1. A government-provided pension.
2. An employer-provided pension.
3. Personal pensions purchased through individual savings.
The first pillar, government pension, provides a basic income to retired people in the Netherlands. It is financed through taxes and is based on a pay-as-you-go system. The pension provided is linked to the country’s minimum wage. An amount of 2% of the state pension benefit is accrued for each year that an individual has lived or worked in the country until the age of 67, with a maximum period of 50 years taken into account. Depending on the increase in nationwide longevity, the age of 67 will increase.
The second pillar consists of occupational pension schemes. Companies offering their employees a pension plan are obliged to administer these plans externally via a pension fund or an insurance company. Funding for these schemes is provided through employer and member contributions and is based on capitalization. A majority of employers used to bear all the risk for these schemes but, in line with globally changing attitudes, there has been a move toward risk-sharing types of schemes. This pillar is discussed in further detail below.
The third pillar consists of annuities and pensions bought from individual savings. It is the main source of postretirement income for self-employed individuals and individuals working for organizations that do not provide a pension. To encourage people to make use of this pillar, tax incentives (within limits) are provided by the government.
In 2014 and 2015 the tax incentives in the second and third pillars were further limited. The annual salary on which the pension is based is limited to EUR 100,000.