

Understanding Pensions in the Netherlands

In the Netherlands, pensions can be comprised of three distinct income sources or “pillars”. Together, these three pillars determine how much will be in your pension fund when you retire.

The three pillars are:

  1. The Dutch state pension (AOW pension)
  2. A supplementary pension scheme (between employer and employee)
  3. Individual savings and private insurance policies

First Pillar: The Dutch State Pension (AOW)

This first pillar forms the foundation of the Dutch pension system. The AOW pension (or basispensioen) is the state pension from the Netherlands. Regardless of nationality, everyone who has lived or worked in the Netherlands will automatically receive this pension upon hitting retirement age, which is currently 65 years old. By 2023, retirement age will likely be linked to life expectancy.

How much is the AOW pension?

The AOW pension amounts to a percentage of the statutory minimum wage at the time. The amount you will receive will depend on two factors:

  • Number of years: For every year that you live in the Netherlands, you will accrue AOW pension rights. Each year gains 2 percent towards the full state pension. A full pension is achieved after 50 years.
  • Living situation: Single retirees will receive 70 percent of the net minimum wage while couples will receive 50 percent each.

AOW Pension Rates

As of the beginning of this year, if a full pension is built up, the Dutch state pension rates are as follows:

  • Single people: €1,146.51 net per month
  • Couples: €787.45 net each per month

As with other forms of income in the Netherlands, holiday allowance is paid out in May.

Claiming the Dutch State Pension

Approximately four months before you are due to retire, the Sociale Verzekeringsbank (SVB) will send you a letter with information on claiming your state pension. To claim, you will need your DigID and IBAN number. If you also worked in other countries, you will need scans of documents detailing these periods.

Second Pillar: Supplementary Pension Scheme

The state pension should be supplemented by the second and third pillars to further boost your retirement fund. The second pillar consists of an occupational pension, either company or industry-wide, for employees. There is no legal obligation to offer a company pension scheme. However, around 95 percent of employees in the Netherlands have some type of supplementary pension with their job.

These types of pensions are usually managed by a non-profit pension fund that is legally and financially separate from the company itself. This keeps the pension fund protected should the company get into financial difficulties before your retirement.

Under the second pillar, there are generally five types of pension providers:

  • Compulsory industry-wide pension funds
  • Non-compulsory industry-wide pension funds
  • Company pension funds
  • Insurance companies
  • Premium Pension Institutions (PPI)

How a Dutch labour pension is calculated

Company pensions are calculated as a percentage of your gross salary (usually between 4 and 7 percent). First, the AOW state pension offset is deducted from your overall pensionable salary. From that, the pension accrual amount is determined.

The exact contributions will depend on the individual pension scheme, but the employer and employee both pay an amount towards this. Your payslip will detail the exact pension contributions paid by your company.

Third Pillar: Individual Savings and Private Insurance Policies

It’s not always possible to avail of a company or industry-wide pension plan. For those in industries without such schemes, or for the self-employed, the third pillar of pensions in the Netherlands is made up of private pension policies. However, anybody in the Netherlands can purchase such a scheme to additionally supplement their retirement fund.

Anw Survivor Benefit

Because the loss of a family member comes with financial difficulties, the Dutch government has also created the Anw survivor benefit scheme. In the event of your death, your combined pension accrual is not necessarily lost as your surviving children will receive a percentage of your pension, if under 21 years of age. If your partner has not yet reached AOW age themselves, they may also be entitled to a survivor’s benefit.

Leaving the Netherlands Before Retirement

Although you will stop accruing AOW pension rights upon leaving the Netherlands, the years spent living and working here will still contribute towards your pension payout upon retirement. If you take out a voluntary AOW insurance at least 12 months before leaving the Netherlands, you will receive the unreduced AOW pension rate upon your eventual retirement. It is up to you to keep track of your second and third pillar pension plans as you move around.

Once you move from the Netherlands, your partner will no longer qualify to receive the Anw survivor benefit in the event of your death. But, as with the AOW pension, a voluntary Anw insurance can be taken out to compensate.

If you retire in the Netherlands you will receive a state pension (first pillar), dependant on the number of years you have been here, along with any supplementary pension you may have in place (second and third pillars). It goes without saying that the more pension pillars you have in place now, the more stable your retirement will be in the future.

But, unlike many other countries around the world, the Netherlands is well prepared to handle its aging population. With a generally low cost of living for retirees, top-quality healthcare and a comprehensive pension system, the Netherlands is quite an attractive place to retire in.