Women and pensions: tips from Elfin and Preferred Banking

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Puck: “Retirement can feel like a long way off, and it’s not exactly a very popular topic. However, it’s incredibly important for women to think about their retirement. In the Netherlands, women accrue 40% less pension on average than men, and we also live longer. That’s why it’s crucial to be prepared.”

Bobby: “The Netherlands has a combined pension system founded on three pillars:

1. State pension, known as AOW. This is for everyone who lives or has lived in the Netherlands. You accrue this pension automatically.
2. The workplace pension you accrue through your employer, although not every employer has a pension scheme in place.
3. Private pension.

In the Netherlands, a decent pension amounts to 70% of your last income.

Whether that’s really true is an individual matter, of course. Say your current income is 1000 euros, and you receive 700 euros of pension upon retirement. If you’re able to save over 300 euros now, you have a pension gap, but not a shortfall. But if you’re only able to save 200 euros a month, that means you’re spending 800 euros a month. Once you retire, you would have a shortfall of 100 euros. You could make extra contributions by registering for a supplementary pension product.”

Bobby: “If you have a workplace pension, you’ll receive an annual pension statement. This shows what you have accrued so far and what you will accrue in the future, assuming you remain employed until your retirement.

Most pension funds are registered with mijnpensioenoverzicht.nl, and you’ll also be able to see your state pension on there. That gives you a more complete picture of your net and gross income.

If you really want to know how that will affect your personal situation and how you pay your outgoings, you can run through the numbers with a financial adviser.”

Bobby: “An annuity is a way to top up your pension in a tax-efficient way. There is what’s known as the ‘annual margin’, which is calculated based on your income combined with your accrued pension. This determines how much pension you’re allowed to accrue and still receive tax relief.

If you make a deposit within that margin, you’ll receive a rebate, through your income tax return, of the income tax paid. Once you reach state pension age, you can have it paid out as a temporary retirement annuity. You will then pay income tax on that income.

You may fall into a lower tax bracket once you reach state pension age, so you could indirectly benefit from that.”

Bobby: “It’s a question that affects me, too. I’m married, and my wife is a little older than I am. Once she reaches state pension age, I’ll have to keep working for at least ten years. That isn’t something we want, so I’d prefer to retire early.

We decided we’d pay off our mortgage early, in twenty years rather than thirty, so that we can maintain the same spending habits on a lower income. We’re also paying into an annuity on my wife’s life, so she can start drawing payments. We’ll choose a term that’s aligned with the time in which I retire early.

These are examples of how a financial consultation can help you. There are so many options out there, it feels like a puzzle. It’s up to you to assemble the pieces into your ideal picture.”

Bobby: “True, and that can be tricky. If you retire early, your income disappears. It also means your pension accrual stops earlier than planned. As a result, the forecast amounts on your uniform pension statement will be lower, since you accrue less and draw your pension early.

To properly understand the impact of that decision, it’s a good idea to get clarity and see whether you can make ends meet with that amount.”

Bobby: “That’s right. It all starts with that motivation to retire early. If you want to stop working at 62 and have the financial means, you can. If you don’t have the financial means, you may wish you’d taken action earlier.”

Want more tips or information about paying towards your pension, early retirement or getting insights into your financial future?

Want to know how you can best gift money to your children or other people in your life?

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