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Choices concerning your pension benefit

Have you have built up an amount for your pension through your current or former employer? Then you will not receive this pension automatically. You must purchase the pension benefit yourself with the amount accrued (your pension capital). In doing so, you will have several choices to make. No later than six months before your retirement date, your pension provider (or providers) will notify you of your options. Exactly which choices you have will depend on your pension scheme and the pension you decide to purchase. This page provides an overview of the possibilities.

Combining pension capital sums

Have you built up more than one capital sum? And will these become available in the same period? Then you can also use them to purchase a single pension benefit. Not only is that more manageable, but it can also end up being less expensive for you. It does not matter whether the capital comes from a pension insurer, pension fund or premium pension institution.

If the different pension capital sums do not become available in the same period, you can move forward or postpone the retirement dates so that the sums become available at the same time. Then you will still be able to use them to buy a single pension benefit. The options for moving forward or postponing retirement dates are explained in the section ‘Retirement date’.

Choosing a pension provider

You can purchase a pension benefit from the pension provider with which you have accrued pension capital, but you are also allowed to purchase your pension benefit from another provider. Some pension providers let you purchase the pension benefit yourself, while others require you to go through a financial advisor.

It is a good idea to request several quotations which you can then compare with each other. Each provider may offer different options and the levels of the pension benefit may vary as well. A difference of few dozen euros per month can add up to thousands of euros over the course of your retirement. So it can be worthwhile to compare providers carefully.

You can purchase a pension benefit from Nationale-Nederlanden yourself, or you can go through a financial advisor.

Retirement date

You might be able to move forward or postpone your benefit commencement date. For example, if you want to enjoy the advantages of having a pension at an earlier age. Or you may prefer to postpone this, because you want to keep working for longer.

If you have different pension schemes which all have different retirement dates and the capital sums from these schemes will not become available in the same period, then it may be possible to move forward or postpone the retirement dates so they are all the same. That way, these sums can be used to buy a single pension benefit.

Early retirement

Your pension scheme indicates how much earlier you can retire. In most cases, you can start receiving pension or partial pension five years before you reach the AOW (Dutch State Pension) age. In that case you do not need to stop working or work fewer hours. If you wish to start receiving pension sooner than that, you will have to reduce your hours by the amount corresponding to the portion of your pension you will start receiving. Of course, whether you can stop working sooner must always be decided in consultation with your employer.

The sooner you stop working, the less pension you will accrue. And if you begin receiving pension sooner, you will need a pension for a longer period of time. As a result, the pension benefit will be lower.

So receiving your pension earlier (or much earlier), is only attractive if you have built up sufficient pension to compensate, or if you have sufficient supplementary income.

Later retirement

In your pension scheme it may have been agreed to permit postponement of your retirement date. If you opt for this, you will start receiving pension benefit on a later date than the retirement date in your pension scheme. Your lifelong pension must commence no more than five years after you reach the AOW age.

If you retire later, your pension benefit will likely be higher, as the period during which you will need a pension will be shorter. The level of your pension benefit will also depend on the interest rate at the time of purchase. And if your pension money has been invested, it will also depend on the performance of the investments.

You are not required to continue working until your lifelong pension benefit starts. You can also stop working on your retirement date, but postpone receiving pension benefit until later. The facilities for this may vary depending on the pension provider.

Partner’s pension

In addition to your own retirement pension, you can also use your pension capital to buy a partner’s pension. Your partner receives this pension in the event of your death.

But what if you do not have a partner? Or what if, for example, your partner has built up sufficient pension of their own? Then you can also buy a retirement pension only (or a bigger retirement pension). But keep in mind that if you have a partner, you cannot do this without their consent.

How much partner’s pension can you purchase?

The partner’s pension must not amount to more than 70% of your retirement pension. Your choices may vary depending on the provider. By default, Nationale-Nederlanden’s Personal Pension Benefit includes a partner pension amounting to 70% of your retirement pension. 35% is also an option.

Important to consider

Do you have a partner? Then it is wise to take into account whether your partner’s own income will be sufficient for him/her when making a choice. That may be the case if your partner works, has built up a sufficient pension for him-/herself or has other assets or sources of income, for example. In such cases a partner’s pension may be less necessary – or perhaps none is needed at all. When making this choice, you should also keep in mind the age difference between you and your partner. If your partner is much younger than you, for instance, you are likely to die before your partner does. In that case it can be smart to opt for a partner’s pension (full or partial).

Fixed or variable pension benefit

One important choice you will have to make is whether to purchase a fixed or a variable pension benefit. Which one you choose can have a big impact on the level of your pension. The market interest rate at the time of purchase may play a role in your decision, as can your personal circumstances and your need for security.
The various options are described below.

Fixed pension benefit

With a fixed pension benefit, you know the exact level of your pension benefit as from your retirement date, both now and in ten years, for example. You do not run any investment risk. Possible choices you can make are:

  • a benefit that remains the same
  • a benefit that increases
  • a benefit that is higher for the first few years and lower after that (‘high-low’)
  • a benefit that is lower for the first few years and higher after that (‘low-high’)

A high-low pension can, for example, help you absorb costs such as a mortgage for which you must make payments for a few more years. Or it can help tide you over until you receive a Dutch State Pension. If you anticipate having higher healthcare expenses in the future, that might be a reason to opt for a low-high pension.

Which choices you have may vary depending on the provider.

Variable pension benefit

With a variable benefit, the pension provider invests (part of) your pension money.

If the investments perform well, this will have a positive effect on your pension benefit. Conversely, poorer performance will have a negative effect. The market interest rate will also affect the level of pension benefit. Because of this, the level of your benefit will change each year.

At some providers, investments can be made according to different percentages. Your risk profile will then indicate which portion of your pension money you can have invested. The pension provider where you purchase your pension determines your risk profile by asking you several questions.

The more money is invested, the more your pension benefit can fluctuate from year to year. If your personal circumstances or requirements change after you retire, investing less or more may fit your situation better.
The high-low pension is an additional option you can choose and offers a variable benefit that is higher for the first years and lower after that.

If you are divorced

If you are divorced, your ex-spouse may be entitled to a portion of your pension capital. This will affect the level of the pension capital with which you purchase a pension. Your pension provider will notify you about this personally.

Small pensions

In some cases, the pension or pension capital that you built up during a period of employment can be quite modest. This can happen if you worked somewhere for just a short time. On your retirement date, your pension provider will calculate how high the pension benefit is that you can purchase. If it is below the statutory commutation threshold, we refer to this as a ‘small’ pension. Small pensions are commutable under certain conditions. On commutation of a pension, you will receive a lump sum which you can use as you see fit.

You do not need to use it to buy a pension benefit. The current commutation threshold for small pensions can be found on the Netherlands Tax and Customs Administration website (pay attention, Dutch page!). Your pension provider determines whether or not your pension is regarded as small. All pensions you have built up through the same employer with this pension provider are included in the determination.

Consequences of commuting your pension

On commutation of a pension, you will receive a lump sum which you can use as you see fit. You will not be using this to purchase retirement pension or any partner’s pension. Once you commute your pension, you will no longer be entitled to these pensions.

Your pension provider will inform you of the amount you will receive if you commute a small pension. Your income will be higher in the year in which you receive this. As a result, you may owe more tax or lose your right to any benefits you may have been granted by the Netherlands Tax and Customs Administration. For more information, please contact your benefits agency or the Netherlands Tax and Customs Administration or check the Sociale Verzekeringsbank (SVB) website.

Upon reaching the AOW age, you may be subject to a lower tax rate. If this applies to you, it can be advantageous to receive the commutation amount after you reach the AOW age. Check with your pension provider whether you can make use of this option.