Design of Tax Framework for Eliminating Uniform Pension Premium System

In the public debate about reforming the Dutch pension system, one of the intentions of which is to eliminate uniform contributions, the role of taxation has received limited attention. The Coalition Agreement does state that “the possibility of limiting the tax framework to the pension premium will be examined” and “a non-age-related premium will be mandatory for all contracts, and pension scheme members will accrue benefits in accordance with the premiums they have paid.”[1]

Eliminating the system of uniform contributions could be implemented for every type of pension contract (either defined benefit or defined contribution) by making contributions at the individual level equivalent to the actuarial value of the accrued pension benefits.[2] Several aspects of this have already been discussed in a previous Netspar paper.[3] The Royal Dutch Actuarial Association has also published a paper on the topic.[4] There are, however, additional questions that need to be addressed, such as:

  • How can the maximum tax-free contribution amount be determined? What components and parameters need to be observed?
  • What has the impact been of the requirement for uniform contributions included in the Wet Bpf 2000 (Public Pension Fund Obligatory Participation Act) and what kinds of changes would be needed if uniform contributions were to be eliminated through tax legislation?
  • What changes to the Wet LB 1964 (Payroll Tax Act) would need to be executed?
  • Does this approach offer any opportunities for better integrating the second and third pillars (via the Payroll Tax Act and the Income Tax Act [Wet inkomstenbelasting 2001], respectively) and creating a more even tax playing field between employees and entrepreneurs / independent contractors?
  • What are the key issues if this approach to pension contributions is instituted for every type of  pension administrator (public pension funds, open pension funds, general pension funds, occupational pension funds, insurers, and PPIs)?
  • What effect might it be expected to have on the reform discussion if (only) this change to the tax legislation were introduced? Are there any tax transition issues involved in implementing a system in which the accrued pension benefits are regulated solely through the tax implications with regard to contributions? What are these?

[1] Vertrouwen in de toekomst (Confidence in the Future), 2017–2021 Coalition Agreement (VVD, CDA, D66, and CU), 10 October 2017, p. 29.

[2] See also Herman Kappelle and Frits Bart, Maak fiscaal maximale premie aangrijppunt nieuw stelsel (Make Maximum Tax-Free Contributions Fulcrum of the New System), PensioenPro, 12 October 2017.

[3] Bastiaan Starink, Gerry Dietvorst, and Michael Visser, De fiscaliteit en pensioen (Taxation and Pensions), Netspar Occasional Paper-02/2016.

[4] Royal Dutch Actuarial Association, Vervolgnotitie Koninklijk Actuarieel Genootschap inzake afschaffing doorsneesystematiek (Royal Dutch Actuarial Association Follow-up Memorandum Regarding Elimination of the Uniform Pension Premium System), 31 July 2017.

Read paper here.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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