Old age state pension Netherlands AOW
Friday, February 5th, 2016 by Arnold Waal
In the Netherland we have the AOW. That is the general old age pension.
How does the AOW work?
The AOW was suddenly introduced in 1947 by Minister Willem Drees who made himself the most loved politician of the past century. The second world war ended for us in 1945 and the Dutch were building the country. However, he elderly were not able to work hard enough to provide income for themselves, hence the AOW was introduced for every Dutch resident who was 65 years or older.
A sudden introduced pension system where the pension benefit payments starts the same date as it was introduced does imply not enough premium can have been paid for the elderly benefitting from this old age pension immediately in 1947.
How is the AOW paid for?
A normal pension insurance implies you pay premiums over a long period of time and based on the total value build up at your pension age, you are paid for he desired period of time an amount. In case of the AOW no premium was paid. The AOW is therefore not a pension insurance. You build up no rights, but if you have been living in the Netherlands during a 46 year period till the moment you become 67 years old, you receive your AOW old age pension.
That implies that should we no longer be able to pay for the AOW, nobody can claim his right to the AOW, as that does not exist. If you have not lived the full period in the Netherlands of 46 years, every year you lived shorter in the Netherlands, your benefit is reduced by 2%. If you have lived the period in the Netherlands, but not earned any income, that is not relevant for the AOW. The AOW legislation is from a date that it was very well understood that the person staying home does at least as important (unpaid) work as the person going out to his place of work.
The age of 65 has been increased to 67 only recently. Increasing the AOW age is political suicide, but the recent crisis forced this change and made this change politically survivable. The age will go to 68 and should go to an even higher age, as the live expectancy of the Dutch has very much increased since 1947.
If you work at a consulate in the Netherlands, are you entitled to AOW?
This was the question of the British ms Evans born in 1955, living in the Netherlands since 1973. Ms Evans initially worked for the British consulate in Rotterdam, but changed jobs in 1980 to the US consulate in Amsterdam and worked there since then.
If you work for the consulate you have a privileged status, which implies nearly no tax and social premiums are paid over your employment income. The institute that is in charge of the AOW is the SVB. The SVB took the standpoint that Ms Evans was not socially insured in the Netherlands from the moment she started to work for the US consulate in 1980. If you are not socially insured, you are not entitled to the AOW benefit.
Ms Evans disagreed with this decision, but the court stated that Ms Evans was during her employment with the UK consulate under the EU social security legislation, hence part of the Dutch social system. But the US consulate makes that Ms Evans was no longer under the EU social security legislation. Moreover, in 1999 the Dutch Government offered embassy and consulate personal to waive part of there social security exemption in return for the AOW pension facilities. This offer was rejected by Ms Evans, which implied she kept her tax and social premium free status.
As a consequence Ms Evans her AOW benefit was reduced with 2% per year for the period starting 1980 till about the year 2023. That is a 43 year period, which implies a reduction of 86% of the AOW amount. Making this calculation makes me be surprised about a court case for an event that has not happened yet.
Putting AOW into perspective
In 2015 the annual amount of AOW a single person could get was EUR 13.867, that is EUR 1.155 gross per month. A married person receives annually EUR 9.482, which is EUR 790 per month. Ms Evans in the above article will receive either EUR 13.867 minus 86% being EUR 1.941 annually or EUR 9.482 minus 86% being EUR 1.327 annually.
We do not recommend people to keep on their tax registration in the Netherlands for the sole purpose of having their rights confirmed to the pro rate part of the AOW benefit. First of all, there are no rights and secondly, the Dutch very much doubt this system will survive in the near future.
In other words, do not rely on the AOW, make sure you have made investments in a field you feel comfortable with that could be used as your pension income the moment you no longer want or can work.
Orange Tax Services
We are focused on non Dutch person or company doing business in the Netherlands. We are very well familiar that most expats leave the Netherlands straight away after their 8 year period of the 30% ruling has expired. In any case, you have had a life abroad before you arrived and most likely you will leave the Netherlands to enjoy your old age anywhere but this rainy country. That makes you need to have an international focus for your old age income. We are no certified pension advisors, so we cannot help in this field, but we can file your income tax returns.