Expat pensions in the Netherlands
Expat pensions in the Netherlands
Not that long ago retirement options for most of us in the EU were simple and relatively easy to understand. In fact, it wasn’t even that important to fully comprehend the intricacies of pensions and how they worked. We retired at the normal date and the company we’d spent the last 40 years working for would pay us a guaranteed pension for life.
When we eventually shuffled off this mortal coil our dependents would similarly be taken care of until their needs or entitlements ran out. We may have thought we were getting a good deal, a bad one or somewhere in between, but there wasn’t a lot anyone could do about it.
As we all know, things have changed. Although some of us do still work for the same employer for life such as public service employees and those who work for particularly large and secure companies, most people now work for multiple employers, with increasing numbers working in a number of different countries during the course of their career.
Until recently, pension provision and retirement planning options for mobile employees and retirees in the EU were inflexible, antiquated and overly complicated. They still are for many of us, but things are slowly but surely changing, despite political intransigence and an unwillingness in certain countries to apply the EU directive relating to free movement of capital, designed to facilitate portability of pensions within the EU.
It is still very difficult to transfer Dutch pension plans to other countries, although legislation and Dual Tax Agreements exist to allow this. The UK, however, is leading the way and has fully adopted QROPS legislation which enables holders of several UK pension plans to consolidate them into one easy to understand structure. As more and more people decide to retire outside the UK, this legislation is becoming much more important, even vital, for those who want to maximise their retirement benefits and avoid unpleasant surprises regarding currency movements.
Benefits of QROPS
- The currency your pension is denominated in is of huge importance. Retiring in a Euro-based country with your pension paid out of the UK equates to taking an investment risk with your pension. When Sterling is strong against the Euro this can appear to be an attractive option, but when things go the other way (as they invariably do), your pension is reduced automatically in line with exchange rates. Although there are some who don’t mind taking this risk, I’d suggest that most of us do not.
- Consolidation is also an important aspect of the more flexible UK pension regime. It has long been possible to transfer from one provider or employer to another within the UK. QROPS legislation means we can now add EU countries to the list; as a result it is now possible to consolidate all of our UK pensions into one pot, denominated in Euros. Depending on the specific country, benefits can also be drawn from age 55 onwards. This might be very important for those with a need to access their pensions early due to ill health or other family reasons.
- The last piece of the jigsaw for most people is how and where to invest our pension pots. As interest rates and inflation are at historically low levels, and are likely to stay that way for the foreseeable future, annuities have become less attractive. The new pension transfer rules in the UK allow much more flexibility and many more options regarding the investment element of your pension. As such, we can now invest our pension pots in almost any fund available worldwide. We all have different needs and requirements in terms of investment strategy; there are however plenty of advisers out there ready to help.
The new world we live in can seem quite a scary place when we are being asked to take more responsibility for the investment and management of our pension pots. Alas, the march of time and progress is inexorable; those who don’t take steps to keep up will be left behind.
After many years of rigidity and complexity, pensions are finally reflecting the real needs of EU citizens. All EU countries will eventually have to comply with portability legislation, but those who hold UK plans can benefit now. You may be one of the lucky ones whose plans are fully in order and equipped to cope with this brave new world. Even if this is the case it is still recommended that you regularly evaluate and review your retirement plans. It’s important to make the most of what is essentially your money, and therein your future!
By Phil Loughton – AXIS Strategy Consultants