New Dutch government to cut tax exemption levels

NETHERLANDS- The Netherlands’ incoming government is to cut tax exemption levels for contributions to occupational schemes from 2% to 1.75% in a move that will force workers either to retire later or to pay more for an equivalent final salary pension.

In a footnote of its manifesto, the three party coalition- the Christian Democrats, liberals and the late Pim Fortuyn’s LPF- said it plans to narrow the so-called fiscal facility, or Witteveenkader, from 2% to 1.75%.

The proposed move comes just three years after the previous government widened the limits to encourage contributions to occupational schemes.

In short this meant people were able to enjoy tax exemption on an annual accrual rate of 2% for 35 years in order to establish a 70% final salary income.

Under the new proposals, someone saving the maximum tax exempt amount from age 25 to 60 will now receive a pension that is 61.5% rather than 70% of their final salary.

Increased revenues are not seen as motivating the move, rather the government is keen to encourage workers to retire later.

One local pension fund manager says: “there are a lot of indicators that they are taking the business of trying to keep people in work until 65 very seriously.”

Industry associations have expressed concern about the proposed cuts which are seen as retrograde. Says Karin Bitter, deputy director of the VB, the association of industry-wide pension funds, “We are not happy with the curtailment of fiscal facilities because they were only introduced in 1999.

“We have yet to have an evaluation of these rules and the government is already introducing new measures that will give employees less opportunity to reach 70% of their final salary.”

Witteveenkader were designed to increase flexibility and to ease the phasing out of early retirement schemes which were deemed too expensive.

Most Dutch funds still stick to a rate of 1.75%, but are planning to make their scheme more flexible by capitalising on the full 2%.

Some funds use the full 2% and If the proposal comes into force, employees will still be able to make higher contributions, only they will no longer be tax deductible.

The same pension fund manager says: “the previous government asked the social partners to facilitate more flexible pensions and, on request, gave them higher rates of exemption.

“Now this government looks like withdrawing it again. The social partners made a lot of effort to get flexible pension systems where they needed this kind of room. This is a step backwards and is going to be a big issue.”

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