The Dutch pension system has three pillars:
- a flat-rate state pension (AOW) related to the minimum wage and financed via payroll taxes,
- occupational pension schemes which are capital-funded, and
- individual saving schemes.
First pillar: state pension
The state pension (AOW) starting age is gradually going up from 65 to 67 in 2024. Every person residing in The Netherlands is eligible for AOW, but a full benefit only applies after residing in The Netherlands for 50 years. Singles receive approximately € 15.000, partners receive over € 10.000 each (per year, gross amounts).
Second pillar: occupational pension schemes
Many enterprises are obliged to enroll their employees in a pension scheme provided by the pension fund in the enterprise’s branch of industry. If that does not apply, the enterprise has no obligation to offer a pension scheme, but most will. Company pension funds mostly offer defined benefit plans based on career average pay. More and more enterprises offer defined contribution plans based on individual investments, with compulsory participation provided by an insurance company or PPI. The ambition of most pension plans is to offer a retirement income of 75% of the career average earnings (plus indexation, depending on the scheme) after 40 years of service.
Third pillar: private provisions
There is tax exemption for contributions to third pillar provisions for people who do not accrue pension in the 2nd pillar or who only accrue a low pension. Bank savings and annuities are the most popular solutions for third pillar provisions.