In many companies, the international HR tries to facilitate expats in the best way they can. In terms of corporate pensions, they often provide expats with a choice about their pension set-up:
What is best for you as an expat? Be highly critical and check your preferences!
Ask yourself the following questions:
A) What kind of pension administrators do the options provide?
B) What kind and amount of pension systems/claims/indexations do the options offer?
C) What kind and amount of premiums/own contributions can you expect?
D) What kind of tax treatment do both options provide, now and in the future?
E) What kind of flexibility and voluntary possibilities are there?
F) What kind of changes in legislation might be expected?
In the Netherlands, the law demands that pension claims be secured through a pension administrator from a separate company, which is not part of the sponsoring company.
The choice is between:
Until 2011, corporate pension plans were covered by a pension fund or an insurance company.
The PPI option was officially recognised in 2011, after a lot of justified criticism regarding the high-cost levels and absent transparency of insurance companies. A PPI can administer (only) DC pension plans at low-cost levels with more flexibility.
As of 2016, the APF has been introduced as an alternative pension fund administrator. It can take care of any kind of pension plan, not just DC.
These elements regard the content of your pension claims:
If you have a Defined Benefit (DB) pension, it means that at pension age you will receive totally guaranteed, or possibly (conditionally) indexed, pension terms without any kind of investment or interest rate risk.
A Defined Contribution (DC) pension plan means that you will be entitled to an annual guaranteed amount of pension premium. This also means that you yourself will be responsible for the total investment risk until pension age and, at that moment, the interest rate risk whilst acquiring the mandatory lifelong annuities.
Your pension claim may also be of a hybrid nature with elements of DB/DC.
In the past, many expats have preferred DB pension claims for their security. However, due to the current historically low-interest rate, DB is extremely expensive and therefore often not viable.
When comparing the kind and amount of offered coverage in the standard or tailor-made pension, one has to look carefully to see what the actual after-tax pension claims at pension age amount to.
Have you considered these points:
If your pension premium is fully tax deductible at an attractive rate, it would be financially beneficial to use the maximum possibility thereof annually. The younger the expat, the more this positive outcome is strengthened by the great effect of compounded return on investment.
Make sure you think about the following:
The importance of tax options can best be illustrated by the following example: A company offered two pension taxation options, one of which had the tax reversal rule. The other option was therefore no real option. Due to the tax disadvantage that the option without tax reversal offered, an enormous amount of future pension capital would have evaporated annually.
Contemplate the following points:
Pension administrators have to standardise their services in order to keep costs low. However, the best ones are still able to offer sensible and valuable flexibility.
It is especially important to make use of the annual maximum tax benefits by depositing additional tax-deductible pension premiums, if this option is available and this is what you want to do, of course.
Finally, check carefully what the investment options are and if the offered lifecycle funds are adequate.
Ask yourself the following questions:
The Expat Pension Holland approach is to translate complex situations into clearly communicated advice. The choice between a standard or tailor-made pension claim is very important, and by its nature rather complex.