The Netherlands is a country that has long boasted one of the strongest pension systems in Europe. Thanks to a carefully structured model, pensioners can rely on support in various forms. The system consists of several components, including the state pension (AOW) and supplementary benefits. In this article, we look at how high the pension is in the Netherlands, what the average pension looks like and how benefits vary depending on income. We'll also discuss the lowest pension in the Netherlands and the eligibility requirements - welcome!
How does the pension system work in the Netherlands?
The pension system in the Netherlands is based on three pillars. The first is the state pension AOW (Algemene Ouderdomswet), to which every resident is entitled when they reach retirement age, regardless of their income. The second pillar is the occupational pension offered by employers and the third pillar includes private savings and investments for retirement.
The backbone of the scheme is the AOW pension, which is the most important benefit for older people. The amount of the old-age pension depends on a number of factors, including the number of years a person has lived and worked in the Netherlands. To get the full amount of the pension, you need to have worked for at least 50 years, and for each year worked you are entitled to 2% of the full amount of the benefit.
The amount of the AOW pension in 2024
From 1 July 2024, the amount of the AOW pension in the Netherlands will be:
- for single persons - gross amount: EUR 1 569.75, net amount: EUR 1 486.24 after tax,
- for married or cohabiting persons - gross amount: EUR 1 067.47, net amount: EUR 1 010.69 after tax.
This shows that the AOW provides a relatively stable level of financial support, although it does not always cover all the needs of the pensioner. This is why many people choose other forms of saving for retirement.
The average pension in the Netherlands - how much is the average benefit?
The amount of the average pension in the Netherlands depends not only on the AOW pension, but also on other employee benefits and private savings. The average monthly pension for all types of households is around €3,957. For single people, the average pension is around €3,105.
Pensions for different income groups
Higher earners who benefit from additional employment benefits can expect higher pensions. For example, a worker with an income above the national average who has saved for a pension in the second and third pillars throughout his/her career may receive a benefit that is significantly higher than that of a minimum wage earner.
In contrast, a low-income worker who has not had the opportunity to take advantage of supplementary pension schemes will rely primarily on an AOW pension, which may mean that they will only receive a minimum benefit. Conversely, those who have saved and invested regularly for retirement may receive substantially higher amounts to cover their needs in later life.
Examples of income-related pensions
To better illustrate how pensions vary depending on income, the following examples can be given:
- a person with an income below the national average - at retirement, this person can only rely on the AOW pension, which will be approximately €1 486.24 per month (for one person) - if they have not had the opportunity to save for a second pillar pension, their benefits will be limited,
- a person with an income above thenational average - in this case, in addition to the AOW pension, he or she can rely on other benefits from the occupational pension - the average net pension for a person with such an income is approximately EUR 1 838 per month,
- high earner - for high earners, over the years and with the use of pension savings schemes, the pension can be well above average - if all pillars of the pension scheme are fully utilised, the amount can often exceed EUR 3 000 per month.
The lowest pension in the Netherlands - how much is the minimum benefit?
The minimum pension in the Netherlands is the benefit available to people who have not worked in the Netherlands for 50 years or who have not been able to take advantage of additional earnings. This type of pension is mainly based on the AOW pension and amounts to approximately EUR 1 486 net per month per person. This is the lowest guaranteed amount that a person living in the Netherlands can receive on retirement.
Persons who do not meet the 50 years of service condition will receive proportionately lower benefits. For example, a person who has only worked in the Netherlands for 25 years will receive half of the full AOW pension.
How do the different pension pillars work in the Netherlands?
The third pillar of the pension system in the Netherlands is mainly for the self-employed and those who want to increase their savings for retirement. Unlike the compulsory contributions to the state pension (AOW) and the supplementary pension offered by employers, the third pillar is based on voluntary individual contributions. Individuals who are not members of occupational pension schemes can use this pillar to save for their own future.
Individual pension schemes allow the flexibility to tailor contributions to one's own financial capabilities and future goals. This is an attractive option for the self-employed and those who want to have more control over their retirement. With the right savings plans, the third pillar allows for better financial security in later life, which is particularly important if there are no other forms of retirement savings.
Dutch pension and tax returns - do you have to deal with the Belastingdienst?
A pension from the Netherlands is taxed by the Dutch tax authority Belastingdienst, so people receiving a pension must declare this income in the Netherlands. In most cases, tax is automatically deducted from the pension by the Dutch system, but you may have to file an annual tax return. This is especially true if the income exceeds certain tax thresholds or if the person receives other benefits, such as a supplementary pension. It is important to check your individual obligations to the Belastingdienst, as failure to do so can lead to financial penalties.
People who live outside the Netherlands but receive a pension from the Netherlands may also be subject to certain tax reporting obligations to the Belastingdienst. In such cases, it is necessary to ascertain whether the income in question is fully taxable in the Netherlands or whether there is a double taxation treaty that may affect how it is reported. The Dutch tax administration offers various online tools, such as Mijn Belastingdienst, which make it easier for Dutch pensioners to file returns and keep track of their tax obligations.
Pension age in the Netherlands - when do I need to pay money?
The current retirement age in the Netherlands is 67, but it is planned to increase in the coming years due to the increasing life expectancy of the population. This means that younger people entering the labour market now may retire at 67.
It is also worth noting that employees may choose to retire earlier, but in that case their benefits will be correspondingly lower. On the other hand, those who choose to continue working beyond retirement age can expect an increase in their benefits.
The pension system in the Netherlands is one of the most stable and generous in Europe. It offers various forms of support, both for people on low incomes and for those who have saved for their retirement for many years.
