What is a pension?

A pension is the income that you will have from the time you stop working. It is important to start saving towards a pension in good time. If you want to continue doing the things you do now, you will need a substantial amount of money for your retirement years. How much? As a rule of thumb, you should have saved around 18 times your annual salary at retirement. This amount will fund your pension benefit payments during your retirement. Please note that the factor of 18 is only a guide. If you have ambitious plans, you will likely need more. And if you win the lottery, you could make do with less. The value of the state pension when you retire is also a factor.

In the Netherlands, your overall pension is made up of three parts, also referred to as ‘pillars’. These are:

The state pension

The first pillar. The state pension is regulated by the General Retirement Act (Algemene Ouderdoms Wet, “AOW”). You will be paid a state retirement pension by the Dutch state on reaching the statutory retirement age (currently 67 years).

Occupational pension

The second pillar is formed by the pension that you have contributed towards while in paid employment. Your employer will pay some or all of the relevant pension contributions. This money is then invested with a pension provider, such as BeFrank. In this way, your contributions earn a return. And this is important because around 75% of your final pension savings will be from the return earned on the investments.

Voluntary additional savings

This is the third pillar. This includes any additional savings you make in whatever form. Some people may put money aside in a savings account, while others may take out a life annuity policy.