Why internationals should consider a pension
As an international newcomer in the Netherlands, you can prepare for your financial future without a cost explosion. Here are some guidelines to point you in the right direction.
International expat pension coverage can be created in many different ways, including:
- Coverage can be created by a company or by the expat personally.
- The pension plan might relocate with the expat to each new country or it might be meant to stay in one country.
- The coverage might be legally covered as a ‘pension’ or as ‘insurance’.
Regardless of the chosen form, it is essential that internationals receive a tailormade pension plan at the lowest cost. It is recommended to examine the options thoroughly and consider the outcomes for your partner and family. Make sure you compare quotes to find the best provider for your needs as differences can be substantial.
The Dutch pension system
In the Netherlands, pensions can be provided by:
- Governmental coverage for residents
- Corporate coverage for employees
- Private coverage by individuals
The three types of pensions in the Netherlands are:
- Old age pension
- Next of kin pension
- Disability pension
If it’s not possible to obtain the required coverage as a ‘pension’, it might be possible as ‘insurance’.
DB versus DC pension plans
Defined Benefit (DB) pension plans provide a guaranteed amount of pension terms when the person reaches pension age. There is no investment nor interest rate risk.
Defined Contribution (DC) pension plans provide a guaranteed amount of pension premium. At pension age a lifelong annuity will have to be bought with the acquired pension capital. Thus there are no guaranteed pension terms and there is a substantial amount of investment and interest rate risk.
Due to low interest rates, DB pension plans have become extremely expensive. Many companies therefore have a DC pension plan. In that respect, as of 2011 it is also possible to choose a Premium Pension Institution (PPI). A PPI generally has substantially lower costs and more flexibility than an insured pension plan. Therefore, it is wise to also look at the PPI possibilities for covering your expat pension plan.
Typical Dutch restrictions
- The maximum amount of corporate related pension earning wages amounts to € 103, 317 in 2017.
- Those pension earning wages have to be decreased with a 2017 franchise of € 11, 829.
- In the Netherlands, product-related pension advice may only be given by a pension advisor with a license of the AFM. The advisor must be independent from insurance companies and may only receive payment from their client. The price for the requested services has to be agreed upon in writing at the beginning of the advisor-client relationship.
Transfer of pension capital
In general, it is possible to transfer pension capital from one country to the next. Each country has its own legal and tax regime and Dutch legislation is rather strict.
For example, to transfer pension capital from a Dutch pension plan to another country is only possible if the pension plan in the next country has the same guarantees as the Dutch pension plan, i.e. that it is capital based, that the capital is placed in a separate legal entity and that there will be no lump sum and only annuities. Due to these requirements, this transfer of pension capital is often not allowed. To transfer pension capital to a Dutch pension plan from another country is generally less difficult.
Pan-European pension plan
The EU is working on the creation of a pan-European pension plan (PEPP). One of the benefits of this proposed scheme is that it will be transferable across EU member states.