Pensions in the Netherlands
Pensions in the Netherlands consist of a three pillar system. The three pillars are:
- the state pension system as per the Algemene Ouderdomswet (AOW) law,
- private pension system regulated by pension law,
- individual private pension.
Pillar one: State pensions
The state pension system (AOW) is administered as a pay-as-you-go system, with government funds and payroll taxes providing the funding for it. Everyone who lived and/or worked in the Netherlands between the ages of 15 and 65 is entitled to an AOW pension. Everyone living in the Netherlands, with some exceptions, is insured, and with every year people are insured, they build up rights to 2% of the full AOW pension. The full AOW pension is tied to the minimum wage, with married or cohabiting couples each receiving 50% of the minimum wage, while those who live alone are entitled to a pension worth more than 70% of the minimum wage. The moment when a person receives AOW has changed since 2016. In this year the Dutch government announced that they will connect the data of receiving AOW to the national life expectancy. When a person reaches the age of 67 in or before 2021. That the age AOW payments will start. From 2020 the AOW age will be directly connected to the life expectancy. This means that the government is able to change the age of when a citizen receives AOW per year. [1][2][3]
Pillar two: Private employee pensions
There is also a wide range of private pension funds regulated by the pension law which are intended as pension provisions for employed persons.
There are three different types of pension funds:
- industry-wide pension funds, which cater to an entire sector of the economy such as the construction or retail industry, and which can be mandated by the government,
- corporate pension funds, which are for employees of a single company or corporation,
- pension funds for independent professionals.[1]
Private pension funds in the Netherlands are non-profit organizations and operate as foundations, and are considered independent legal entities not forming a part of any company under Dutch law. Therefore, if a company gets into financial difficulties, its pension fund will not be affected. More than 90% of Dutch employees belong to a private pension fund.[1]
Pillar three: Individual private pensions
The third pillar is formed by individual pension products. These are mainly used by the self-employed and employees in sectors without a collective pension scheme. Anyone can purchase a product in the third pillar to meet his/her requirements. In this way, people can save extra pension, often taking advantage of tax benefits. If a person chooses to save money or themselves this is also considered to be part of the third pillar. When someone has a debt-free home or stocks that they sell at moment of pension, this value can be seen as additional wealth that can be used for a better and more comfortable living standard.