MEMO

LIFE ASSURANCE RATHER THAN PENSION CONTRIBUTION

When it comes to old-age income assurance, in addition to the Dutch state pension, the Netherlands distinguish between:

1. pension insurance through the employer;
2. life assurance policies/bank savings schemes, concluded in private.

If an employee is entitled to the 30% ruling, participation in a qualifying pension plan for Dutch tax purposes gives rise to, among others, the following points of attention.

• Participation in a qualifying pension plan for Dutch tax purposes, will reduce the taxable salary, which might cause that the employee does not qualify for the salary norm of the 30% ruling (anymore).
• Choice of basis for pension contribution: inclusive or exclusive of 30% allowance and thereto related formal and legal issues.
• Participation in a qualifying pension for Dutch tax purposes provides a maximum tax benefit of only 34.65% instead of 49.50%.

The above potential pitfalls and risks can easily be prevented if the employee waives his pension rights and takes out a life assurance/bank savings scheme instead. The employer can pay the amount of the employer contribution in the pension to the employee as regular salary or a bonus. In other words, the employer costs will not change. Moreover, it provides a tax benefit to the employee (or the employer depending on the structure). In this memo we will elaborate on this potential tax benefit/solution, and the various alternatives to structure it.