Expat pensions and value transfer
Expat Pension Holland provides pension consultancy in the Netherlands for expats of all nationalities and locations. With over 20 years of experience on 5 continents, they can advise you on how to cope with the ever-changing expat pension system.
Valuable existing pension claims
Many expats have several claims to corporate pensions from previous employers in other countries. What is the best way to handle these international pension claims?
Is the value transfer possible; legally and tax-wise?
The first step is to analyse if each value transfer is possible; legally and tax-wise. Be aware that many countries treat these issues very differently. So this has to be assessed carefully.
During analysis, it is important to pay attention to several issues:
- Distinguish one-off lump sum capital from mandatory lifelong annuities or drawdown.
- Be aware of differences in tax exemptions and tax rates as of pension age.
- Check the differences between possible additional voluntary tax facilitated premium deposits.
- Check the cost level of each value transfer.
How can you optimise your future tax situation?
When assessing your tax situation, it is important to prevent double taxation. It is also smart to try to create a situation with the lowest tax burden once you have reached pension age.
With this in mind, bilateral double tax treaties are often important to take into consideration, as they arrange which country is entitled to enforce its already existing national tax law. If there is no such treaty, then it may be a good idea to look at existing unilateral national legislation regarding the prevention of double taxation.
Be aware that this is all rather technical and mistakes are made easily.
Is value transfer desirable?
If transfers are possible, the next step is to check whether each value transfer is also desirable. This requires looking into the nature of each pension claim:
- Is it of a Guaranteed Defined Benefit nature with Fixed Pension Terms?
- Is it of a Non-Guaranteed Defined Contribution nature with Capital at Pension Age?
- Is it of a Hybrid nature with DB and DC elements?
The difference between Guaranteed DB/Non-Guaranteed DC/Hybrid
Knowing the difference between Guaranteed DB/Non-Guaranteed DC/Hybrid is crucial:
- In the case of DB:
What is the kind and the amount of expected indexation until and after pension age?
- In the case of DC:
What is the amount of the capital and interest rate at pension age? Is it completely unguaranteed or is there a certain (costly) minimum guarantee, as, for example, exists in Germany? What are the investment possibilities, methods, costs and track records? What kind of next of kin pensions are available and possibly expendable?
- In the case of Hybrid:
Which aspects are DB/DC and what does this mean exactly for each kind of coverage until and after pension age?
Transfer from the Netherlands?
A transfer of pension capital from a Dutch pension plan to another country is only possible if the pension plan in the next country has the same, rather elaborate, requirements as the Dutch pension plan. I.e. that its old age pension funding is capital based, that the capital is placed in a separate legal entity outside of the sponsoring company and that there will be no lump sum payout or drawdown, only annuities.
Because of these requirements, the transfer is often not allowed.
Transfer to the Netherlands?
Transferring pension capital from another country to a Dutch pension plan is generally less difficult. However, it is still advisable to carefully look at all the requirements beforehand.
If value transfer is possible from a legal and tax point of view, it is wise to check in advance if it is possible to transfer your current pension savings to another country and pension plan in the future. Again, countries treat this issue very differently. Don’t get stuck!
From this perspective, it is also wise to take into account that the legislation of a country might change in the future. For example, the UK legislator has introduced a great amount of unfavourable legislation applicable to civil and tax pensions over the last decade. Because of this pattern, it is advisable to take such further future limitations into account.
There are substantial legal, tax and product differences between UK and Dutch corporate pension plans and regulations. Assuming that Brexit will happen, the UK government is no longer limited by EU regulations post-Brexit. This could easily result in even more unfavourable legislation for pensions and especially value transfer out of the UK.
When value transfer concerns these countries, it is wise to not only take into account the aforementioned UK legislative pattern, but also the expected change to pension regulations in Holland.
Both expected changes make it more difficult to create the best situation for the future with certainty.
Get unbiased advice
International value transfer issues are rather complex. Due to all the legal, tax, actuarial and product aspects, it is in your best interests that a licensed advisor carefully assesses your situation and provides you with unbiased advice.
The Expat Pension Holland approach is to make complex things, like international value transfer issues, simple for their clients. For more information on this or other aspects of expat pensions, feel free to contact pension jurist / consultant Patrick Donders at Expat Pension Holland or fill in the form below.