Retiring early or cutting back on work: how do you build up your pension?

In 2019, a law was introduced that led to the state pension age in the Netherlands not rising as rapidly as agreed in 2013. From 2024 to 2027, the state pension age is 67 years old, and in 2028 and 2029 it will be 67 years and three months.

How much state pension you’ll receive depends on your personal situation. You will build up a full state pension if you have lived in the Netherlands for 50 years before you start drawing your pension. For every year below this, the state pension benefit is reduced by 2%. The amount is different depending on whether you are single, living together or married. The gross benefit in 2024 is € 1,541.53 per month for a single person and € 1,047.60 for people who are married or living together.

Many pension plans allow you to retire earlier. The following options may be available with the pension you’ve built up through your employer:

1. Part-time pension

A part-time pension might interest you if you don’t want to retire completely yet. Many pension plans allow you to switch to working part-time before you retire altogether. You can then request early retirement part-time. For example, you can retire for one or two days a week, while still working on the other days.

2. High/low pension

You can often choose to receive more of your pension in the first 5 or 10 years, and then receive a reduced pension afterwards. This could work for you if you need a higher income at first and less later on. For example, you might expect your expenses to be higher in your first few years of retirement because of travel plans or other activities.

3. Higher retirement pension and lower partner’s pension (or vice versa)

If you don’t have a partner or if your partner has enough income of their own, you can reduce the partner’s pension and increase your own retirement pension. It works the other way round too, for instance, if not enough pension has been built up for your current partner following a divorce or if your partner has a low income. In that case, you can choose to reduce your retirement pension and increase the partner’s pension.

4. Have your pension paid out earlier

Most pension plans offer the chance for you to retire earlier, but there is a limit, for example no more than five years before your state pension age. If you retire earlier, you will receive a lower pension than if you wait until you reach the actual retirement age. This is because when you retire early, you will stop building up a pension. What’s more, the pension capital you’ve built up has to be paid out over a longer period.  As a rule of thumb, your pension benefit is about 7% to 8% lower for each year of your early retirement. It’s important to remember that you can retire early without having to start taking your pension straight away. If you're considering this, you might be able to bridge that period with other income or capital to cover your expenses. To find out if this could be feasible for you, request a Financial Insight report to assess how it would affect your finances.

Retiring early without taking your pension straight away could have consequences for the partner’s pension, depending on the scenario. You might even no longer be entitled to a partner’s pension if you retire early. Check your pension plan carefully for any possible consequences and solutions.

You can find more information about your state pension and the pension you have built up with all your employers at mijnpensioenoverzicht.nl. 

If you want to retire earlier or reduce your working hours, you first need to work out how much net disposable income you need. If your state and retirement pension together are not enough, you can top up your pension in the following ways:

Save with an annuity

An annuity lets you generate additional income while enjoying tax relief. There are two parts to an annuity: first, you start building up your annuity capital (accrual phase) and afterwards, the accumulated capital is paid out to you in instalments (payout phase). You can do this through an insurer or a bank.

Repay more of your mortgage

As a homeowner, you can build up capital by paying off your mortgage and increasing the equity in your home. If you expect a lower income in the future, consider making changes to your living expenses in good time. Additional repayments will reduce your monthly costs. Whether it’s wise to pay off more on your mortgage depends on your personal financial situation and your mortgage terms and conditions.

Saving or investing

You can also choose to build up additional capital through savings or investments. You can then use these funds to top up your pension. How much money will you need in the future? How much of a buffer do you need to top up your pension by? In addition to the period you need to cover and the amount you need to top up by annually, the return on your assets also determines how much capital you need to contribute. The higher the return, the less capital you need to build up a buffer.

When it comes to your pension, you’ve got a range of choices. It’s a good idea to regularly review the pension overview provided by your pension fund and carry out a pension check. If you need to make any changes, you still have plenty of time to build up additional capital. The sooner you start doing that, the more beneficial it can ultimately be. Please contact your adviser to go over your options.

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