In a letter dated 17 March 2017, State Secretary Klijnsma reports on the inquiry into bank savings schemes for pensions. The inquiry was prompted by a motion tabled by Member of the House of Representatives De Vries (VVD).
Bank savings
Bank savings involve saving in a blocked bank account to build up a lump sum or receive regular payments. This scheme was introduced to offer consumers a transparent alternative following the scandals surrounding usurious insurance policies. A blocked savings account is transparent because consumers can see from their bank statements exactly how much they have saved. Furthermore, the costs associated with bank savings are clearly set out.
There are two main types of bank savings schemes: annuity savings schemes and home ownership savings accounts. As well as a savings account, you can also opt for an investment account.
Annuity savings
The savings balance in an annuity savings account must be paid out in a number of annual instalments. In principle, these payments begin at the state pension age and must continue for at least 20 years. Contributions to an annuity savings account are deductible from income from employment and property (provided the contributions remain within the annuity allowance). The payments are subject to income tax. It is possible to convert an annuity insurance policy into an annuity savings account.
Bank savings account for your own home
The home ownership savings account was the alternative to the home ownership endowment policy. During the term of the home loan, a lump sum is saved tax-free to be used to repay the loan. Since 2013, a home loan must be repaid at least on an annuity basis throughout its term. It is therefore no longer possible to open a new home savings account. Home savings accounts that were already in place on 1 January 2013 may, of course, continue.
Bank savings for retirement
Pension entitlements must be held with a pension fund or pension insurer. A pension is the retirement provision accrued in the context of employment. This constitutes the second pillar of the retirement provision system in the Netherlands. The annuities described above form part of the third pillar. The first pillar comprises state benefits: the AOW.
When it comes to pensions, too, there is an understandable need amongst consumers for (greater) transparency. It is therefore logical to suggest that bank savings schemes should also be made available for pension purposes. However, the research carried out shows that bank savings do not meet the lifelong nature of a pension. After all, a key feature of bank savings is that payments are made until the savings account is empty. Based on the system for annuity savings, payments would start when the beneficiary turns 67 and end upon reaching the age of 87 (after 20 years of payments). Thereafter, income would fall drastically, potentially resulting in a need to rely on public funds. The government does not consider this desirable.
Combining a bank savings scheme for retirement with an insurance policy to cover the longevity risk appears to be commercially unviable. Moreover, such an arrangement would also lead to a significant drop in income in old age.
Conclusion
The conclusion is clear: bank savings schemes will not be introduced for pensions; at least not any time soon. For that, we will continue to rely on pension funds and pension insurers.