The Dutch Pension System. A clear overview (part one).

We as insurance-brokers located in the center of Amsterdam receive on a regular basis questions from expats working in the Netherlands about the Dutch pension system. We thought it might be a good idea to give an overview in Three parts.

Part 1 The Dutch Pension System…..

In the Netherlands the pension system is a pillar system; it is divided in three different pillars. The first pillar is the State Pension Scheme (AOW). The second pillar are the Occupational Pension Schemes, these are supplementary schemes. And the third pillar exists of the Private Benefit Plans. The Netherlands is one of the countries which has a well developed occupational pension scheme in addition to the state pension scheme.

The Dutch State Pension System

During World War II the Commission Beveridge drafted a report about a new system of social security in Great Britain. This report inspired the Dutch Commission Van Rhijn to draft an own new system on social security. This report was the basis for the in 1957 established state pension scheme, the AOW. The AOW is an old-age pension.

Insurance for the AOW is linked to the fact of being a resident of the state. Only people who have been insured are entitled to the Dutch state pension system. A person qualifies as insured if he is a resident of the state or a non-resident who is subjected to the wage of tax in respect of work done in the Netherlands.

Insured are people who didn’t yet reach the age of 65 years. The right of payment exists after the person reached the age of 65 years.

The financing of this pension is based on the solidarity between generations. That means that the actual working population contributes to the AOW benefits for the 65 and over through tax on wages. It is a ‘pay-as-you-go’ system. Every inhabitant is obliged to pay premium for the AOW, which is paid together with the income tax. The premium is not calculated for the full income, but only for the first two taxation brackets (€30.631,- in 2006).

https://open.spotify.com/episode/3IMpmAMfyJlDCszYFt3rHP?si=_6j5-JfwQY-DlTEm5sKbLQ&dl_branch=1

Defined benefit scheme

The Dutch system may be considered as a ‘defined benefit scheme’ as opposed to a ‘defined contribution scheme’.

A defined benefit scheme is in other words a scheme under which the benefits to the members of the scheme are defined by reference to a fixed formula, related to the members’ circumstances. The defined contribution scheme in the opposite, pays the benefits according to the level of contributions paid and on what is earned by the investment of this contributions.

AOW flat-rate

The payment of the AOW is flat-rate, that means that the income and capital position of the insured doesn’t matter. Nevertheless, the amount of pension depends on the period of insurance. The full amount of pension is only paid to those who have been insured from the age of 15 up to 65. For each year in which a person has not been insured, the state pension is deducted by 2 percent. For example when someone lives abroad for a certain period, the state pension will be deducted for the duration of that period. Because of this system some people have a lack in their pension payment when they have reached the age of 65 years. To prevent that, it is possible to get an extra voluntary insurance (art. 35 AOW), for the years in which you are not legally insured under the Dutch pension system.

Besides this, the payment is also just a minimum payment. The amount of payment is since the end of the 1960’s connected with the growth of the collective labour agreements’ wages. Now and then, they gave up this connection and that’s why the AOW payment is now about 20 percent behind the wage movements.

The amount of payment depends on the domestic situation of the insured and, like already mentioned before, on the number of years you have been insured under the Dutch pension system.

The different rates in the Dutch Pension System

There are different rates for different domestic situations; for single people, single parents and married people. The AOW makes no distinction between married couples, people in a registered partnership and unmarried couples sharing a household (art. 3 AOW). From jurisprudence we can draw the conclusion that someone is considered to be sharing a household if he shares accommodation with one other adult person and when they both contribute towards the household costs or care for each other in some other way.

Only if someone shares a household exclusively with his child, father or mother he is considered to be single. And that can be very important, because the rates of payment for singles are higher than the rates for married people. For single persons this is 70 percent, for single parents it is 90 percent and for married persons only 50 percent of the minimum wage. When someone receives a married persons’ payment and the partner has not yet reached the age of 65 years, he will be entitled to have a supplementary allowance on top of the AOW. This is based on the Social Security Supplements Act (TW). The amount of this allowance will depend, for example on the partners income.

For a lot of people, the rates of the minimum wages won’t be enough to pass the rest of their lives. Especially when they are used to a higher income out of work during the years before their 65th birthday. That’s the reason why a lot of people in the Netherlands also have an occupational pension. source

Go to part two.

Video of the Dutch pension system

---

Information en calculations

English contact form General (Third party) Liability application form Directors and Officers Indemnity Premium Hiscox CyberClear Insurance - premium IT Information Technology Liability - Premium Management Consultancy Liability = premium Pension defined contribution - calculation Audio - Dutch Business risks and insurances Complete list - Dutch Business Insurances