The Dutch order of tax advisers (NOB) suggested that the country’s new option of taking out a lump sum at retirement is unlikely to be beneficial to pensioners, as people could end up in a higher tax band, or lose housing benefits and care subsidies.
The statement follows an online consultation on lump sum legislation.
As part of the pensions agreement of June, social partners and the government had agreed that pensioners would be allowed to take out up to 10% of their accrued pension entitlements, which could be spent as they wished.
Increased freedom of choice is one of the key elements of the pensions paragraph in the election manifesto of the liberal democrats (D66), the polical party of social affairs’ minister Wouter Koolmees.
“The option of personal choice is part of a modern pension,” Koolmees said at the time during his presentation of the pensions accord.
Tax experts noted that the lump sum would be charged against regular and progressive tax tariffs, and concluded that the impact would be significant for participants earning 150% to 200% of the average income.
According to the NOB, members of this tax group taking out a lump sum would be hit by the highest tax tariff of 49.5%, rather than 19.45% for their life-long benefits.
In their case, using the existing option of high/low pay outs in drawdown arrangements could possibly be more beneficial, as pensioners could lose means-tested housing and care benefits as a consequence of taking out a lump sum, the order said.
The NOB urged the minister to exempt the lump sum for these subsidies.
In its response to the consultation, the industry organisation further noted that pensioners would not be allowed to combine the lump sum with the high/low pay out option.
The latter enabled pensioners to start with high benefits straight after retirement and a lower payout later, enabling them to receive approximately 8% of their pension during the first years of retirement.
In a statement, the minister argued that offering the combined option would increase the risk that a large part of someone’s pension would be taken out too early, which could lead to an insufficient pension later on in retirement.
The NOB contended that, because of the progressive tax tariffs, it will hardly make a difference whether a participant opted for a lump sum or the existing option of high/low benefits. A stacking ban would “substantially limit” the effectivity of the new lump sum option, it stated.
Dutch financial daily Het Financieele Dagblad (FD) quoted pensions specialist and lawyer Theo Gommer, of Gommer & Partners Pensioen Advocaten, as describing the minister’s approach as “incomprehensible paternalism”.
“In particular lower paid workers, who tend to die earlier, would benefit from stacking lump sum and high/low pay outs,” he said. “People in their 60s should be allowed to take the descision themselves.”
According to the FD, the sector organisation for lawyers had suggested to allow stacking, but combining this with a lower limit for the remaining pension.