Self-employed people can benefit greatly from new pension law, says Knab Bank

The pension system overhaul that passed the Tweede Kamer on Thursday night may prove to be highly advantageous for self-employed people and freelancers working in the Netherlands. A wide majority in the Tweede Kamer supported the law, which is meant to modernize the country’s pension system by making it more flexible and more accessible to all adults from the age of 18, while making it easier to accrue a pension almost immediately when starting work.

The law will almost certainly help the 1.2 million people who are registered as self-employed with the Dutch Chamber of Commerce. If the bill passes the Eerste Kamer, the upper House of Parliament, it will mean self-employed people can put more money into their personal pension holdings every year with more tax advantages.

Self-employed people will be able to earmark a maximum of 30 percent of their profits before paying income tax into their pension. Currently, they can put 13.3 percent of the money earned annually into their pension without paying income tax on the contribution.

It means that those whose income place them in the upper tax brackets can contribute 10,000 euros into their pension, but will effectively pay 5,050 euros net to do so because of the tax breaks received, said Oskar Barendse from Knab Bank. “It doesn’t get any cheaper than that. The only condition is that you invest in a third pillar product, like pension savings, investments, or annuity insurance,” he said.

Additionally, Barendse noted that pension funds will be able to take on self-employed people with no employees as clients when the new law passes the Eerste Kamer and takes effect in the Netherlands. Already, about a third of self-employed people are expected to save with a pension fund if they gain access to them, Barendse said based on internal research from Knab. “Whether this is wise is highly questionable. Much is still unclear about this part of the plan, as such a fund is often more expensive than if you yourself invest in a pension savings account, for example.”

The Tweede Kamer spent dozens of hours debating the complex bill in the run-up to the vote, including separate votes on dozens of amendments earlier in the week. The bill creates a foundation for a new way of handling the national pension assets of about 1.5 trillion euros, which will no longer be handled collectively, but in more individual funds.

The new system is meant to be more protective of how people engage in work now, which is often more flexible and changing over the course of a career than in the past. At the same time, the new system may introduce more risk.

The ruling coalition parties voted in favor of the law in a roll call vote in the Tweede Kamer, along with left-wing opposition parties GroenLinks and PvdA. Although SGP and Volt also signed on, the left-wing parties will be critical in winning passage in the Eerste Kamer, where the coalition does not have a majority.

The composition of the Eerste Kamer will also change next year as it is determined by the results of the provincial elections in May. For that reason, the Cabinet will want to see the bill taken up more quickly after the Christmas and New Year’s recess. Three of the parties in the coalition, VVD, D66 and CDA, are polling much worse now than just after the last Tweede Kamer election in March 2021.