Dutch Pension System

I have been a Dividend Growth Investor (DGI) and Dividend blogger ever since June, 2014. And I’m passionate about it. Besides writing and maintaining my own blog, I read a lot of books (see my book reviews) and I read and follow a lot of fellow DGI blogs. One thing that I noticed over the last year is, that there are not so many European and Dutch DGI bloggers. You can read everything about the investing, stocks and taxes in the USA of Canada, but not so many about these subjects in Europe or The Netherlands. This because there are not much blogs about finances over here. Luckily there are a few, but way too little.

And I think this is a shortcoming. This is unfortunately for me, because I don’t have much of an opportunity to learn from other (Dutch) bloggers. But also a shortcoming for bloggers from North America, because I really believe we can learn from each other. Every system has its flaws and excellent points. By sharing them, we can all be better off.

During the last few months I had plenty of time to think about this, and decided to do something about it. First of all I will write a post about the Dutch Pension System (the post right in front of you). Furthermore I will write a post about the Dutch Taxes. And last but not least, I will post some interviews with Dutch and European finance bloggers.

So this post is about the Dutch Pension System. Much of this post it take from the site of the Dutch Pension federation.



Dutch Pension System

If we take a look at the Dutch pension system, it is very similar to many other European countries. It consists of three pillars: A state pension (AOW), A supplementary collective (company) pensions and the private individual pension products that each person can arrange for himself. Together these three pillars determine the amount of pension that a person will receive when he retires at the end of his working life.

Depending on a person’s personal situation, a retired person will receive a benefit from the first pillar, or from the first and second pillars, or from the first and third pillars or from all three pillars.


Pillar I: State Pension (AOW)

The first pillar is the state pension (AOW). The General Old Age Pensions Act came into force in 1957 and is the foundation for old-age pension benefits.

The state pension provides a basic income, the level of which is linked to the statutory minimum wage. Married couples and couples living together each receive 50% of the minimum wage (approximately € 700 gross per month). Pensioners living alone receive more, 70% of the minimum wage (approximately € 1000 gross per month).

Everyone who has lived or worked in the Netherlands between the age of 15 and 66 (at this moment) has a state pension and a right to state pension benefit from the age of 66. 2% of the state pension benefit is accrued for each year that someone between 15 and 65 years and who lives in the Netherlands is insured for. Even those who do not work accumulate state pension rights. In comparison to other countries the Dutch state pension provides only a limited part of all old-age benefits.

The first pillar is a pay-as-you-go system. This means that the costs of the Dutch state pension benefits are paid by the workforce in the form of contributions. Additional funding for the Dutch state pension comes from government public funds. So directly or indirectly, everyone contributes to the increasing state pension costs, whether they work or are retired.


Pillar II: Collective Pension Schemes

The second pillar consists of the collective pension schemes. These pension schemes are administered by a pension fund or by an insurance company. Under Dutch law, pension funds are legally and financially independent from the companies. The pension funds will therefore not be directly affected if a company gets into financial difficulties. Most pension money in the Netherlands is managed by pension funds.

Capital funding finances the second pillar. This means that the pensions are financed from the contributions members of the scheme paid in the past and from the return on the investment of these contributions.

No tax is levied on pension contributions. And the growth of pension rights via the pension fund’s investment performance remains untaxed. Pension benefit is only taxed when it is received. This delay in paying tax is even more attractive because the tax rates payable over the future pension benefit will be lower than the tax rates applicable to current income. These tax advantages are a major reason as to why more than 90% of employees in the Netherlands are having a company pension.

Type of Pension Funds
In the Netherlands there are three different types of pension funds:

  • Industry-wide pension funds (for a whole sector, such as the civil service, construction industry, hotel and catering industry or the retail sector),
  • Corporate pension funds (for a single company or a corporation),
  • Pension funds for independent professionals such as medical specialists and dentists.

Pension funds are non-profit organizations and closely watch by two regulators.

There is no obligation by law to become a member of a pension fund. But if the social partners decide to provide a pension scheme for their employees, the government can make a pension scheme mandatory for an entire sector or profession. And this is exactly what our government has done!

Thus, more than 90% of employees have a pension scheme with their employer. And therefore an employer is no longer free to decide for himself whether or not to offer a pension scheme to his employees.

The idea behind this mandatory nature is that it ensures industry-wide pension funds with sufficient economies of scale, enabling cost efficient management of the schemes. Furthermore the mandatory nature means that all employees are members of a good pension scheme. The government wants to create solidarity through compulsory participation. In addition it means that employees can change jobs more easily within the sector without this having an impact on their pension.


Pillar III: Individual Pension Products

Individual pension products form the third pillar. Anyone can purchase a product in the third pillar to meet his requirements. In this way, people can save extra pension, often taking advantage of tax benefits.

My own Vrijheid Fonds falls within this third pillar. Unfortunately I don’t have any tax advantage or benefits.


Solidarity & Risk Sharing

The Dutch pension system has two very important conditions: Solidarity and Risk Sharing.

In the Dutch pension system a member each year builds up future pension rights equivalent to a fixed percentage of the salary. All members pay the same contributions to the pension fund. Individual differences such as age, gender, health and income are not taken into account when determining the amount of contribution to be paid. Another aspect of the solidarity is that medical examinations on joining the pension scheme are not permitted.

Furthermore if a fund gets into financial difficulties, all parties involved, employer, employees and those drawing their pension, contribute to the recovery.

In many pension schemes the contribution amount as well as the level of indexation depends on the coverage ratio. This is known as intergenerational risk sharing for pension funds. Furthermore, when determining the investment mix a balance must be found between the needs of those drawing a pension for security and on the other hand, the needs of the younger contributor for the opportunity to achieve a good return on investment.


Facts and Figures

There are about 600 pension funds in the Netherlands. Three-quarters of all employees are with an industry-wide pension fund. Other employees are with a corporate pension fund or an insurance company.

The size of the pension funds varies considerably, as far as the number of members is concerned as well as the accrued capital. The largest fund in the Netherlands has more than 1 million active members and an invested capital in excess of € 150 billion. But there are also funds with less than 100 members and an invested capital of just a few million Euros.

At the end of 2014, pension funds in the Netherlands managed an invested capital of about € 1250 billion. In comparison, the Dutch Gross National Product in 2014 was approximately € 880 billion.


Vrijheid Fonds

My pension situation is as follows:

Pillar I: When I reach the age 69 and 6 months I will receive my AOW (state pension)
Pillar II: I’m working for a local government and therefore I’m a participant of the largest pension fund in The Netherlands (ABP). ABP is the pension fund for the civil service and teachers. The ABP has invested capital of almost 390 Billion.
Pillar III: I have almost zero to none options for tax advantaged individual pension products. That is why I started my own pension fund: Vrijheid Fonds (Freedom Fund). And I share on a very regular basis the progress of my Vrijheid Fonds with you my readers.



I hope you have a better understanding of the Dutch Pension System after reading this post. If you want to know more, I recommend visiting the site of the Dutch Pension Federation. Most of this post is taken from reports of this federation.

How does you pension situation looks like, for your country and for yourself?

I like to hear from you,



12 thoughts on “Dutch Pension System

  1. Jos

    Nice post, thanks,

    One of the things the Dutch system is laking, in my opinion, is that fact that the average worker cannot have it’s own pension account in the third pillar.

    If the governement would allow everyone to save a certain amount in a closed account yearly, people will be more aware of pensions and also more willing to save for the future.

    Currently people are execpting everything to be ok by the time they reach retirement, but the monthly retirementcheck can be allot less compared to their current paycheck, Even with the much lower income tax bracket.

    1. Pollie Post author

      Hello Jos,

      Thanks for stopping by and taking the time to write a comment. I really appreciate is!

      You said that a lack of the Dutch Pension System is that the average worker can’t have its own pension account in the third pillar.
      I partial agree with you. In the end I think this is the best for some people. But if we look at the latest poll, less 33% of the workers know the state of their pension! That is very low and alarming.

      With our present system, every person will have a pension when they are old. And I think this is good, and also good for the country/economy as a whole. No worker has had to arrange its own pension since the beginning of the last century. I think it will be a complete chaos if this will suddenly give all the workers the change to do its own pension account.

      Just a little adjustment has to be made as you suggested. An option as a kind of closed/locked account to save/invest a certain amount will be a great addition to our system. And it helps people’s awareness with their pension. I agree with you.



      1. Jos

        Maybe I didn’t make myself 100% clear.

        I think the current system is good for every one but what I ment is, it would be a good thing to have the third pillar options on top of the current system for everyone.

        Everybody should have it’s own jaarruimte and they can decide wether to go on a extra holiday or save for extra pension.

        1. Pollie Post author

          Okay. Lear. And I agree with you for 100%
          Lets hope they will create this option when our goverment will discuse the pension system.
          Have a nice weekend.



  2. Roadrunner

    Great, detailed article! I’m looking forward for the future posts.
    I agree with Jos that in the Netherlands we’re really lacking tax beneficial private saving accounts, something like the US or Canada has.

    1. Pollie Post author

      Hello Roadrunner,

      Thanks for your kind words!

      We have a little bit of tax beneficial. We have it in the form of what we call Jaar ruimte (translation: room for some extra) and only when your pension fund doesn’t perform very well.
      However it is not much.

      But as I commented on Jos his post, with our present system, every person will have a pension when they are old. And I think this is good, and also good for the country/economy as a whole. That is definitely a huge benefit.

      We just need a small adjustment: An option as a kind of closed/locked account to save/invest a certain amount will be a great addition to our system. And it helps people’s awareness with their pension



  3. Finstermoor


    Greetings from Germany. That was a very interesting read. Thank you for that.

    Did I understood correctly that the amount of income is in no way linked to the contribution you make for the pension? Really everybody pays the same if I earn 1.000,- EUR or 1.000.000,- EUR? That sounds strange or maybe I just misunderstood.

    Furthermore in Germany we also miss in the third pillar a tax advantages way to save money for retirement. That’s so dissappointing.

    So long, Finster.

    1. Pollie Post author

      Hello Finster,

      Welcome my German friend, and thank you for your kind words.

      The amount of income is related to your contribution. We only pay the same percentage. So if you earn more, you will donate more. 2 % of € 5,500 is way more than 2% of € 2,500 every month 😉
      I looked it up on my latest pay slip and I pay 5.73% of my gross salary for my pension and my employer pays around 13,5%. The percentages vary per pension fund.

      With the low interest rates most of the European countries have difficulties with their pension funds and their regulation. So hopefully the European union will make some adjustments possible. We just have to wait and see.



  4. Team CF

    Nice post Pollie. Very clearly written, like it!

    As for taxes, we started a tax series on our blog too. It’s not perfect, or complete, but it should be a good starting point and provide some tools for the Pillar III investments too. Still planning to expand a couple section in the coming time.

  5. Mr FOB

    Hi Pollie, thanks for the nice overview!
    You might want to check my posts on pensioenbeleggen to find some results of research I did into tax advantaged pension saving in The Netherlands

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