Calculator Dutch Public Pension

The AOW (Algemene Ouderdomswet) is the Dutch state pension, introduced in 1957. Unlike most European systems, the AOW is not linked to income but to years of residence. This makes it fundamentally different from earnings-based pensions like US Social Security or the UK State Pension.

• Flat-rate: Every resident receives the same base amount, regardless of salary or contributions paid.
• Full AOW: ~€ 1.662/month for a single person, ~€ 951/month for a couple (per person) after 50 residence years.
• Accrual: 2% per year of residence in the Netherlands between age 15 and the AOW age. 50 years = 100%.
• No means test: Even millionaires receive the full AOW.
• Funding: Through the AOW premium (17.9% of Box 1 income, up to ~€ 38.098), supplemented by the government.

The sectoral pension funds form the most important pillar of the Dutch pension system. Over 90% of employees are enrolled in an occupational or sectoral pension fund. This is comparable to a mandatory 401(k) or UK workplace pension, but managed collectively at industry level.

• Middelloon (average salary): The dominant scheme. Accrual of 1.875% of pensionable salary per year. Pensionable salary = gross salary - franchise.
• Contributions: Typically 20-25% of pensionable salary, split between employer (~2/3) and employee (~1/3).
• Major funds: ABP (civil servants, € 530.000.000.000), PFZW (healthcare), PMT/PME (metals), bpfBOUW (construction).
• Target: With AOW + occupational pension, the goal is to reach ~70% of the last gross salary at retirement.

The Wtp (Wet toekomst pensioenen), adopted in 2023, is the biggest pension reform in the Netherlands in decades. It fundamentally transforms the 2nd pillar from a defined-benefit to a defined-contribution model.

• From DB/average salary to DC: Transition from a benefit-based scheme (how much you receive) to a contribution-based scheme (how much you put in). Each participant gets a personal pension pot.
• Flat-rate premiums: End of age-dependent contributions. All participants pay the same percentage, which benefits younger workers.
• Solidarity reserve: A collective reserve (max 15% of assets) to absorb shocks and protect retirees during market downturns.
• Transition: Pension funds have until 1 January 2028 to switch over. The process includes "invaren" (transferring accrued rights to the new system).
• Impact: Pensions will track financial markets more closely. Higher upside potential, but also more volatility.

The Netherlands has historically used two calculation systems for occupational pensions:

With the Wtp, both schemes are being replaced by a contribution-based system. Accrued rights under middelloon or eindloon will be converted ("invaren") into a personal pension pot under the new system.

The AOW retirement age has been gradually raised and is now linked to life expectancy at age 65.

• History: Set at 65 for decades, then gradually raised since 2013.
• 2024-2027: 67 years. From 2028: 67 years and 3 months.
• Formula: For every year that life expectancy at 65 rises, the AOW age increases by 8 months (instead of 1-for-1 before 2024).
• No early AOW: Unlike many countries, there is no option to receive AOW before the legal age. No early/late adjustment for AOW.
• Occupational pension: The 2nd pillar often allows retirement from age 60, with an actuarial reduction (~4-5% per early year).

The franchise (or AOW offset) is a central concept in the Dutch 2nd pillar. It is the portion of salary already covered by the AOW, and therefore excluded from the occupational pension calculation.

• Impact on low incomes: The closer the salary is to the franchise, the lower the occupational pension. An employee on the Dutch minimum wage builds up very little in the 2nd pillar.
• With the Wtp: The franchise may be reformed or replaced by a flat-rate contribution system, improving coverage for lower incomes.
• Ceiling: Above € 137.800/yr, no further accrual in the 2nd pillar. High earners must turn to the 3rd pillar (Lijfrente) for additional retirement savings.