The second pillar of the Dutch pension system is the pension fund. Also known as workplace pensions or occupational pensions, pension funds (pensioenfonds) are pension schemes connected to a specific industry or company and managed by a fund or insurance company.
What is a pension fund?
A pension fund is an additional layer of the Dutch pension system, designed specifically for people who are employed. Pension funds manage and invest members’ pension contributions, pay out benefits, and take care of administration.
Pension funds can be set up for specific industry sectors, occupational groups, or even individual large companies. Around 90% of all employers in the Netherlands offer their employees a workplace pension scheme, giving them an additional way of saving for retirement, on top of the AOW pension.
Some self-employed workers, including doctors, physiotherapists, notaries, plasterers and painters, are covered by a pension fund, but anyone not covered will need to make alternative pension provision via a private pension scheme.
Pension funds are non-profit
Although pension funds may be connected to a particular company or industry, they are required by law to remain legally and financially independent and must operate as non-profit organisations. In this way, pension funds are protected if a related company has financial problems.
Are pension funds mandatory?
In some companies or professions, it is mandatory to join the occupational pension scheme. You can find a list (in Dutch) of the occupations for which membership is mandatory on the Ministry of Social Affairs and Employment website.
By making pension funds compulsory in most industries, the Dutch government aims to provide solidarity, stability and a good pension scheme for all employees. The majority of pension money in the Netherlands is managed by pension funds, and more than 90% of employees in the Netherlands have a pension scheme via their employer.
The Future Pensions Act
After years of debating, the Dutch government recently approved plans to reform the occupational system in the Netherlands. The transition to the proposed new system, known as the Future Pensions Act (Wet toekomst pensioenen), started on July 1, 2023, but it may take a while before it is fully implemented. Unions, employers and pension providers have until January 1, 2027, to adapt their pension schemes to the new rules.
The Netherlands is changing its pension system because the Dutch labour market has undergone serious changes over the past few decades. For instance, employees are working longer, plus they are more likely to switch jobs. The new pension system better reflects and adapts to contemporary careers, making it more future-proof.
The different types of Dutch pension funds
There are three main types of Dutch pension funds:
- Industry-wide pension funds, which cover people working across an entire sector.
- Corporate pension funds, which administer pension schemes for individual companies.
- Independent professional pension funds for self-employed people working within a particular profession.
Contributing to a pension fund in the Netherlands
The way a pension fund works in the Netherlands is relatively simple: companies pay monthly contributions into the pension funds on behalf of their employees. This contribution is a percentage of their pensionable salary (usually between 4 and 8% but up to a maximum of 30%). About two-thirds of the contribution comes from the employer, and one-third from the employee.
The capital is invested and the return on investment pays for the benefits of current and future retirees. Employees usually can choose what kind of investment profile they prefer to have within their pension fund.
Previously, all employees paid the same premiums, no matter their age. This was generally considered unfair, as this meant that premiums paid by young employees could be invested by the providers for a longer time, which ultimately meant that there was more chance for these employees to absorb windfalls and setbacks.
The new system under the New Pensions Act makes sure that young employees are no longer investing in the pensions of older employees by changing how employees invest depending on their age. This new way of investing will also lead to reduced risks for older employees.
Tax benefits
Occupational pension contributions benefit from tax advantages: that is, contributions to pension funds are tax exempt, and any increase in value of the pension fund is also exempt from box 3 taxation. The money only becomes taxable at the withdrawal stage.
How much do I have with my pension fund?
To find out what pension rights you have accumulated in your pension scheme you can contact your pension fund or check the annual statement they send you. You can check your company’s contribution payments on your payslip.
Under the New Pensions Act rules, it will be much clearer how much money you have invested into your pension and how much has been gained through investments.
The new system will also feature a more personal approach; instead of having one centralised pension fund at each pension provider that is shared among all customers, there will be individual pension funds for each customer. This means that you can access more personalised information about your pension accrual.
What happens to my pension fund if I change jobs?
If you move to a new employer, it may be that they operate a different pension fund. Unless your accumulated pension is very small, it is usually possible to have your accrued pension transferred to a new administrator. It is therefore important to update the details of your employer with your pension fund whenever you find a new job.
Occupational pension benefits
As you approach retirement age, you can start drawing your occupational pension. The start date of your occupational pension varies per pension scheme; usually, you decide when you want to start drawing your pension. Most plans opt for the standard retirement age of 67, but it may be possible to choose a different start date between the ages of 57 and 72.
Your pension provider will send you an application form in the post a few months before your chosen retirement date. If you do not receive this form, you need to contact your pension fund directly.
How much will I get from my pension fund?
Unlike the AOW pension, the value of your pension fund is not fixed. The amount you will receive when you retire depends on your income during your working life (and therefore the value of your contributions), interest rates, and the performance of your pension fund’s investments. Your pension fund will provide you with regular updates to let you know how your pension pot is faring.
Currently, it is only possible to withdraw your occupational pension as a monthly benefit. However, the government is making arrangements to change the rules and give retirees more flexibility. In the future, it should be possible to withdraw a maximum of 10% of your pension capital as a lump sum when you retire. This will make your overall monthly pension benefit lower.
Depending on your pension provider, you may also receive a holiday allowance with your occupational pension.
Taxes and national insurance deductions
At the withdrawal stage, your workplace pension is treated as regular income and is therefore subject to income tax and certain national insurance contributions. If you choose to withdraw a lump sum, that will also be subject to taxation. Bear in mind you will also have to continue paying for health insurance.
You can apply for a general tax credit to be applied to your pension income, but note that this can only be applied to one source of income - for instance, either your AOW pension or your workplace pension. It makes sense to apply it to your highest source of income.
Early retirement & workplace pensions
Depending on your pension fund, it may be possible to start receiving your pension early or to postpone it beyond statutory retirement age. You should speak with your individual pension provider about this to see what options are available.
If you choose to bring the start date of your workplace pension forward, your monthly pension benefit will go down, because the “pension pot” has to be spread over more years. Equally, if you choose to retire later, your monthly pension will go up.
What happens to my Dutch pension fund if I move abroad?
It’s usually possible to transfer your pension scheme abroad (before retirement) or receive pension benefits (after retirement), but you should check with your Dutch pension fund what the financial implications are if and when you move out of the Netherlands.
Expats often lose track of accumulated pension rights when they change country, and pension funds are not always active in chasing up members, so it’s important to maintain your Dutch pension fund administration.
Alternative pension options
If you are not able to contribute to a pension fund, or if you wish to make additional retirement provision, you may want to explore your options for private pensions in the Netherlands.
