Calculate Business Pension for Entrepreneurs

19 augustus 2024

In this article we will tell you more about the Dutch pension law and below you will find the way to calculate business pension for your company. Want to know how pension costs are being calculated?

The Dutch pension scheme is seen as one of the best in the world. This is not without reason. There is not much poverty amongst the older generation in the Netherlands. The drop in income is very minimal and is mostly due to our approach to our state pension (AOW). However, we still expect employers to make a calculate business pension plan for their employees to add-on to their AOW. Good working conditions are a very important aspect of your company and necessary to gain new and qualified employees.

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First we have to determine what kind of pension scheme is necessary for your company. There are two types of pension schemes available. We’ll discuss what these schemes mean and which one would be suitable for your company.

Defined Benefit Scheme (DB)
Defined Contribution Scheme (DC)

Defined Benefit Scheme (DB Scheme)

A defined benefit scheme is a type of business pension plan that calculate on factors such as your salary history, how long you worked at the company and a set formula. There are few important elementens that are good to keep in mind with this scheme.

The formula is looking at the final salary or the avarage salary from a certain period and the amount of years that the employee has worked at the company. This amount is then added to the state pension (AOW) that the employee receives. The key feature of this plan is that the employer guarantees the pension amount, so the employee faces less uncertainty about their pension income.

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Defined Contribution Scheme (DC Scheme)

The Defined Contribution Scheme is a lesser common way to calculate a business pension scheme. But is however growing in popularity, especially in small & medium sized companies. In the Netherlands, employers do not have to provide a pension plan for employees. Unless the company is in a sector with a mandatory pension fund or it is required by the Collective Labor Agreement (CAO). More on that in the headings below.

For Dutch entrepreneurs, there is no obligation to calculate and implement a business pension, but it is smart and advised to start doing this. The state pension (AOW) is not enough for a comfortable retirement, so it is important to add more savings. Entrepreneurs can do this through pension plans, insurance, annuities, real estate investments, or their own business.

If a company decides to offer a pension plan or if an entrepreneur sets up their own pension, there are generally two main types of pension plans. Each type works differently and has its own pros and cons, which will be explained in this article.

Independence as your pension consultant

Full independence is hard to find in the Dutch pension advice world. There are only a few pension advisers who can provide pension advice completely independently of pension insurers. What We have no turnover obligations and we are not part of a pension insurer. Nor are we paid by them. We can provide the calculation of Dutch business pension with only one interest in mind. It is that of the company who will pay our bill: the employer. The only limits that we take into account are the requirements of you as an employer and the requirements of the pension law and the Dutch regulator.

The three pillars to calculate business pension

Calculate the three pillars of a business pension scheme. — More on pension for entreperneurs.

The first pillar is regarded as the General Old-Age pension, otherwise called AOW. The AOW has been implemented in the Dutch law since 1957. Everyone is able to use this state pension if you have lived in the Netherlands for most of your life. These funds are gathered by the tax authorities and administred by the Ministry of Social Affairs and Employment. The amount that is given per month and is adjusted every 6 months to keep in check with developments or changes in the minimum wage. Per the 1st of June 2024 a person living alone receives € 1569,75,- (gross amount) and with a partner receives 1067,47 (gross amount).

The second pillar consists of the gained pension that is mostly aquired by working for a company. This is where you as an employer will set up a pension scheme for your employees. How you’re setting up the pension scheme depends on if you have a CEO for your sector. In the paragraph below we go a little bit more in depth on how to know if your sector already has a (mandatory) pension plan.

Want to know more about pension schemes in the Netherlands? Click here.

What is the CAO and does it matter to calculate business pension?

Yes it does, because in the Netherlands, a CAO, or Collective Labor Agreement, sets out employment terms for some specific sectors. This also includes the pension arrangements. This is not a choice, but mandatory if your company falls under one of these sectors. Want to know if your company falls under a specific CAO? You can check it here. It shows you the details of the pension scheme, such as whether it’s a defined benefit or defined contribution plan. It also specifies contribution rates for both employers and employees. The CAO may also define the pension benefits, including how they are calculated, and determine which business pension fund or insurer to use to calculate.

The CAO standardizes pension terms across the sector or company, ensuring consistency and often better benefits compared to companies that do not fall under a union. It is legally binding, meaning that both employers and employees are bound to the upon agreed terms that the CAO has set. The agreement is updated periodically to reflect changes in regulations, financial conditions, or employee needs.

The third pillar is personal savings for your pension, such as annuity. In the third pillar you can build your pension in private, with insurances or bank products. The third pillar can be used by everyone but is mainly used for people that are not building up pension via the second pillar. Think of employees that are not in a pension scheme by their employer or people that are self-employed. Want to know more about annuity, you can find more information here.