How does the Dutch pension system work?

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In this blog, you will get a good understanding of the Dutch pension system. The Netherlands is famous for a great number of things (think of the canals in Amsterdam), but it is also home to a robust pension system, often considered one of the world's best. So, how does it work? Let's take a closer look - we explain exactly what your (Dutch) pension entails and how you can quickly check your personal pension situation

The Dutch pension system

The Dutch pension system consists of 3 so-called 'pillars'. This means that your pension can consist of 3 sources of income you get when you retire. We briefly explain each pillar:

1. First pillar: this is the pension that the Dutch government provides. This is also known as the AOW (Dutch abbreviation for ‘General Old Age Pensions Act’). This is a fixed amount that you will receive each month as soon as you hit the statutory retirement age. For people currently in their 20s and 30s, your statutory retirement age will probably be 69. The number of years that you have worked outside the Netherlands will impact this amount: for each year you did not work in the Netherlands you will get a 2% discount on your AOW pension. In particular for expats, this is good to understand as having not spent your full career in the Netherlands can have a significant impact on your AOW pension. For background, in 2023, the AOW for single retirees was €1102 per month, and for retirees with a partner €751. On these amount you still need to pay income tax. Ask yourself: would you be able to live off these amounts?

2. Second pillar: this is the pension that you build up via your employer(s). That is why the second pillar is also known as 'the employer’s pension'. This employer’s pension is offered to all employees in a company and participation is typically mandatory. This part of the Dutch pension system is subject to the upcoming pension reform - you can read more on this in this blog.

3. Third pillar: this is the pension that you arrange yourself, i.e. individually. As an individual, you can take out an annuity (third pillar pension product) to suit your own needs. An annuity is a financial product that pays you a guaranteed income for a fixed period or for the rest of your life. You can see this as a replacement of your salary. Also some employers offer a third pillar pension to employees. Such third pillar pension is typically not mandatory for all employees and can be tailored for each individual employee, allowing greater flexibility compared to a second pillar pension.

For completeness, the above 3 pillars constitute your ‘traditional’ pension, however you could also get pension income from other sources, for example your personal savings and investments. These additional sources of pension income are also called the 'fourth pillar' to the pension system.

The sum of the 3 pillars is the pension that you will receive when you retire.

Overview of the 3 pillars of the Dutch pension system

The importance of the third pillar has increased drastically, partly due to the second pillar becoming less rich over recent years. The interplay between the above 3 pillars is different for everyone. Are you curious about what the ‘pension pillars’ look like for you personally? Please read on.

How to check your pension build-up?

It is simple to check for yourself how your (Dutch) pension is building up. Using your DigID, you can log in easily and securely at www.mijnpensioenoverzicht.nl. Here you will find a complete overview of the first and second pillars of your pension build-up, so how much government pension you will receive and how much pension you have built up with your employer (and also with all previous employers where you have built up pension). The third pillar is not included in www.mijnpensioenoverzicht.nl, because this is different for everyone.