When you first move to the Netherlands, there are a million and one things to sort out, so it’s understandable if your Dutch pension isn’t at the forefront of your mind.
However, what many internationals in the Netherlands don’t realise is that there are some steps you should be taking in order to set yourself up for retirement.
In the Netherlands, supplementing your Dutch pension throughout your working life is completely normal — and you should do this, too.
Why and how? To understand this, you first need to know how pensions in the Netherlands work.
We teamed up with Brand New Day to bring you this article. They offer private retirement accounts where their clients can save or invest — all with tax benefits.
The Dutch pension system: a brief breakdown
There are three different ways for you to build a pension in the Netherlands. These are referred to as the three pillars:
The first pillar: the AOW
The AOW or Algemene Ouderdomswet (National Old Age Pension Act) is a basic pension provided by the Dutch government to anyone who lives and works in the Netherlands (including internationals!)
Once you live in the Netherlands and pay income tax, you will automatically start building up an AOW pension if you are 50 years before your pension age (AOW age). In the Netherlands, this is currently 67 years old.
However, you will only build up an AOW pension while living in the Netherlands.
For example: If you moved to the Netherlands at 27 and stayed here until you reached your pension age of 67, then the years you missed between the ages of 17 (50 years before your pension age) and 27 will not be covered by the AOW.
You build up 2% of your AOW during these years. This means that, since you lived in another country for 10 years of the 50 years before your AOW age, you would lose out on 20% of your AOW pension.
This would also be the case if you left the Netherlands for another couple of years at some point. You would lose 2% of your AOW pension for every year you are not living and working in the Netherlands.
It’s also worth noting that the amount provided by the AOW is linked to minimum wage, which means it often isn’t enough for you to retire on.
In fact, most people in the Netherlands supplement this state pension.
The second pillar: an employee pension
One way that people supplement their pension in the Netherlands is through their employer.
While some employers in the Netherlands contribute to a retirement fund for their employees, not all do.
In fact, there are many people who don’t receive an employee pension in the Netherlands. There are:
- 1.2 million freelancers in the Netherlands who don’t build up a retirement through an employer,
- 765,000 employees that don’t build up a retirement through their employer,
- 650,000 people do build up retirement through their employer, but it would not be enough to continue their current lifestyle
This is where the current pillar comes in.
The third pillar: a personal pension account
While the AOW and an employee pension will certainly help build your pension, there’s a big chance you will need to supplement them if you want to receive a pension that will cover your cost of living when you’re older.
In the Netherlands, people usually do this by opening a private pension account where they can put money towards their retirement.
So, how can you do this? That’s where services such as those offered by Brand New Day come in.
By offering private pension accounts to internationals in the Netherlands, Brand New Day allows you to save or invest money for your retirement.
Why should I open a private retirement account in the Netherlands?
As an international in the Netherlands, you likely benefit less from the first two pillars compared to Dutch nationals. This is because you haven’t always lived in the Netherlands — and you may even move away again at some point.
That’s why it’s important to supplement your Dutch pensions and allow your money to accrue value over time.
Also, you get some of your money back
Fun fact, in the Netherlands, when you invest or save money in a private retirement account, you actually get some of that money back once you file your taxes the following year. This is because you can deduct the amount from your taxable income.
READ MORE | Banking in the Netherlands: the complete guide
How much are we talking? It depends on which tax bracket you fall into, but it can be either 37% or a whopping 49% of the amount!
For example: Let’s say you put €1,000 into a retirement account with Brand New Day this year. Once you file your income tax for 2024 next year, you will get either €370 or €490 back.
However, it’s worth noting that this only applies as long as the amount you are putting into your private pension account falls within your jaarruimte or “annual space.”
Your jaarruimte is the maximum amount you can put into a private pension account while still being eligible for this tax benefit.
Everyone has a certain jaarruimte determined by their income and other factors, such as whether your employer is contributing to your pension.
For example, according to Brand New Day’s Jaarruimte calculator, my annual space is €6,000. This means that I can put up to €6,000 into a private pension account and receive a percentage back.
Why should I use Brand New Day to supplement my Dutch pension?
So, are you ready to supplement your Dutch pension? Let’s talk about why you should consider opening an investment or savings account with Brand New Day.
There are fewer risks due to index investing
There are times when you have to take risks in life, but when it comes to your retirement, you should play it safe. This is why Brand New Day offers index investing.
What this means is that they will spread out the way your money is invested.
Instead of taking the risk of investing it all in a handful of specific companies, your money will be spread across the entire market, reducing your risk of losing it all.
Brand New Day lets you choose from different risk models and portfolios, however, the core of their investing strategy is passive index investing.
This means that Brand New Day offers investment portfolios that mirror stock market indexes. In doing this, your money is invested in a variety of companies over a long period of time, making it a low-risk way for your investment to accrue value.
Not sure what to do? You can also simply arrange a call with one of Brand New Day’s retirement experts.
Want to invest in strictly green companies? Brand New Day offers low-emission investment portfolios — although it’s worth noting that all their investment portfolios steer clear of any companies involved in child labour, controversial weapons and tobacco.
Not interested in investing? Geen probleem, just save
Who said you have to invest money in order to supplement your pension? After all, you may just want somewhere to put your money and allow it to grow in value through a great interest rate.
Brand New Day also offers retirement savings accounts with variable interest rates to help your money gain value over time.
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These accounts work the same as their retirement investing accounts except that instead of building your money through market gains, your savings grow by building interest.
You can choose between variable or fixed interest rates.
Note: Unlike other savings accounts, retirement savings accounts are not freely withdrawable. The rules of the game dictate you cannot withdraw your money early (there are a few exceptions) without losing your tax benefits and possibly a small penalty (depending on circumstances).
Brand New Day helps you avoid a bureaucratic nightmare
After living in the Netherlands for a few years, you may decide it’s time to move somewhere else — and we get it, that’s life.
However, you shouldn’t let the fear of a bureaucratic nightmare prevent you from establishing a private pension account in the Netherlands while you’re here.
Brand New Day’s pension accounts cater easily to expats because you don’t have to be living in the Netherlands to have an account with them.
In fact, you can have a private pension account with Brand New Day as long as:
- You live and pay income tax in a European Economic Area
- You have a checking account with a Dutch bank
This means that, should you decide to move to, for example, Ireland, you can still keep your Brand New Day pension account.
Note: There are a few conditions where you aren’t eligible to continue having an account with Brand New Day, you can see these, and the next steps you will have to take on their website.
Are you ready to get the ball rolling on your future pension? Good for you! Reach out to Brand New Day to get a better idea of the possibilities.
What’s your experience with the Dutch pension system? Let us know your thoughts in the comments below!
Just an additional note on building up your AOW at 2% per year whle living in the Netherlands. If you work abroad during this period, i.e. Germany or Belgium, then that period will not count unless you pay Dutch tax on this income.
It should be noted that Brand New Day refuses to work with US expats (including citizens, dual-citizens, green card holders, etc) due to the administrative burden required by FATCA. This is unfortunate because they are missing out on clients and we can’t invest in a private pension.
Scildon will work with US persons.