Pensions in the Netherlands consist of the state pension system as per the Algemene Ouderdomswet (AOW) law and a private pension system that is widely used.
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State pensions
The state pension system (AOW) is administered as a pay-as-you-go system, with government funds and payroll taxes providing the funding for it. Everyone who lived and/or worked in the Netherlands between the ages of 15 and 65 is entitled to an AOW pension. Everyone living in the Netherlands, with some exceptions, is insured, and with every year people are insured, they build up rights to 2% of the full AOW pension. The full AOW pension is tied to the minimum wage, with married or cohabiting couples each receiving 50% of the minimum wage, while those who live alone are entitled to a pension worth more than 70% of the minimum wage.
Private pensions
There is also a wide range of private pension funds. There are three different types of pension funds: industry-wide pension funds, which cater to an entire sector of the economy such as the construction or retail industry, and which can be mandated by the government, corporate pension funds, which are for employees of a single company or corporation, and pension funds for independent professionals. Private pension funds in the Netherlands are non-profit organizations and operate as foundations, and are considered independent legal entities not forming a part of any company under Dutch law. Therefore, if a company gets into financial difficulties, its pension fund will not be affected. More than 90% of Dutch employees belong to a private pension fund.