Dutch citizens who retire with pensions in the second or third pillar will have to wait one year longer than planned for the introduction of an option to withdraw up to 10% of their accrued funds in a lump sum upon retirement.
The introduction of the lump sum was originally planned for 2022, but will be postponed by a year, social affairs minister Wouter Koolmees has decided after pressure from the country’s Senate.
Koolmees had promised parliament last year that he would allow for an alternative date fresh pensioners could take their lump sum in order to avoid people receiving different tax treatment depending on their birthday.
Under the Dutch tax system, the effective income tax rate in the year people retire rises the later one reaches pensionable age. As a consequence, the effective income tax rate of someone retiring in December can be up to 20% higher than the tax rate of someone of similar income retiring in January.
Taking into account this age effect, minister Koolmees promised last year to introduce a second option to take the lump sum in January after reaching pensionable age following questions by parliament on the topic.
However, the implementation of the revised plan turned out to be more complicated than expected, the minister acknowledged. “It has increased the complexity of the arrangement and has made it more difficult to execute,” Koolmees said.
The Dutch federation for pension funds and the country’s insurance association already sounded the alarm last November, stating that introducing an alternative date to take the lump sum was “practically not implementable”.
The proposed change by Koolmees would also add costs to an already expensive lump sum arrangement. According to the government, it would add an additional one-off cost of €3.6m and €2.1m in structural administrative costs per year, when 5,000 people make use of the additional option each year.
This would come on top of structural costs of some €9.3m for information campaigns by pension funds and individual calculations for members who want to make use of the lump sum arrangement, according to ministry estimates.
Members of parliament voiced concern about the costs of the alternative lump sum option, which would amount to some €420 per person. They also criticised the fact that these costs would not have to be borne by the individuals who choose the lump sum option, but by a pension fund as a whole.