How do major life events affect my pension?

If you are an entrepreneur or want to start a business, there are several major life events that can affect your retirement income. This article goes into these events and explains what you can do to help plan for retirement.

Life events are significant changes in your personal life or income. They are times that affect your financial situation, such as buying a house or getting married. Divorce, bankruptcy, death, and disability are also life events and affect your retirement income as an entrepreneur.

1. Getting married or entering into a civil partnership

Are you entering into a civil partnership or getting married? You can choose whether to do so in (limited) community of property or with a prenuptial agreement.

Limited community of property

If you do not draw up a prenuptial or partnership agreement beforehand, you automatically opt into limited community of property. The moment that you get married or enter into a civil partnership, you share all liabilities, assets, and debts with each other. That includes your company and your pension savings. Half of your pension savings legally belong to your partner.

If you got married or entered into a civil partnership on or after 1 January 2018, the assets and debts you had before are excluded from the community property. If you got married in community of property and you want to sign a prenuptial agreement later, you will usually be able to make changes with the help of a notary.

Prenuptial agreement

By drawing up a prenuptial agreement before you get married or enter into a civil partnership, you can make clear agreements about your assets and property in advance.

You can also make arrangements about how to distribute pension savings. You could agree on a 70-30 or 60-40 split, for instance.

2. Divorce

When you get a divorce, you and your partner separate. But you also have to divide your possessions. The same goes for your personal or joint pension savings.

Did you get married in community of property? If you get divorced (in Dutch), your partner is entitled to half of all pension savings accrued while you were married. And the same is true the other way around. This is provided for in the Pension Equalisation Act (in Dutch). If you got married or entered into a civil partnership on or after 1 January 2018, the assets and debts you had before are excluded from the community property.

Did you get married with a prenuptial agreement? In the absence of other agreements on how you wish to divide your pension savings, the Pension Equalisation Act also applies here. Did you make other arrangements about how to divide your pension savings before you got married? If so, they take precedence over the Pension Equalisation Act if you get divorced.

3. Starting your own business

Looking to start a business? Remember that you will be responsible for saving up for retirement yourself, unless your industry has a mandatory pension scheme. You will hold onto the pension you accrued while you were employed. In some cases, your pension fund will allow you to keep paying into your pension scheme with tax benefits for another 10 years. Are you an entrepreneur, but have you not started building up a pension yet? Explore the different types of private pensions. If you cannot figure it out alone, ask a financial adviser for help.

Temporary access to pension funds

The Dutch pension system consists of 3 pillars: the state pension (AOW), workplace pensions/pension funds, and private pensions with savings or an annuity plan, for example. Many self-employed professionals only accrue the state pension. But the government also wants entrepreneurs to save money for retirement under the second pillar. To make this happen, the government is planning to launch a 5-year experiment. During this period, self-employed professionals will be allowed to enrol in pension funds. The government’s plans are outlined in the Draft Decree on Experiments in the Pension Scheme for the Self-employed (Ontwerpbesluit experimenten pensioenregeling zelfstandigen), which is linked to the new pension agreement (in Dutch). No start date has been announced for the experiment yet.

4. Illness or incapacity for work

Anyone can become incapacitated for work. Entrepreneurs who fall ill are not entitled to wage continuation pay because they are not covered by employee insurance. A financial buffer or disability insurance can provide some relief, but many entrepreneurs opt against taking out this type of insurance (Source: Statistics Netherlands) (in Dutch).

If you become incapacitated for work, you can choose to live off your pension savings if your pension scheme allows. If you save money for retirement on a bank account, you are always free to dip into your savings. Alternatively, you can choose to buy out your annuity plan (in Dutch). While you are unfit for work, you can live off your pension. If possible, it is best to replenish whatever you use later.

5. Death

How will your dependents fare after your death? They may be entitled to a benefit, pension, or a life insurance payout. Here are the options.

• Survivor's pension. When a self-employed professional dies, their partner is usually entitled to a survivor’s pension or partner pension. Your partner will receive part of your pension savings. See how much pension you have accrued on Mijnpensioenoverzicht.nl and on nibud.nl and check how high your survivor's pension is.
• Supplementary survivor’s pension (in Dutch). Think about whether you want to accrue a supplementary survivor’s pension. This may give your dependents sufficient income to live on and might mean that they will not have to move to another home after your death.
• Term life insurance. You can also decide to take out term life insurance. This death benefit pays the beneficiaries of the policyholder after the latter’s death. Term life insurance gives your dependents more income to live off. Term life insurance is paid out during a specified period of time.
• National Survivor Benefits Act. Your dependents may be subject to the National Survivor Benefits Act (ANW). Under this act, widows and widowers with children under the age of 18 can claim basic income benefits. You can do this even if you are incapacitated for work and lose your partner. The amount of this benefit is up to 70% of the net minimum wage. You can only claim this benefit if you meet the criteria.
• Tax-deferred retirement reserve fund. Do you have a tax-deferred retirement reserve fund (FOR)? When you die, you will have to settle the FOR with the Netherlands Tax Administration. The reserve fund will be liquidated and added to your company’s taxable profits. If your business partner plans to continue running the business, this does not apply. They will, however, have to submit a request with the next tax return.

6. Bankruptcy

If you are declared bankrupt by the court, a curator will attempt to pay off your debt with your company’s money and assets. This includes your commercial property, company car, income from the company’s turnover, assets, and stock. On top of that, your possessions will also be sold off to settle your debts. Whether the administrator is allowed to use your pension savings to pay off your debts depends on your legal structure and the type of pension you chose.

Eenmanszaak or vof

If your eenmanszaak (sole proprietorship) or vof (general partnership) goes bankrupt, you will usually have to declare personal bankruptcy too. After all, your business assets and private assets are not separate. As a result, your creditors are also entitled to your pension savings. When you retire, you will still be entitled to the state pension (AOW).

Bv

Are you a partner in a bv (private limited company)? When the bv goes bankrupt, you do not go personally bankrupt, unless you mismanaged the company. Entrepreneurs with a bv are therefore more likely to hold on to their pension savings in the event of bankruptcy.

Annuities

When a company goes bankrupt, creditors cannot attach annuities. There are, however, certain criteria you have to meet. For more information, consult a certified financial adviser. Benefits, on the other hand, are subject to attachment.

7. Forced to end your business

If you are forced to end your business, your pension savings will also be affected. The most important factor to consider is whether you are ending your business with or without debts. Are there no debts? See how much you will be left with after you dissolve your business. Investigate whether you can continue to accrue a pension. Are you ending with debts? Owners of an eenmanszaak or vof are privately liable. This means that creditors can claim your pension savings or benefits. If you are a partner in a bv, your pension savings and benefits cannot be attached. Self-employed professionals claiming social assistance (in Dutch) do not have to dip into their pension savings. For more information, consult a certified financial adviser.

If you are unable to pay your debts, check whether you can agree on a voluntary debt repayment plan or a repayment plan under the Debt Restructuring for natural persons Act (Wsnp). This is possible for entrepreneurs with an eenmanszaak or a vof. Companies can also be restarted or undergo a controlled shutdown through the Court Approval of a Private Composition (Prevention of Insolvency) Act (WHOA). Importantly, the employment conditions of your staff must remain unchanged.

On top of that, you are not allowed to include unpaid pension contributions in WHOA agreements.