Pension benefits in the Netherlands for private entrepreneurs

You can immediately reassure our clients - being in the status of a private entrepreneur registered in the Netherlands, having a Dutch BSN and living in the Netherlands for a certain time, you have the right to a pension in the Netherlands, but what its amount may be - we will talk about this below.

General characteristics of the Dutch pension system

The Netherlands is considered one of the best places in the world for retirees with a reliable and sustainable pension system that provides a good income for the country's elderly population. According to sociological research, in 2018, about 30% of residents of the Netherlands were over 65 years old (retirement age in 2015), and the average life expectancy in the Netherlands is 82 years.

According to the data of the Global Pension Index from Natixis in 2020, the Netherlands ranked fifth among the best places for retirement in terms of health, finance, quality of life and material well-being, rising from 10th place in just a year.

In addition, the Dutch pension system topped the table in the ranking Mercer for 2020 year  by a set of indicators of adequacy, sustainability and integrity.

At the moment, the Dutch pension system has three components:

• state pension;
• pension received from work under an employment contract;
• private / individual pension.

Next, we will briefly consider each of them.

The first component of the Dutch pension system

Every person who has officially resided and / or worked in the Netherlands between the ages of 17 and 67 is entitled to a pension from the state pension system - this is the so-called basic (full) pension-AOW, calculated in accordance with the Algemene ouderdomswet (AOW) - General Old Age Pension Law (1956). Here it is necessary to clarify that in 2020 this period is 66 years and 4 months, and until 2024 there is a gradual increase in the retirement age, and therefore, for persons born after January 1, 1958, the retirement age will be 67 years.

In other words, in the Netherlands, the start date for receiving your pension depends on when you were born. To determine your exact official (currently) individual retirement age, you can use the following calculator.

In the Netherlands, early retirement is allowed, but generally you will have to fund this period yourself as your full state pension will not be issued until you reach the official retirement age.

In addition, it is not prohibited to work beyond the standard retirement age in order to receive a higher pension amount. This additional income from work does not affect your AOW benefits, but it does apply to you. other conditions of employmentthan before retirement.

Under the AOW Act, administers state pensions Social Insurance Bank (SVB) - in a direct translation "Social Insurance Bank", but this organization is not a monetary institution (ie our usual "bank").

According to the AOW Act, any person officially residing in the Netherlands is usually already insured and for each year of residence he is entitled to 2% of the full AOW pension. Based on this, the full pension-AOW is calculated on the basis that, being born in the Netherlands and not leaving this country for a long time, a healthy person has 50 years of retirement experience. And if you have lived or worked in the Netherlands during this period, then you have accumulated 100% AOW.

The full pension-AOW is tied to the minimum wage, with each married or married couple fiscal partners , receives 50% of the minimum wage (for each partner). Single people are entitled to a pension equal to 70% of the minimum wage.

The minimum wage is approved in the Netherlands twice a year - January 1 and July 1, in this regard, the amount of AOW pensions is also changing. What is this amount at the current time, you can see here to register: 

So, from July 1, 2020, the base 100% gross AOW is 1270,67 euros per month for a single pensioner, and 870,03 euros for each of a pair of married pensioners / fiscal partners.

AOW pension is paid monthly, vacation pay is paid once a year - in May.

There are also a few exceptions in situations for people living in the Netherlands who are not insured under AOW or who do not live in the Netherlands but are still insured (see this list here... In addition, if you were born on or after April 1, 1950, you will not receive an AOW pension if you have less than one year of insurance coverage.

As you can see, the monthly AOW pension amount is not that big, especially for immigrants / emigrants, i.e. in the case of non-permanent (during the estimated 50 years) residence in the Netherlands.

Specifying the question of our business clients, we can summarize that, as a self-employed entrepreneur (EMZ) in the Netherlands, you are entitled to an AOW pension on the same conditions as salaried employees and all other persons officially residing in the Netherlands but for one reason or another they are unemployed - that is, upon retirement, you will receive a monthly AOW pension from the government, but for most people this, unfortunately, is not enough to cover all your expenses.

How can that be?

First option

If you are not eligible for a full pension-AOW, you can apply for a supplement to it. This is the so-called Supplemental Income for Seniors. - Anvullende inkomensvoorziening ouderen (AIO) 

This supplement is paid in accordance with the Participatiewet (Pw) – Participation Law (2015). An AIO increases your pension to the minimum level applicable to you. How much this amount will depend on your income and your specific situation.

To be eligible for an AIO, you must already be of retirement age, reside in the Netherlands, be unable to receive a full AOW pension and have little or no other income (from the II and III components of the pension system in the Netherlands, about which will be discussed below) or you must not own expensive property (for example, real estate).

You can evaluate the possibility of getting an AIO here to register: 

The second option

The Netherlands is a member of the European Union (EU) and the Schengen area. This means that citizens of the EU, the European Economic Area (EEA) or Switzerland can legally reside and work in the Netherlands without obtaining a visa.

Non-EU citizens usually need visa to the Netherlands ... About salary norms for receiving it in 2019, we also wrote 

After five years of official residence in the Netherlands, you will be able to apply for permanent residence permit (permanent residence) 

Citizens of the EU / EEA and Switzerland can add / transfer pensions earned in other member states to enroll in a pension in the Netherlands. You can do this by notifying the pension office of the country in which you currently reside. You can read how to do this. https://www.izakayasushilounge.com

In addition, the Netherlands has various bilateral social security agreements with other countries (non-EU and Schengen countries) that allow foreign nationals to transfer pension earned in those countries to the Netherlands. Such agreements are intended to mitigate the tax consequences of transferring pension funds, for example, to avoid double taxation.

Countries that have bilateral agreements on social security (including pension) with the Netherlands currently include:

* excluding East Jerusalem, Gaza, West Bank

If you live outside the Netherlands, it is possible in certain cases to transfer your Dutch pension abroad. For which country is this possible and what conditions are necessary for this - you can also read on SVB website page.

Now let's return directly to the components of the Dutch pension system. What to do if in the future you can only have a basic pension-AOW (and, unfortunately, not in its 100% amount), and the options for increasing it, discussed by us above, are not suitable for you?

One of the possible ways to increase the pension (including for entrepreneurs-EMZ) is the pension accrued on the previous / future work under the labor contract. After all, the situation when the current entrepreneur previously (or in the future) was / will be an employee for some time is quite common.

This type of pension is second only to the AOW pension in the Dutch pension system.

The second component of the Dutch pension system

We remind you that this is a pension received from deductions when working under an employment contract.

About 90% of employers offer retirement schemes, which are usually run by an external pension fund.

In 2019, Dutch pension funds held $ 1,7 trillion in assets, second only to the US, UK and Australia. The total assets of pension funds amounted to 191% of GDP, which is more than that of any country. OECD.

Dutch law does not generally require membership of a pension fund. But for many industries, the government has made pension contributions mandatory. In addition, if the company decides to provide its employees with a voluntary pension scheme, the existing pension system can provide it.

There are three different types of pension funds in Dutch insurance practice:

1. industry-wide pension funds that serve the entire sector of the economy, such as education, construction or retail, and which can be / are approved by the government,
2. corporate pension funds intended for employees of one company or corporation,
3. pension funds for independent professionals (for example, specialist doctors, dentists, etc.).

In the first and second cases, we are talking about collective pension schemes that are tied to specific industries or companies. As a rule, they are managed by pension funds, less often by insurance companies.

As a result, more than 90% of employees and employers eligible for point a) participate in the pension system, and they make contributions to the appropriate funds. Companies that do not qualify for this type of plan can choose a corporate pension fund (point b) or an insurance company to manage their pension scheme.

On this link  you will find a list and more detailed information on general, corporate, professional and industry pension funds that are affiliated with the Dutch Pension Federation (Pensioenfederatie).

When applying for a new job, it will be useful to check with your employer whether the company makes contributions to the pension fund, and under what conditions this is done. In other words, you must sign a retirement agreement with your employer. As a rule, your employer's pension fund knows how much pension you have already accumulated. Every year, employees receive a so-called unified pension review. (uniform pension enoverzicht-UPO) 

In addition, monthly pension contributions are indicated on the personal payroll (loonstrook) of each employee. You can also view your accumulated pension insurance record. here to register:.

In the event of your subsequent dismissal, the pension fund of the previous employer will send a special settlement and notification sheet with information about your pension accrued at this place of work to your home address. When you change jobs, you are usually required to provide your new employer with your pension details.

The employer must calculate and transfer monthly contributions for his employees to the selected pension fund / insurance company. Pensions calculated when working under an employment contract already take into account pension-AOW, therefore, pension contributions will not be calculated on the entire salary, but minus the part related to pension-AOW. The pension contribution rates depend on the pension scheme to which you are signed up according to the contract.

In order to protect the right to a pension in the event of an employer's bankruptcy, accrued employee pensions must be kept outside the employer's company, namely: in the industry-wide Dutch pension fund, or in a corporate or professional program, or directly with an insurer / insurance company.

Thus, upon reaching retirement age, if you worked as an employee and were insured by your employer with a pension fund / insurance company, you will receive this pension as well. As a subtotal, you will have: AOW + part of your pension earned as an employee.

However, it should be noted that there are no pension funds directly for private entrepreneurs, and if you do not have a possible, sufficient in amount, the second component of the pension system, then you will have to take care of increasing the amount of AOW-pension yourself.

This is the third component of the Dutch pension system, namely the so-called individual / private pension.

In addition, information about an individual / private pension will be of interest to those who do not have a large enough amount of the basic AOW pension, the options for its increase that we listed earlier are not possible, or if the employer, due to certain circumstances, did not make contributions to the pension fund or the amount of such contributions are insufficient.

We will talk about this in the second part of our article on pensions in the Netherlands for private entrepreneurs.

The information posted in the article is current at the time of its publication.
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