• 2 types of retirement plans :
Defined benefit plan: promises to pay a fixed dollar amount of
retirement income based on a formula that takes into account
the average of the employee’s last three to five years’ earnings
before retirement and the length of employment.
Employer assumes all the risk of providing the promised
income to the retiree and is likely to make all of the financial
contributions to the plan
Defined contribution plan: the employer promises to
contribute a specific amount of funds into the plan for each
• Average Dutch worker, when they retire, can expect to receive
about 70 percent of their income, every year, for the rest of
• 90% of Dutch workers will get these pensions
• Pension system : a combination of a pay-as-you-go system and
an individual system in which people save for their pension
• The Dutch pension scheme may be characterized in terms of
three main pillars:
- 1st pillar: basic state old-age pension under a statutory
- 2nd pillar: supplementary pension schemes by virtue of the
- 3rd pillar: private savings for retirement
The Dutch pension scheme
Regulated by law
Basic state pension: AOW
Regulated by law
Table 1: The Dutch pension system with the three main pillars
Note. From European Actuarial & Consultancy Services (EURACS), the Netherlands pension
• Dutch General Old Age Pensions Act (AOW)
• Everyone who has lived or worked in the Netherlands
between the age of 15 and 65 has a state pension and a right
to earn a state pension beneﬁt from the age of 65
(irrespective of nationality).
• Entitlement to AOW pension is accumulated at a rate of 2%
for each year of insurance leads to a 100% entitlement to
the relevant pension benefit upon reaching the age of 65,
provided there are no gaps in the period of insurance.
• AOW is financed by contributions levied on earnings at a rate
that is statutorily limited to a maximum of: 18.25 percent
First pillar cont’d
• Pension rates for singles is 70 percent of the statutory
minimum wage per month.
• Both partners in a couple (either married or living together
officially) are each entitled to a pension benefit amounting to
50 percent of the statutory minimum wage.
• A person aged 65 with a partner under 65 may be entitled to a
supplementary allowance if the partner’s income is limited.
• Single parents will receive 90 percent of the net minimum
• Mandatory participation, collective risk sharing and the
system of transfer of pension value.
• Collective pension schemes and is financed by capital funding
and serves to supplement the first pillar administered by a
pension fund or by an insurance company.
• No statutory obligation for employers to offer such a pension
scheme to their employees, however, more than 95% of
employees are covered quasi-mandatory.
• Employer has to deduct pension contributions from the salary
and transfer these contributions to a pension provider.
• Majority of Dutch employees are in a (DB) plan in which the
financial risks are for the employer
Second pillar cont’d
• In 2012, Collective Defined Contribution (CDC) plans were
introduced which are plans that combine some of the
advantages of a DB plan with the advantages of a DC plan.
• Dutch government has proposed a new contract, the defined
ambitions (DA) contract employer contributions will
become fixed but pension rights, benefits and targeted
retirement age will become automatically adjusted in line with
• Article by Erik Schouten & Thurstan Robinson (2012): Defined
ambition pensions: Have the Dutch found the golden mean for
• Individual pension provisions, either through annuity
insurance or endowment insurance (providing a lump sum)
Self-employed employees need to reassure to finance their
living after retiring.
• Pension Act 2007 : safeguard the financial security of pension
entitlements, individual security and protection of participants
and security in the pension institution’s operational
• Once an employer has made a pension commitment to his
employees, this commitment must be implemented in the
way prescribed in the Pensions Act.
• The employer, employee and pension provider are in a
• Under the Dutch Pensions Act, the accrual of old age pension
rights under a pension agreement begins no later than the
date on which an employee reaches the age of 21.
Malaysian Pension Scheme
• Public sector employees in Malaysia are covered by the
Government pension scheme.
• Benefits provided by the scheme include:
• The Government pension scheme covers employees in the
public sector who are on pensionable status.
Malaysian Pension Scheme
• On the other hand, employees in the private sector are not included
in this scheme. They and their employers are instead required to
contribute to the employees’ provident fund (EPF) or the social
security organization (SOCSO).
• According to Law of Malaysia, Pension Act 1980, “public service” was
defined those who worked for:
1. The Judicial and Legal service
2. The General Public Service of the Federal Government
3. The Police Force
4. The Railway Service
5. The Education Service
6. The Joint Public Services common to the Federal Government and
of one or more of the States
7. The Public Service of each State
8. The Parliamentary Service or
9. Such other service as the Yang di-Pertuan Agong may determine to
be public service
Types of Pension schemes
• Is a monthly pension and gratuity as well as cash reward for
• Considered as the most important benefits provided by the
Government pension scheme
• Furthermore, to have some form of equity in retirement
benefits, the computation of retirement benefits is based on
formulae which vary the amount of benefit received with the
length of pensionable service credited to the retiring
employee and his last drawn salary
Types of Pension schemes
DEPENDENT’S PENSION SCHEME:
Dependent’s Pension is an additional pension benefit given to
dependents or a pensioner or officer who dies from injury
obtained during the course of performing his official duty or
contracting a disease or travel accident on condition:
a) The officer died in any one of the above conditions; and
b) The death of the pensioner or officer occurs within seven
years of sustaining the injury or contracting the disease.
Types of Pension schemes
DISABILITY PENSION SCHEME:
Disability Pension is and additional benefit given to a
Government officer who is required to retire because of health
reasons due to:
a) In the course of performing his official duty;
b) Contracting a disease to which he is exposed by the nature
of his duty; or sustaining an injury due to a travel accident.
The Malaysian Government has several times changed the
policies regarding retirement:
• First, employees must reach the age of 55 for male employees
and 45 years old for female employees (Pension Act, 1980) in
order to receive pension benefits.
• Chee (1997) stated, at least ten years of service in the public
sector is compulsory for the individual’s including a
probationary period of three years before qualifying for a
Changes of the retirement age
2001, 55 to
56 years old
2008, 56 to
58 year old
years to 60
Suggestions for improvement
Provide a preparative pension training program:
• Most employees are not well prepared for their lives when
• During the training program they will be explained what kind
of preparations they need to do before they retire and how
they can wisely spend their retirement benefits.
Social security should not be a function of the Government
• The future is unknown and Malaysian citizens should be
encouraged to participate in the determination of their future
retirement needs, such as through private saving and asset
• Important for the retirees to have their own private saving
because they cannot rely on pension alone.
Types of pension
Dutch General Old Age Pensions (AOW) – basis
state pension (Public)
Supplementary pension (Private)
a. Collective schemes
b. Annuities, endowment
1st pillar - basic state old-age pension under a
statutory insurance scheme (Public)
2nd pillar - supplementary pension schemes by
virtue of the employer (private)
3rd pillar - private savings for retirement (private)
65 years old
Dutch General Old Age Pension Act (AOW) 1957 –State
Old Age Pension
Government pension scheme – applicable to
public sector employee who choose pension
scheme when they retired (Public)
Employees’ Provident Fund (KWSP) and Social
Security Organization (SOCSO) (Private)
Retirement benefits - monthly pension and
gratuity as well as cash reward for accumulated
Dependent’s pension scheme – additional
benefit given to dependents or pensioner who
dies from injury obtained during his official duty
or contracting a disease or travel conditions
Disability Pension scheme – additional benefit
given to government officer who is required to
retire due to health reason in the course of
performing his official duty
60 years old
Law of Malaysia Pension Act 1980
Dutch Pensions Act 2007
Improvement suggestion by the Dutch government. The 1. Provide a preparative pension training program:
provision of defined ambitions contracts in order to
financial planning, what steps to undertake before and
replace the costly, time-consuming defined benefits
during retirement. Emotional support.
2. Encourage retirees having personal savings plans so
that they did not depend solely on the pensions funds.