Dutch lump sum option postponed for fourth time

The Dutch government has postponed the introduction of a lump sum payment of up to 10% of pension pots upon retirement by another six months to 1 July 2024. Pensions minister Carola Schouten has not ruled out further delays.

It is the fourth time the introduction of the lump sum in the Netherlands, which was first proposed in 2020, is being postponed.

After the law was passed in the Senate in 2021, then-minister Wouter Koolmees delayed its introduction from 2022 to 2023 after parliament had complained pensioners would receive a different tax treatment depending on the date they retire.

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.

Furthermore, pensioners can lose entitlement to certain tax benefits and income support when choosing to take a lump sum payment.

As finding solutions to these issues has turned out to be more complicated than expected, the law had been postponed two more times since.

As parliament is preparing to discuss the revised lump sum law only this autumn, there would be too little time for pension funds to timely inform their members about the pending changes, Schouten wrote in a letter to parliament.

Pension funds will need six to nine months to inform their members after the finalisation of the amended law, the Dutch pension federation said earlier.

In her letter, Schouten said she wants to “strike a good balance” between offering enough time to pension providers to implement the law and provide information to members on the one hand, and avoiding unnecessary further delays on the other hand.

“The eventual coming into force of the law will depend on the progress of the parliamentary process,” said Schouten.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra.