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    Applying the temporary Early Retirement Scheme threshold amount

    For most employees, going into an early retirement is a wish that often remains unfulfilled. This is because a so-called Early Retirement Scheme – i.e. an arrangement to financially bridge the gap between an early retirement and state pension age – is often subject to a financial penalty. It is thus not interesting for an employer to enter into such an arrangement with an employee. However, the ‘pensioenakkoord’ (Agreement on Pensions) reached in 2019 has now made an Early Retirement Scheme a more feasible and appealing option.

    By the turn of the twenty-first century, the average age at which employees in the Netherlands retired was 61. Today – just 21 years later! – the average Dutchman and Dutchwoman retires at age 65, 66 or even 67. Although multiple reasons can be stated for this rapid increase in age, the implementation of the so-called ‘RVU eindheffing’ (a levy imposed as a penalty on payments part of an Early Retirement Scheme) and the increased state pension age (called ‘AOW leeftijd’ in Dutch) seem to be the main culprits.

    In particular, the levy imposed on an Early Retirement Scheme has been an important reason for employers to stop granting an early retirement to employees. After all, employers are not legally obliged to enter into an Early Retirement Scheme at the request of an employee.

    When is an arrangement regarded an Early Retirement Scheme?

    The Belastingdienst (the Dutch revenue service) will regard any financial arrangement between an employer and employee made upon the termination of an employment contract an Early Retirement Scheme if several objective conditions and characteristics are met. The objective conditions pertain to the reason for the termination of the employment contract.

    The Belastingdienst will establish whether the purpose of the arrangement is to allow the employee to financially bridge the gap between the termination of his/her employment and reaching state pension age or retirement age. The age of the employee upon termination of employment is thus an important factor here.

    This means that if the employment contract was terminated for other reasons, such as underperformance or a difference in opinion between employer and employee, a financial arrangement between both parties will not be regarded an Early Retirement Scheme.

    What are the objective characteristics of an Early Retirement Scheme?

    The objective characteristics pertain to the amount received through the arrangement. The Belastingdienst will establish per person if this amount is truly enough to financially bridge the gap until state pension age or retirement age. This will be calculated using so-called ‘70% test’. This method is quite complicated.

    Simply put: an arrangement is not regarded an early retirement scheme if, when the amount paid is converted into a notional periodic benefit, it does not exceed 70% of the employee’s last regular annual salary. The notional benefit period used in the 70% test starts on the day the employment contract is terminated and ends on the day the employee in question reaches state pension age or an age 24 months prior to retirement age – whichever comes first.

    Any actual benefits the employee is expected to receive during this notional period, such as unemployment benefits (‘WW-uitkering’ in Dutch), must also be included in the calculation. If any payment is received through the arrangement in question within 24 months before the employee reaches retirement age or state pension age, Belastingdienst will regard the arrangement an Early Retirement Scheme.

    What is the ‘RVU eindheffing’?

    The Ministry of Finance has determined that employers will receive a financial penalty for entering into an Early Retirement Scheme with an employee. If Belastingdienst concludes that an organization is helping an employee to financially bridging the gap until retirement age through a financial arrangement, the aforementioned ‘RVU-eindheffing’ will be imposed, which means that the employer must pay a levy of 52% over the total paid out.

    Take into consideration here the fact that this 52% levy may not only apply to the amount the employee is paid through the arrangement. Any salary the employee received prior to the termination of his/her contract during a period when (s)he was temporarily relieved of active duty may also be subject to the ‘RVU-eindheffing’.

    What is the ‘RVU drempelvrijstelling’?

    Part of the Agreement on Pensions concluded in 2019 is taking away any obstacles for people to go into an earlier retirement. The aim here is to give employees the opportunity to retire in good health.

    In order to achieve this, the ‘Wet pensioenbedrag ineens, RVU en verlofsparen’ (Act on Early Withdrawal of Pension, Early Retirement Scheme and Accrual of Paid Leave) implemented on January 1, 2021 includes the ‘RVU-drempelvrijstelling’ (a threshold amount on payment received through an Early Retirement Scheme which is exempt from a levy). This threshold amount applies to any organization and is in principle not restricted to specific agreements in the collective labor agreement (such as e.g. agreements on so-called arduous professions). For a threshold amount to be applicable to an Early Retirement Scheme, the following conditions must be met:

    1. The amount received through the Early Retirement Scheme is paid out in one installment or periodically within a period between January 1, 2021 through December 31, 2025 (with an extended deadline possible until December 31, 2028 if the Early Retirement Scheme in question was started on December 31, 2025 at the latest).
    2. The payment(s) start at most 36 months immediately prior to the employee in question reaching state pension age. In other words, the threshold only applies to employees who will reach state pension age within three years.
    3. The total in payment(s) received though the Early Retirement Scheme does not exceed the grossed up version of the net state pension received by people who live alone (in 2021: € 1,847) multiplied by the (rounded-up) number of months between contract termination and reaching state pension age.

    If both the first and second condition are met but the total received through the Early Retirement Scheme exceeds the amount dictated by condition three, the 52% levy must only be paid over the excess amount.

    Moreover, it is good to know that the threshold amount is the same for any employee, regardless of the number of working hours or amount in salary earned.


    Threshold amount Early Retirement Scheme: an example for illustration

    John will reach state pension age on April 1, 2014. John would like an early retirement, so together with his employer he enters into an Early Retirement Scheme starting on May 15, 2021 and allowing John to bridge the gap between contract termination and reaching state pension age. The amount John receives through the Early Retirement Scheme is € 80,000, to be paid in one installment.

    The payment will be made on May 15, 2021. The period between the payment and reaching state pension age is 34 months a.nd 16 days. This period may be rounded up to a whole number (i.e. 35 months in this example)

    The threshold amount applicable to John’s Early Retirement Scheme will thus be based on a period of 35 month and is € 64,645 (i.e. 35 x € 1,847). John’s employer now only has to pay an ‘RVU-eindheffing’ (the levy imposed as a penalty on payments part of an early retirement scheme) of 52% over the amount paid to John above € 64,645. 

    Any disadvantages to an Early Retirement Scheme?

    As a result of the threshold amount, a total payment of at most € 63,612 gross (i.e. 36 x € 1,847) can be paid to an employee through an Early Retirement Scheme without it being subject to the 52% levy. Although substantial, this amount is considerably lower than the total in salary an employee would have received in the same period of 36 months. And to add insult to injury, when the employee’s contract is terminated his/her pension accrual also stops.

    There are therefore disadvantages to entering into an Early Retirement Scheme. With respect to being a good employer, it is highly recommended to discuss these disadvantages with employees, so that they know what they can expect.

    Can an Early Retirement scheme be supplemented?

    Yes, it can. One option is to arrange for an earlier start of an employee’s monthly pension payments. However, this means that the pension money turned out each month will be considerably less, which can be disadvantageous in the long run.

    Another option is to apply for an unemployment benefit. Upon checking the current rules, it seems that employees receiving payment through an Early Retirement Scheme are still eligible for an unemployment benefit. The combination of an unemployment benefit and an Early Retirement Scheme is especially appealing financially and could even result in the employee receiving more money than through his/her regular salary.

    To prevent people from exploiting this option, however, the government will check more thoroughly if all conditions for eligibility for an unemployment benefit are met. This means that until reaching state pension age, the employee in question will have to actively keep searching and applying for work – even though not with the intent of actually finding new employment.


    Subsidy available to partly finance an Early Retirement Scheme

    Together with the ‘Wet pensioenbedrag ineens, RVU en verlofsparen’ (Act on Early Withdrawal of Pension, Early Retirement Scheme and Accrual of Paid Leave), the ‘Maatwerkregeling duurzame inzetbaarheid en eerder uittreden’ (Customization Scheme Sustainable Employability and Early Retirement) was implemented on January 1, 2021. The latter allows your organization to indirectly apply for subsidy to partly finance an Early Retirement Scheme (the subsidy is at most 25% the costs of the scheme, except in those instances where the subsidy is differentiated for larger and smaller organizations).

    Why indirectly? The scheme provides subsidy for cooperation between different organizations in the same industry to set up activities aimed at improving/creating sustainable employability. Through such cooperation, the subsidy can end up in your organization. Despite the subsidy, however, a large share of the Early Retirement Scheme must still be paid for by the employer.

    This in-depth article is brought to you by Rendement Online and Jaleesa van den Hof, attorney with Bierman Advocaten LLP; phone: +316 16 66 96 45, email:, website:

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