Pension System

In the Netherlands the mandatory pension system consists of three pillars, it is financed through capital funding and it is based on the involvement of both employers and employees.

First pillar
Any Dutch citizen, aged between 15 and 65, that lives and works in the Netherlands, is insured by the state pension provision, called AOW (Algemene Ouderdoms Wet – General law for the elderly). This basic provision entitles a single pensioneer to a monthly gross payment of about € 1000 from his/her 65th birthday. If a pensioner is married or cohabitates, the monthly amount is lower than if he/she lives alone. Every year a Dutch citizen between 15 and 65 has not lived in the Netherlands will lead to a discount of 2% over the yearly contributions he/she has to pay.

Second pillar
About 96% of the Dutch workers are relying on the second pillar pension scheme through their employers. The most common pension scheme is a DB1 old-age pension, based on the average salary a worker has built up during his entire career.2 The Dutch State encourages saving for a pension through tax breaks. The employees may choose to invest their contributions in a pension fund or a life insurance, rather than leaving them to their employers. In this way, the worker’s rights are protected in case his/her employer goes bankrupt. Pension funds manage the assets raised by their investors. Their risks, strategic investment policy of pension funds and future sustainability are mapped out through an Asset Liability Management study. The assets must be invested in such a way that the safety, the quality, the liquidity and the return of the entire investment portfolio are secured. As a consequence, pension funds’ portfolios are composed by a mix of equity, property, fixed income and other investment classes. Occupational pension funds for professionals carry out the pension plans of the self-employed in the same profession. 

Third pillar
Workers can individually compensate the first and the second pillars with an annuity (the third pillar). The contributions to a life insurer or a bank may be deducted from tax. However, the future annuity benefit (as the benefits from the second pillar) will be taxed.


Pension funds are private organizations whose board consists of employers’ and employees’ organizations (equally represented), the so-called social partners. The social partners establish the framework of the pension scheme through collective bargaining. Pension funds are part of Industry-wide Pension Funds (Vereniging van Bedrijfstakpensioenfondsen, VB, member of the Pension & Development Network), which represents the pension interests of three-quarters of Dutch workers with a collective pension scheme. The pension fund governance principles consist of transparency, accountability and internal supervision. Every industry-wide scheme must have a council of participants, comprising of members and pensioners, that has advisory powers on design of pension rules and regulations. A pension fund must have minimum assets at its disposal in order to meet liabilities. Moreover, participants must be able to find out whether a pension fund is able to fulfill its (future) obligations. The international accounting rules also affect pension schemes carried out by the VB.3

Background information

The Netherlands is one of the most densely populated countries in the world: 90% of the Dutch population live in towns and cities. On January 1st, 2008, the population was officially estimated at 16.4m and has been slightly increasing from 2003 (16.19m). However, the growth rate of the population has been decreasing (from 0.5% in 2003 to 0.1% in 2007). The progressive decline in birth rates and longer life expectancy are the cause of the aging Dutch population. Nonetheless, in 1999 and 2000 net inward migration added an average of over 52,000 to the total population (a rise of around 0.33% per year), but by 2003 net migration flows had turned negative.

In 2006 overall employment increased by 2.3%, followed by a further increase of 2.6% in 2007. This increase contributed to a fall in the unemployment rate from an average of 6.5% in 2005 to 4.6% in 2007. However, Dutch labour market has recently suffered the economic crisis and its negative consequences on unemployment rate (5% according to 2009 economic estimations) and economic growth. Employment is mostly concentrated in the services sector (77.5% of the total labor force, well above the OECD average of 70% in 2006) and has grown particularly strongly in financial services.


1 DB (Defined Benefits) is a pension plan in which pensioners received a specified monthly benefit predetermined by a formula based on their earnings history,. Tenure of service and age, rather than depending on investment returns. 

2 The average salary scheme has replaced the final salary scheme, based on employees’ last salary.


New brochure provides summary of Dutch pension system

This brochure, which is aimed at foreign stakeholder, covers the most important aspects of the Dutch pensions system.
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