Pension Reform 2021

Your pension agreement has been concluded and you are satisfied with the way you receive your pension

If you have already entered into a pension agreement and are satisfied with the choice you have made, there is no need for further action on your part. The pension agreements you have concluded will continue to be active by default and your pension will continue to be paid.

If you have entered into a pension agreement where the pension will be paid until the end of your life, the appeal of this agreement is that no matter how long you live you can always count on your second pillar pension. You will also receive a pension if the amount you yourself accumulated has already been paid out.

Changes in taxation effective 1 January

As of 1 January 2021, tax incentives apply to the second pillar pension.

The lifetime pension and the fixed-term pension spread out over average remaining life expectancy will both become tax-exempt.

The tax rate for shorter fixed-term periods will drop from 20 per cent to 10 per cent.

The changes will apply automatically to the agreements already in place.

If you nevertheless feel receiving a regular pension is not really right for you

A pension agreement is a type of contract that cannot just be cancelled easily. If the lifetime pension or a fixed-term pension is not what you need, you can cancel your pension agreement extraordinarily in 2021, by submitting a declaration of cancellation of pension agreement to your insurer.

Applications can be submitted until 31 March 2021.

In terms of disbursement of pension money, cancelling the pension agreement is like leaving the second pillar – money will be paid out in September 2021. Until August (incl.), the pension will continue to be paid to you. If the funds have been paid and the contract has been terminated, after that you will no longer receive a pension from the insurance company.

Redemption value

If you decide to leave the pension agreement, the redemption value of your agreement will be subject to disbursement in September.

Redemption value is the amount of money that the insurance company will pay out if your contract is terminated prematurely.

Income tax at a rate of 10% must be paid on the redemption value, as the situation is no longer covered by the exemption for a lifetime pension and fixed-term pension spread out over average remaining life expectancy. The tax is withheld immediately upon payment of the redemption value.

Cancellation fee

When cancelling the agreement, be aware that usually, in accordance with the terms and conditions of the agreement, a cancellation fee will be charged. Consult your pension agreement as to whether you will be charged a fee and what the amount of the fee is.

Take time out to consider your decision

A pension agreement can be cancelled under exceptional conditions only from January to March 2021. Still, that is enough time to carefully consider whether you wish to do so. You should consider what your other income is, and whether that will be sufficient or if it will be important to supplement it with monthly income from the second pillar.

If you decide to withdraw the funds immediately, remember that while you were a member of the second pillar, you have accumulated fewer pension rights in the first pillar. Therefore, your pension from the first pillar is slightly lower than that of someone who has never joined the second pillar.

It is certainly worth asking your insurance company for advice. Besides giving up the pension, you may also have the option of changing the conditions for payment of your pension.