Pensions matter as they provide capital for later in life and cover risks. Due to diverse legal/tax/actuarial/product issues, expats are not always paying real attention to pensions.
Make pensions work for You
Here are some guidelines to point you in the right direction so you focus on tailor-made claims and prevent too often existing cost explosions:
Means of international expat pension coverage
Coverage can be created by the company or by the expat personally.
The pension plan might relocate with the expat to each new country or it might be meant to stay in one country.
The coverage might be legally covered as a ‘pension’ or as ‘insurance’.
It is essential that expats have a tailor-made pension plan at the lowest cost. It is recommended to examine your options thoroughly and consider the outcomes for your partner and family. Make sure you compare quotes to find the best provider for your needs as differences can be substantial.
The Dutch pension System
Pensions are covered by means of 3 pillars:
Pillar 1: Governmental coverage for residents
Pillar 2: Corporate coverage for employees
Pillar 3: Private coverage by individuals
As of now we will only focus on corporate coverage.
Only three kind of pensions allowed in Holland:
Old age pension
Next of kin pension
If it’s not possible to obtain the required coverage as a ‘pension’, it might be possible as an ‘insurance’.
DB versus DC pension plans
Defined Benefit (DB) pension plans provide a guaranteed amount of pension terms at pension age. There is no investment nor interest rate risk. Which makes these plans currently extremely expensive.
Defined Contribution (DC) pension plans provide a guaranteed amount of pension premium. At pension age a lifelong annuity has to be bought with the acquired total pension capital. Thus there are no guaranteed pension terms and there is a substantial amount of investment and interest rate risk.
PPI as DC Alternative
Due to the historically low interest rates, DB pension plans have become extremely expensive. Many companies therefore have a DC pension plan. In that respect, as of 2011 it is also possible to choose a Premium Pension Institution (PPI). A PPI generally has substantially lower costs, more flexibility and more choices than an insured DC pension plan. Thus you should also look at the PPI possibilities for covering your expat pension plan.
Dutch Legal Restrictions
The maximum amount of corporate related pension earning wages amounts to € 103, 317 in 2017.
Those pension earning wages have to be decreased with a 2017 franchise of i.e. € 11, 829.
In Holland, product-related pension advice may only be provided by a AFM licensed pension consultant. He must be independent from insurance companies and may only receive payment from his client.
International Transfer of Pension Capital
In general, it is possible to transfer pension capital from one country to the next. Each country has its own legal and tax regime and Dutch legislation is strict.
A transfer of pension capital from a Dutch pension plan to another country is only possible if the pension plan in the next country has the same guarantees as the Dutch pension plan. I.e. that it is capital based, that the capital is placed in a separate legal entity and that there will be no lump sum and only annuities. Due to these requirements, this transfer is often not allowed.
To transfer pension capital to a Dutch pension plan from another country is generally less difficult.
The EU is working on the creation of a true Pan-European Pension Plan (PEPP). One of the benefits of this proposed scheme is that it will be transferable across EU member states.
UK Expats from the UK
Many UK expats have QROPS pension plans. Due to the 2017 changes in QROPS regulations and the uncertain effects of Brexit, expats from the UK should investigate alternative options. Our UK QROPS brochure provides you with more details.
For more information on expats pensions, feel free to contact Pension Jurist/Consultant Patrick Donders at Expat Pension Holland.