Prospect of more opportunities for international transfers of accrued Dutch pension capital

The Netherlands is unjustifiably restricting the free movement of workers by imposing specific conditions on the international transfer of accrued pension capital. This is the verdict of the Court of Justice of the European Union (CJEU). The Netherlands must therefore amend its legislation. This will create more opportunities for the international transfer of accrued Dutch pension capital.

In judgments rendered in two cases, the CJEU ruled that the following two conditions cannot be imposed:

1. The foreign pension plan must not have a broader commutation prohibition than is permitted in the Netherlands.
2. The foreign pension administrator must conclude an agreement with the Dutch tax authorities stating that if the pension is commuted, the pension administrator will be liable for the Dutch tax.

Practical experience: it is currently almost impossible to transfer accrued pension capital

In practice, the above two conditions mean that it is almost impossible to transfer Dutch pension capital to a foreign pension plan. With regard to the first condition, the basis assumption in the Netherlands is that pension capital cannot be commuted. If it is, up to 69.5% tax is payable (personal income tax plus deemed interest). Many countries do have options to commute pensions, which are broader than in the Netherlands.

Under the current rules, if Dutch pension capital is transferred to a foreign pension plan, tax will have to be paid immediately in the Netherlands up to 69.5%. Employees who transfer their pension capital within the Netherlands do not have to worry about this risk.

The other condition means that the foreign and/or Dutch pension administrator must provide security for international transfers of accrued pension capital. If neither administrator is prepared to provide this security, the employee must provide it themselves. Failure to do so will result in immediate taxation at a maximum of 69.5%. Employees who transfer their pensions within the Netherlands do not have to provide any security.

Restriction of the free movement of workers

The CJEU ruled that both conditions constitute a restriction of the free movement of workers. This is because employees who accrue pension via a foreign (non-Dutch resident) employer are at a disadvantage compared to employees who accrue pension within the Netherlands and change employers within the Netherlands.

This arrangement may deter an employee from working in another country or transferring their pension capital. The CJEU noted that the Netherlands failed to convincingly demonstrate that the Dutch legislation is suitable and does not go beyond what is necessary to achieve the general objective. Specifically, this means that the Netherlands must amend its legislation and regulations.

Will there be more international transfers of accrued pension capital in the future?

It is still unclear when and how the legislation will be amended. However, it is expected to create more opportunities for the international transfer of accrued Dutch pension capital. This is, for example, important for Dutch employees employed within the EU and employees who temporarily work for a Dutch employer and then, after their temporary employment has ended, wish to transfer their pension capital to another country. Feel free to contact us if you’d like to know what the options are for your company or for your (international) employees.