The second source of the Dutch pension system benefit in the Netherlands are the occupational pension schemes. These pensions are legally bound by the new Pensions Law (PW) of 2007. This gives some limiting conditions which have to be fulfilled, for example requirements with regard to the funding of the scheme.
Occupational pension schemes are schemes where the employer makes a commitment, as part of the terms of employment, to provide pensions and other post-retirement benefits to employees in retirement. The occupational pension schemes can be sponsored by a single employer or through industry- wide or collective labour agreements.
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…..
[Read more…] about The Dutch Pension System. A clear overview (part one).Salary Savings Scheme versus Life-Course Savings Scheme
(in Dutch: spaarloon versus levensloop)
The Salary Savings Scheme
The Salary Savings Scheme (in Dutch: spaarloonregeling) will continue to exist alongside the Life-Course Savings Scheme. However, you are not allowed to participate in both schemes in the same year. If you have saved money under the Salary Savings Scheme in a particular year, you are only allowed to participate in the Life-Course Savings Scheme in the following year. It is possible, however, to withdraw money saved under both schemes in the same year. If you wish to stop participating in the Salary Savings Scheme, you must terminate your participation before 1 January of the year you no longer wish to participate.
It will depend on your personal needs and circumstances whether you will opt for the Salary Savings Scheme or the Life-Course Savings Scheme. Here are some of the differences between the schemes:
30% ruling, tax free salary
The 30% ruling is meant to attract employees with specific skills or expertise that are scarce on the Dutch labor market to the Netherlands by providing these employees with fiscal incentives.
The most significant incentive or benefit is that employees are allowed to receive free from Dutch taxation the higher of either 30% of their employment income or the so-called extra territorial expenses (such as cost of living allowance, housing, home leave, etc.). In addition, employees are allowed to receive a tax free reimbursement for the expenses of an international school for their children. In a nutshell and in general, this means that 30% of your salary can be paid tax-free. [Read more…] about 30% ruling, tax free salary
Defined Benefit and Contribution Pension Plans
Differences along with advantages and disadvantages of both
- A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.
- A defined benefit plan promises the participant a specific monthly benefit at retirement and may state this as an exact amount. Monthly benefits are calculated through a formula that considers a participants salary and service. Unlike defined contribution plans, the participant is not required to make investment decisions. A defined benefit plan is sometimes referred to as a fully funded pension plan.
Advantages of Defined Benefit Plans [Read more…] about Defined Benefit and Contribution Pension Plans
Pension System Netherlands – The Institutional Architecture
Pension system in the Netherlands is characterized by the coexistence of different schemes. While no major reforms had been introduced in the last decade on old-age pensions, the trajectory of pension programmed radically altered after the Second World War. In the Dutch case, the public pension regime was completely changed in the 1950s: from the traditional Bismarckian model it shifted towards the universal social-democratic ideal-type realized in Scandinavian countries.
Then, its evolution was characterized by the presence of public and private institutions covering the old-age risk, in line with the multi-pillar paradigm. Thus, the first (public and mandatory) pillar consists of basic pensions covering all residents from the age of 65. These are flat-rate benefits indexed to wages but with the possibility for the government to suspend it in cases of rapid growth of beneficiaries.
The first pillar in the Pension System Netherlands
The first pillar is financed by social contributions depending on taxable incomes (with premiums being part of the personal income tax). In 2000, the basic public pension represented around 50% of the retirement income, and 70% of the minimum wage for a single pensioner. In 1998, the government introduced the public pension savings fund (buffer fund) to face the expected future population ageing.
The fund is financed by public debt reduction. Total public pension spending was at 7.9% of GDP in 2000. It is expected to increase to a maximum level of 14.1% in 2040. A basic safety net is represented by the so-called social minimum: it is a means-tested programme for people in need. Local-level governments provide such social assistance.
The second (private and quasi-mandatory) pillar is then represented by supplementary funded pensions, taking the form of occupational funds at company and/or sectoral level. Admission rules for supplementary schemes are usually defined through collective agreements between employers and trade unions, even if the state defines by law their broad.
[Read more…] about Pension System Netherlands – The Institutional ArchitectureCollective contribution pension plan in the Netherlands
The Netherlands has been working on a collective defined contribution pension plan to ensure a healthy pension system. Up until now, workers in the Netherlands have typically been covered by industry-wide defined benefit plans. These plans are administered by boards which include representatives of employers, workers, and retirees. Together with the Dutch social security benefit, these traditional plans are designed to provide a total replacement rate of 70 percent of pre-retirement salary.
The key differences in this collective defined contribution pension plan
In these plans, both employers and employees contribute, but employers bear the investment risk. If investments perform poorly, employers must contribute more, while if investments perform well, employers can contribute less and may even get refunds. In the past years, Dutch employers have started adopting a new type of pension plan. This type of plan looks a lot like a traditional defined benefit pension plan, but differs in one key respect — it shifts both investment risk and longevity risk to plan employees and retirees. This plan is called a “Collective defined contribution pension plan”.
In a Collective defined contribution pension plan, employees earn benefits based on their salaries each year (a “career average” benefit formula). Workers do not have individual accounts as they would in a defined contribution plan in the United States. Instead, the money is pooled for investment purposes, and employees receive benefits solely in the form of a price-indexed lifetime payments beginning at retirement. These plans are structured to provide a similar level of replacement income as traditional defined benefit plans.
The employers and their employees
Employers and employees contribute a fixed percentage of wages to these plans. The percentage is designed to assure generally that the plans are well funded, with a target cushion of 30 percent over-funding. Employers have no additional liability if the investments of the plans perform poorly, and receive no benefit if the investments perform well. The risks of unexpected investment losses and longer than anticipated life expectancy is entirely borne by the employees and retirees as a group.
If a collective defined contribution pension plan suffers investment losses and becomes underfunded, the plan’s governing body, which has representatives of employers, employees, and retirees, decides what adjustments should be made. The adjustments can be an increase in contributions by employees (but not employers) or elimination of cost-of-living adjustments, and, in extreme cases, reductions in the benefits earned in future years. If the plan becomes overfunded, the workers, rather than the employer, benefit.
The advantages of the collective contribution pension plan
A collective defined contribution pension plan has advantages for employers and employees. An advantage for employers is that their contributions are fixed and predictable, while under traditional defined benefit plans their contributions may vary. Also, for accounting purposes employers treat the plans as defined contribution plans, and thus do not have to reflect unfunded liabilities, with their intrinsic volatility, on their financial statements.
Advantages for employees are that they receive adequate retirement incomes for themselves and their spouses and do not have the burden of managing individual accounts. Investment fees and other costs are significantly reduced because funds are invested on a collective basis. Governmental retirement policy goals are also satisfied because the funds are available solely as replacement income during retirement and cannot be used for other purposes during the worker’s working years or as an asset to pass on to heirs.
For more information about these pension plans and further personal information about what may suit you the best please contact us:
Phone:+31206200825
Email: info@doorneweerd.nl
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Complete list - Dutch Business Insurances30% ruling voor foreign employees and their pension
The 30% ruling is meant to attract foreign employees with specific skills or expertise that are scarce on the Dutch labor market to the Netherlands. This means that employees either need to be recruited while outside the Netherlands or assigned to the Netherlands. The Dutch employer should be able to demonstrate that there was no candidate on the Dutch labor marker for that position. [Read more…] about 30% ruling voor foreign employees and their pension
Too young to remember
The people who are starting college this year across the nation are too young to remember
the space shuttle blowing up.
Their lifetime has always included AIDS.
Bottle caps have always been screw off and plastic.
The CD was introduced before they were born.
They have always had an answering machine.
They have always had cable. [Read more…] about Too young to remember