Why Starting Your Pension Early Matters

As a young international professional living in Leiden, the future might seem like a distant horizon. Between the fast pace of work, personal growth, and enjoying the cultural richness of the Netherlands, planning for retirement might not feel urgent. Yet, there are a couple of common misconceptions about pensions that can lead many expats, especially younger ones, to delay building their pension capital—and that delay can cost dearly in the long run.

Misconception #1: "I have time to build my pension later"

This is perhaps the most frequent misunderstanding among young professionals. Many assume that they can postpone retirement planning for years, with the belief that there will always be time to "catch up" later. However, the power of early contributions to your pension cannot be overstated. The earlier you begin investing, the less effort it takes to accumulate a substantial retirement fund. Thanks to the power of compound interest, small contributions in your 20s or early 30s can grow exponentially by the time you are ready to retire. Simply put, the longer your pension capital has to grow, the more it will benefit from compounding—where interest earns interest over time. This effect means that starting early allows your money to work harder for you with minimal effort.

Misconception #2: "I'm only here for a few years, so building pension capital isn't important"

Another misconception, particularly among expats, is that their stay in the Netherlands is temporary—perhaps just a three- to five-year assignment—so investing in pension capital won’t make much of a difference. However, life often takes unexpected turns, and for many, temporary stays turn into long-term relocations. Even if you don’t end up staying as long as planned, starting to build pension capital early means you are still benefiting from those years of contribution.

Agenda changes are more common than one might think, and as many expats in the Netherlands have found, what was initially planned as a short stay often extends to several years or even decades. In that case, having made early contributions to a pension plan will significantly benefit your financial future.

Financial benefits of starting early

The first key financial reason to start a pension plan early is the relatively low contribution needed to build up substantial capital over time. When you let pension capital grow for several decades, even modest contributions can generate a handsome retirement fund. On the other hand, delaying contributions until later in life may require much larger contributions to reach the same level of savings.

Moreover, the Dutch pension system recently underwent significant reform in 2023, which now provides more opportunities for flexible retirement savings. Even if your employer offers a pension plan, the new legislation makes it possible to contribute to a private pension plan alongside it. These private plans are more flexible than traditional employer pension schemes, allowing you to tailor your contributions to your specific situation.

Why take action now?

One key feature of private pension plans in the Netherlands is that your tax deductible pension contributions for the year are based on what you earned in the previous year. However, to take advantage of this opportunity, you must make your contributions before the end of the current year. This deadline is essential to keep in mind if you want to maximize your tax benefits and ensure that you are on track with your long-term financial goals.

For international knowledge workers, particularly young professionals and families, starting early with pension savings is one of the smartest financial moves you can make. It doesn’t just build capital; it provides flexibility and security, no matter how long you plan to stay in the Netherlands.

If you want to ensure you make the most of these opportunities and benefit from the potential tax returns on your pension contributions, now is the time to seek advice. The year’s end is approaching quickly, and acting before December is crucial to make sure your contributions count.

Don’t wait—secure your future today.