International Study on Pensions

The ISoP trip is a collaboration between Competence Centre for Pension Research (CCP, Tilburg University) and ITEM (Maastricht University). The ISoP trip offers students the opportunity to gain international experience and networks, to gain more pension knowledge and to have a fun and enjoyable trip. This year, the programme has once again been able to achieve these objectives. The programme included an office visit to PwC in Zurich and a conference at the University of St. Gallen. There was also plenty of time available to explore the city of Zurich and have a good time together.

Diverse program

A visit to PwC in Zurich was planned for the first day. PwC staff gave a number of interesting presentations on the Swiss pension system, the tax system and the various tax aspects of pensions. At the end, the participating students worked on a challenging case, which was also presented and discussed.

The next day, the Pensions Workshop took place at the University of St. Gallen, hosted by the Swiss Institute of Emperical Economic Research. During the workshop, elements of the Dutch and Swiss pension systems were highlighted and compared by means of mirror presentations. Prof. Monica Büttler (University of St. Gallen) discussed recent developments within the Swiss pension system, after which Dr. Bastiaan Starink (Tilburg University) highlighted the developments within the Dutch pension system. Jessica Warren (PhD Tilburg University) continued with the tax treatment of pensions and home ownership in the Netherlands. She also explained how pension assets are the largest asset of the average Dutch household on the one hand and home ownership the largest debt on the other. As a result of her research, she came up with recommendations for a more integrated approach to home ownership and pension capital. Sabrina Stadelmann (PhD University of St. Gallen) highlighted the treatment of owner-occupied homes within the pension system from a Swiss perspective. Based on her empirical research, she showed how various factors affect the use of existing facilities.

Striking elements in the Swiss pension landscape

At first glance, the Swiss pension system is very similar to the Dutch system: a three-pillar system with a strong emphasis on supplementary pensions. Nevertheless, large and striking differences were found during the study trip. The most striking elements of the Swiss pension system are (1) how the possibility of a lump sum pension is dealt with, (2) withdrawals before retirement for private homes, (3) automatic value transfer and (4) how the tax system differs per canton and municipality.

The option for a lump sum is currently not possible within the Dutch pension system, but it is a long coveted and discussed option in both society and science. Minister of Social Affairs and Employment Koolmees (Parliamentary Papers II, 2018-2019, 2019Z01873) recently promised to investigate a lump sum option, which would include an option of capital at a maximum of 10% of the total pension assets upon retirement. In Switzerland, on the other hand, there is already the possibility of a lump sum option. This option is also not limited by law, but is often limited by the pension fund itself. It is also striking that the lump sum is treated more favourably from a tax point of view than a lifelong benefit. How favourable this is differs per canton and municipality. The tax system in Switzerland consists of a federal, canton and municipal level. The federal income tax is a flat rate, above which the various cantons and municipalities can still levy taxes. This also leads to relocation by wealthy (retired) residents for the benefit of lower taxation.

Furthermore, there is a legal obligation in Switzerland to transfer pension assets in the event of dismissal or a change of job. If an employee changes jobs, the accrued pension is automatically transferred to the new employer's pension scheme. If a former employee becomes unemployed or continues to work independently, the pension assets are managed by a public institution. In the Netherlands, small pension assets under 'old' pension schemes have also been automatically transferred to an employee's most recent pension scheme since early 2019. On the other hand, larger pension assets can be left with the former employer's pension scheme.

The last striking element was the integration of the own home with a pension. In contrast to the Netherlands, it is possible in Switzerland to take money from the pension fund during the accrual phase, i.e. before retirement, and use it to buy a house (for own living). In the event of a sale, the pension money used must be returned to the pension scheme.

Presentation Sander Kramer PhD ITEM/UM

At PwC, Sander Kramer (PhD ITEM/UM) presented his PhD research 'Towards cross-border pension information provision: pensions, taxes and securing pension adequacy', which concerns the provision of cross-border pension information between the Netherlands and Germany. The research findings of this study will also be applicable to other bilateral relationships.

In recent years, pension systems have changed a great deal, with pension participants increasingly exposed to risks and individual responsibility for an adequate pension income increasing. Clear information and pension overviews are therefore essential. It is precisely in the case of cross-border working that the overview is lacking, according to Kramer, due to the fact that pension accrual takes place in several Member States. This lack of overview increases the risk of insufficient pension accrual, as individuals have no insight into pension accrual.

Kramer discussed the previously investigated possibility of a Track and Trace Your Pension in Europe (TTYPE). This was followed by Findyourpension.eu: a website that gives an overview of the different pension systems within Europe, where the information is presented in layers. Nevertheless, specific, individual information is not yet available. Information at the personal level is also more difficult in cross-border situations, Kramer identified several obstacles and challenges that need to be addressed. For example, there is no uniform concept of 'pension' and there are differences in the tax treatment and method of financing. Kramer's research focuses on this problem, more specifically the tax obstacles of cross-border pension information. According to Kramer, the tax obstacles to pension communication are still very much underexposed.

The most striking example is the question of whether pension information should be provided as net or gross amounts. Kramer indicated that research has shown that net amounts are the most relevant; after all, based on these amounts, a member can determine whether the pension income is sufficient for his or her intended expenditure. On the other hand, taxation in cross-border situations is very complex: there are significant differences between the tax systems, differences in taxation in cross-border situations and there is a lack of tax harmonisation and complex interaction between international, European and/or national tax law. As an example, Kramer cited the German first-pillar pension (Rentenversicherung), which the Netherlands does not, in principle, regard as a first-pillar pension, and the preservation tax on pension accrued in the Netherlands when moving to another Member State. These tax obstacles make it more difficult to communicate pensions in net amounts.

Kramer continued with the tensions that exist within the provision of information. Information provision roughly consists of four elements: comprehensibility, accuracy, technical correctness and reliability. There is a certain interaction between the elements, a change in one has an effect on the other. Which element should be given priority depends on the purpose of the information. Kramer showed how this fact can lead to conflicting interests between the pension administrator and the pension participant: the participant prefers comprehensibility and reliability, while the administrator prefers technical correctness and accuracy. By means of an experiment and surveys, Kramer is currently investigating how to overcome the fiscal complexity within pension communication, on the basis of which a generally applicable framework for comprehensible pension information for cross-border taxation will be developed.