The second and third pillar
W.A.M. Rasing BSc
B.A.J. Welman BSc
Meet Johan…
• born June 16, 1944
• is married to Anja
• has no children
• is very sporty
• and loves to travel
Pension worries
Pension worries
Why are pensions a ‘hot’ topic?
•
The Netherlands in top 3 EU of ageing society
•
Shrinkage force
•
Increase life expectancy
•
Recently raising pension age with small steps from 65 year till 67 year in
2023 in The Netherlands
Agenda
• The Dutch pension system
• Johan’s career
employee
entrepreneur
retirement
Dutch pension system
Importance of the 2nd and 3th pillar in Europe
Breakdown of national benefits by pillars
100%
75%
50%
25%
0%
PL
TR
1st pillar
IT
FR
FI
2nd pillar
ES
BE
PT
3rd pillar
SE
DK
CH
NL
2nd and 3rd pillar
GB
Johan as teacher
Geography teacher
Pension fund
Johan as teacher
If…
• continue working as
a teacher
• until the retirement
date
An offer from Shell
Switching jobs
• Teacher
ABP
Released from obligation
• Researcher
Shell pension fund
Gains the obligation
Johan as a researcher for Shell
If…
• continue working as
a researcher
• until the retirement
date
Types of schemes
• Defined benefit
- final pay plan
- average pay plan
• Defined contribution
- defined contribution pension scheme
Defined benefit
• Teacher salary
€ 30,000.-
• Shell salary
€ 55,000.-
70% of € 55,000.-
70% of € 42,500.-
final pay plan
average pay plan
Johan becomes an entrepreneur
Employee
to
Entrepreneur
Second pillar
to
Third pillar
Johan as an entrepreneur
Annuity
• Periodic payment
• Ends at death
• Minimum death risk of 1%
• Premium contribution
Year space: 15,5 % in 2014 (before 2014 17%)
Premium base: € 162.457 minus contributions in the second pillar
Johan as an entrepreneur
Johan reaches his retirement
and moves to Germany
Total pension plan
1st pillar
2nd pillar
3rd pillar
• Tax treatment of pensions
The Netherlands
EET
Germany
EET
Ice climbing
What about Anja?
I
• < 65 General Surviving Relatives Act
• > 65 General Old Age Pensions Act
• Surviving dependants’ pension
II
III
Are there any questions?
Propositions for discussion
-
The Dutch pension system is an example for the rest of the world.
-
Everyone is responsible for their own retirement and must provide
for retirement in the third pillar.
Pim Vossen en Siem Huijbregts
Crossborder Pensions
The Dutch pension system under
the new treaty between The
Netherlands – Germany: is it an
improvement?
{
Laetitia Wall
Li Shao Wu
Sophie Kallen
Content






Old and New
Most important changes
Consequences for the pensioners
Transitional arrangements
Dutch Treaty Policy
Conclusion
Introduction

Both Germany and The Netherlands raise taxes
Old Treaty of 1959 is preplaced by a new Treaty

Enter into force on the first of January 2015

Old and New
Old Treaty
New Treaty
Public pension
Source State Tax under
art. 12 par. 2
Source State Tax
under art. 18
Compensation for
damages
Source State Tax under
art. 12 par. 2 jo. par. 3
sub 2
Source State Tax
under art. 17 par. 4
Public pension: important is where the pension is accrued, not who
pays the benefits.
Most important changes


Pension > € 15,000 also taxed in the Source State
according to art. 17 par. 2 jo. 22 New Treaty
 Germany: ordinary tax credit
 The Netherlands: Exemption with progression
 Transitional arrangement according to art. 33 par. 6
New Treaty
Sourcing rule according to art. 17 par. 5


Value funds transfers to another state continues to be
taxed in the Source State
Pension or annuity, paid in a lump sum

Source state has the tax jurisdiction according to
art. 17 par. 3. Limit of € 15,000 not important
Consequences for pensioners



No distinction between state pensions and
private pensions
In principle, the State of Residence has the
exclusive taxing right with regards to state
pensions
Reduction in the administrative burden
Consequences for pensioners(2)



Shared taxing right; source state may also tax
Pensioners may be taxed in the source state
with regards to their private pension 
provided that the pension income (private and
statutory pensions and annuity income) €
15,000
May have great influence on the income of
pensioners
Consequences for pensioners(3)

German Resident; Pension < € 15,000
PP
SP

German Resident; Pension> € 15,000
PP
SP
German resident, pension < € 15,000

Example:

AOW (state pension) = € 13,500
New
Old Treaty
Treaty
SP
263
0
0
Tax in NL
Tax in DE
German resident, pension > € 15,000

Example:


AOW (state pension) = € 13,500
Private pension = € 30,000
New
Old Treaty
Treaty
PP
SP
5966
263
47
0
Tax in NL
Tax in DE
German resident; pension > € 15,000 (2)
Total tax
5966
310
Old



New
This group will be the most effected
Only 18% of private pension income taxed in DE
Dutch resident with the same pension pays € 6,028 in tax
Dutch residents with German pension



Total pension of less than € 15,000  income
will not decrease (significantly)
Total pension > € 15,000  will experience an
improvement; tax rates in Germany are
generally lower than in the Netherlands if the
income is higher
Mixed pension (part Dutch, part German) 
effects depend on the situation
Transitional arrangement





Old treaty can be applied for one year art. 33,
par. 6, Treaty (new)
Deemed to be too short; additional transitional
arrangement of 6 years
Only for existing cases
For certain pension income the tax rate is
maximized
If the old treaty was applied in the first year,
the transitional arrangement can only be
applied for 5 more years
Transitional arrangement (2)
Maximized tax rates
30%
25%
20%
15%
10%
10%
Year 1
Year 2
Year 3
Year 4
year 5
Year 6
Example





AOW (state pension) = €13,000
Private pension = € 28,000
Average rate in similar situations = 14.25%
In the first year the old treaty can be applied
In the second year, the transitional arrangement
can be applied; with regards to the private
pension the tax rate will be maximized at 10%
(€ 2,800)
Example (2)
35%
30%
25%
20%
15%
10%
5%
0%
Year 1
Year 2
Year 3
Maximized tax rates
Year 4
year 5
Average rate
Year 6
The Dutch treaty policy

Does the new Dutch-German Treaty adhere to
the Dutch treaty policy?
11 February 2011: New policy was published
 New aim:
Resident state  exclusive taxing rights to source
state
 Compromise on shared taxing rights

The Dutch treaty policy

What was the reasoning behind this change?
Secretary of State:

Demographic changes
Continued internationalization of the labor
market increase in the migration of pensions

 The Netherlands has a substantial financial
interest given the facilities provided in the
Dutch pension system.
The Dutch treaty policy

Factors taken into consideration:
- finances primary argument

Departure from the OECD Model Convention
The Dutch treaty policy

Other considerations:
Practical issues foreseeable when pension is
formed in different states.

Compromise for small pensions

German- Dutch treaty € 15,000 threshold
no differentiation between statutory and
private pensions
The Dutch treaty policy

Financial implications of the compromise to
introduce a threshold of € 15,000

With the implementation of the new treaty
12,856 of the 17,066 German residents with a
Dutch pension have a pension income below
€ 15,000

This amounts to total pension income of € 65.6
million and the Netherlands will forgo around
€ 1.5 million in tax income annually
The Dutch treaty policy

Conclusion:


What was the aim?
At least a shared taxing right on pension
distributions

New treaty: shared taxing rights when the threshold
of € 15,000 is exceeded

The majority of the distributions of pensions arising
in the Netherlands are now also taxed in the
Netherlands

New treaty is an improvement in line with the aim
of the treaty policy and is a better match to the
workings of the Dutch pension system
Conclusion

The group that experiences the most disadvantage
as a result of the new treaty are the German
residents with a Dutch pension > € 15,000

Consequences are justifiable because it’s a reversal of
an unjustifiable advantage.

The adverse effects are partially mitigated by the
transitional arrangement of 6 years.

New treaty is an improvement in line with the aim
of the treaty policy and is a better match to the
workings of the Dutch pension system
Questions?
Thank you for your
attention!
The European
pension landscape
Why are pensions so important?
Prof. Gerry Dietvorst
Topics
• Pensions in Europe
• Differences in pension systems
• Is taxation a problem?
• What is the role of Brussels?
• What are the solutions?
State
Pension
Supplementary
pension
Schemes
Private
Pensions
Not funded
Funded
Funded
93
Differences in pension systems
• Method of financing
• Providers
• Balance between the three pillars
• Tax frame work
• Transferability: inbound and outbound
• Vesting periods
• Pay-out phase
Benefits in 1st pillar almost everywhere dominant
Breakdown of national benefits by pillars
100%
80%
60%
40%
20%
0%
PL
TR
1st pillar
IT
FR
FI
2nd pillar
ES
BE
PT
3rd pillar
SE
DK
CH
NL
GB
2nd and 3rd pillar
What are the problems?
• 88% not funded
• Politicians
• Subsidiarity
Longivity
• Life excpectancy at birth will increase with 7 years by 2060
compared with 2010
• The balance between working life and pension life
• 25%-30%-33%-40%
EmploymenLabour participation older employees
t rate eldery workers 55/64
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98
Is taxation a problem?
• Current situation private pensions
• In general: EET in second and third pillar
• Three categories
• No deduction for contributions
• Fixed amount deductible
• Deductibility of contributions depends on the pension gap
• Conditions in the pay out phase differ
99
Is taxation a problem?
• Minor problems
• Taxation in cross-border situations
• Transferability
• EET versus TEE
From The Netherlands to Luxembourg
EET
TEE
EEE?
101
From The Netherlands (EET) to Luxemburg
(TEE)
• Art. 18 Treaty 2001:state of residence
• However source state if and insofar:
• Source state has EET and
• Benefits are in the state of residence not taxed at the general
taxe rate for employees and
• Benefits (pensions, annuities, state pension) per year are > %
25 000
• Result: no double non-taxation
From Luxembourg to The Netherlands
TEE
EET
TET?
103
From Luxemburg (TEE) to The
Netherlands (EET)
• Art. 18: state of residence
• Dutch Income tax act 2001:
• Benefits are taxable in The Netherlands unless and insofar it is
acceptable that contributions were not deducted from income
• Result: no double taxation, only the accrual is taxed
White paper*)
• Aging is a major challenge to pension systems, unless we
stay longer in employment and safe more for retirement
• MS are primary responsible for designing their pension
system
• White paper respects the responsibilities of the MS and offers
better support to pension reform efforts:
• legislation,financial incentives, policy coördination, bestpractices
• White paper reflects common concerns and sets out an
agenda for the long term
*)Brussels, 16.02.2012 COM(2012) 55 final)
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105
White paper
• Life expectancy at birth will increase by 2060: 7,9 years
(m) and 6,5 years (f)
• Working population begins to shrink
• Retirement baby-boomers has far-reaching economic
consequences: reducing economic growth
• Economies and societies are more and more integrated:
pensions are a matter of common concern
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106
Recommendations for pension reforms
1.
Link the retirement age with increases in life
expectancy
2.
Restrict acces to early retirement schemes and other
early exit pathways
3.
Support longer working lives
4.
Equalise pensionable age between men and women
5.
Support the development of complementary savings
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107
What are the solutions
• Brussels must stimulate and facilitate
• There is not one solution
• Extending working lives by linking the retirement age with
increase in life expectancy
• Support longer workng lives
• Shift from pay-as-you go to funded
• Stimulate second and third pillar pensions with taks incentives
How?
• Open coördination method
• Learn from best practices
• Restore credibility pension providers
• Make small steps
Conclusion
• Brussels must take the lead in the reforms
• There is not one solution
• Politicians must no longer be an obstacle
• Shift from pay-as-you go to funded is necessary
• We have to work longer
• Tax is not the real problem