Standard Pensions in the Netherlands

The Dutch AOW state pension that is paid to individuals over the age of 65 is funded via contributions paid by any individual under the age threshold of 65, this is referred to as the ‘pay as you go system’ in relation to pensions in the Netherlands, with the right to a pension secured during a persons working life.

Sharing the risks, dealing with efficiency and working with collective schemes are key attributes of the ‘second pillar scheme’ for pensions in the Netherlands.

Alongside this, it is possible to build a company pension with your employer for pensions the Netherlands. This can be requested for from an individuals pension fund.

The total amount of pension that a person can receive is judged on salary and the duration of pension accumulation. Furthermore, it is feasible to organize a supplementary pension as an individual within the Netherlands – this can be organized via a pension fund agency or agent.

Dependent on an individual’s personal situation they will receive benefit, once retired, from:

• The first pillar,
• First and second pillar,
• First and third pillar
• Or all three pillars.

Pensions in the Netherlands: The First Pillar

The first pillar in terms of pensions in the Netherlands is the state pension, referred to as AOW. This came into effect during 1957, providing a basic income; the amount received being linked to the national minimum wage. Married couples and couples who live together will each receive half of the minimum wage with pensioners living alone receiving more. Anyone who has worked or lived within the Netherlands (between the age of 15 and 65) is entitled to a Dutch state pension from the age of 65.

Two per cent of the state pensions in the Netherlands are gained for each year that someone between the qualifying ages (who lives and works in the Netherlands) is insured in the country for. However, even those who do not work within Dutch borders can accumulate the right to a state pension.

The first pillar works as a pay-as-you-go system. The Dutch workforce in the form of contributions pays the costs of the Dutch state pension with any additional funding for the state pensions in the Netherlands coming from the Dutch Governments public funds. Whether indirectly or directly, all workers in the Netherlands contribute to the costs of the pension pot.

Pensions in the Netherlands: The Second Pillar

This pillar for pensions in the Netherlands is built from the ‘collective pension schemes’. An insurance company or a pension fund administration institute manages these schemes. Under the laws set out by the Dutch Government in relation to pensions in the Netherlands, company and pension funds have to be strictly separated; this is due to the view that pension funds are financially and legally independent from company funds.

The second pillar is financed through capital funding. This is paid from contributions that members of the scheme have paid in the past and also from the ROI (return on investment) of these contributions.

It is worth noting that pension funds for pensions in the Netherlands are non-profit. The pension funds are independent legal entities and do not form any part of the company, this is to ensure the pension amounts are not affected should the company in question hit financial difficulty.

Pensions in the Netherlands: The Third Pillar

The final pillar is shaped by individual products for pensions in the Netherlands, mainly used by self-employed persons and employees in sectors not containing a collective scheme for contractors.

Anyone can purchase a product in the third pillar to meet individual requirements. Through this pillar, individuals can accumulate extra pension amounts; often taking benefit from various tax benefits.