In this article, there will be a breakdown of the pension Netherlands terminology by defining essential definitions and explaining how they apply within each pillar.
In the Netherlands, the Dutch pension system is built on three essential pillars, each designed to ensure financial security for individuals in retirement. These include the Dutch state pension [AOW], company pension scheme, and private pension plans.
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Pension Netherlands – Definitions of Crucial Terms
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ANW Surviving Dependants Act [Algemene Nabestaandenwet].
A pension benefit paid to the spouse or dependents of an employee who passes away.
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AOW [Algemene Ouderdomswet] – General Old Age Pension Act
A key term in pension Netherlands terminology, AOW is the Dutch state pension, providing a basic income to residents aged 67 or older. The General Old Age Pensions Act came into force in 1957 and is the foundation for the old age pension benefits. The costs of the Dutch state pension are paid by social security contributions and additional funding coming from government public funds.
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Company Pension Scheme
A company pension is an additional pension scheme, and integral part of pension Netherlands terminology for employee, provided by employers and managed by pension funds or insurers. It is designed to supplement the Dutch state pension. Companies are not legally required to implement a company pension plan, unless the government has made a pension scheme mandatory for an entire profession or sector.
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Defined Contribution (DC) Pension Scheme
In the context of pension Netherlands terminology, the most common pension plan in the Netherlands is the Defined Contribution (DC) scheme. Under this arrangement, the employer defines the contribution for the accrual of a pension capital. The defined contribution is a percentage of the pension base salary (12 months x base salary + 8% holiday allowance) minus an AOW-offset.
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Pension Communication
Dutch pension law requires employers to inform employees clearly about the structure and conditions of their pension plan through a standardised communication tool known as the 123 Pension Communication Plan. This is delivered in three layers:
Layer 1: Basic Information – A simple, concise summary of the pension plan. This includes key points like who is involved, how contributions are made, and what benefits are included.
Layer 2: Details – More comprehensive details on the pension scheme, such as the exact contribution levels, investment policies, and retirement options.
Layer 3: In-Depth Documents – Full legal and policy documents for employees who wish to delve deeply into the mechanics of the pension plan.
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Pension Contributions
Pension contributions are the amounts paid by both the employer and the employee into a pension fund. These contributions are typically a percentage of the employee’s gross salary.
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Pension Gap
A gap between what an employee is entitled to receive in retirement benefits and what they actually need to maintain their lifestyle.
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Pensionable Salary
The portion of an employee’s income (referred to as pension cap) used to calculate pension contributions and benefits. It typically includes base salary, holiday allowance, and other variable forms of compensation, depending on the specific pension scheme’s rules.
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Pension Fund
A pension fund is the organisation that administers pension plans for employees. The fund collects contributions, invests them, and ensures that pensions are paid out when employees retire. In the Netherlands, many industries have sector-wide pension funds (e.g., the ABP for government workers and teachers, or PFZW for healthcare workers).
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Private Pension Plans
The private pension plans are voluntary contributions made by individuals through private pension funds, offered by banks and insurance companies. They serve to top up the Dutch state pension and company pension scheme pensions.
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Pensioenregister / Mijnpensioenoverzicht.nl
Mijnpensioenoverzicht.nl is an online platform where individuals can view all of their pension data, including both AOW and company pension entitlements. It provides a clear overview of what pension amounts employees have already accrued and what they can expect at retirement.
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Transferring Pension Rights [Waardevaststelling of Waardeoverdracht]
Employees who change employer in the Netherlands (not abroad) can transfer their accrued pension to their current employer’s company pension plan. However, employees are not obliged to transfer their accrued pension.
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Uniform Pension Statement (UPO)
A Uniform Pension Overview, provided annually, detailing your accrued pension and projected retirement benefits.
Pension Netherlands Terms
Important Pension Laws and Regulations
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Pensioenwet (Pension Act)
The Pensioenwet regulates the structure and management of pension plans in the Netherlands, ensuring the safety of pension funds and outlining the rights and obligations of both employers and employees. Key aspects include governance, communication, risk management, and reporting requirements.
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Increase in AOW and Pension Age Act [Wet verhoging AOW- en pensioenrichtleeftijd]
This law governs the gradual increase in the AOW pension age, which is linked to increases in life expectancy. Employers must keep track of these changes to ensure their pension schemes remain compliant with the law.
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Pension Communication Act [Wet Pensioencommunicatie]
The Pension Communication Act mandates that employees must be fully informed about their pension entitlements in a clear and understandable way. This includes the use of platforms like Mijnpensioenoverzicht.nl and the 123 Pension Plan communication system.
HR Services
While pension brokers are essential for setting up and managing the financial side of your pension plan, an HR consulting firm could support your organisation from a People & Culture perspective. From managing the project timeline to communicating the benefits and providing ongoing training, the HR firm ensures that the pension plan rollout is seamless, well-understood, and embraced by employees.
