What to do with a small pension?
A pension that provides between €2 and €594.89 (2023) gross per year is called a small pension. You can choose to commute this pension on your retirement date. The government determines each year how high a small pension can be.
You have 3 options with your small pension:
- Receiving the small pension. This is not very attractive because the cost of paying out the amount may be higher than the retirement income. But it is possible.
- Merging pension(s) at your retirement date: if you are in a funded or contribution scheme, merge the different pension pots together and have them paid out by one pension provider.
- Commuting your small pension when you retire. You have the amount paid out in one lump sum.
Who can commute?
Are you close to your retirement date? Then it is smart to see if commuting a small pension is for you. You will be notified by us whether commuting is possible. Do you have multiple pension schemes? Then we look at the option of commuting for each scheme
- You are sure to get the amount now.
- You will know the gross amount you will receive.
- Commuting comes with less paperwork.
- You reduce your monthly retirement income in the future.
- You have to pay tax on the money you get through commuting. Have you not yet reached the state pension age? Then that tax may be higher than if you receive state pension and are probably in a lower tax bracket.
- You may lose the right to allowances. Are you receiving allowances now? The amount you receive by commuting the small pension is added to your annual income. Due to this temporarily higher annual income, you may lose all or part of your right to allowances such as rent and healthcare allowance.
May suit you if:
- You can be sure that your income will be sufficient later.
Probably suits you less if:
What are the consequences if I commute my small pension?
You will receive a commutation proposal for your small pension approximately 6 months before your retirement date. Are you opting for commutation? Then you will not receive pension income, but the net value of your small pension in your account. This commutation value counts as income in the year you receive your commutation amount.
What other consequences are there when a small pension is commuted?
Zwitserleven is obliged to deduct payroll tax from the amount you receive by commutating the small pension. We transfer this payroll tax to the Tax and Customs Administration. You will receive an annual statement from Zwitserleven. This shows how much payroll tax was withheld on the commutation of the small pension. This annual statement is for your income tax return for the year in which the commutation took place.
How does commutation affect benefits and allowances?
Do you receive benefits or allowances? If so, you may have to repay all or part of them. This is because the commutation of your small pension temporarily increases your income. You can ask the paying agents not to take into account this one-off commutation sum when determining your income level. This does not apply to all types of benefits and allowances. For this, it is best to contact the Tax and Customs Administration and/or the Social Insurance Bank.
What are the consequences of the commutation for the Healthcare Insurance Act (ZVW) contribution?
Do you receive or will receive pension income from Zwitserleven in the same calendar year? If so, Zwitserleven will still be obliged to withhold a contribution for the Healthcare Insurance Act (ZVW) from your gross commutation value. The extent of this contribution depends on your income.
You are already receiving a retirement income from Zwitserleven.
We directly deduct the income-dependent ZVW contribution up to a maximum contribution per month. Has the maximum already been reached for that month and the income-related ZVW contribution has not yet been deducted in full? In that case, we will deduct the rest from the following month(s) of the same calendar year. Your future net pension income in the same calendar year may be temporarily lower as a result. This remains the case until the full income-dependent ZVW contribution on the commutation amount is paid. Is your pension income lower than the maximum contribution per month? Then you will temporarily not receive pension income until the full income-related ZVW contribution has been paid.
You will receive pension income from Zwitserleven at a later point in the same calendar year.
We must then still deduct the income-dependent ZVW contribution from the paid commutation value. We deduct this from pension income for the same calendar year. Again, we take a maximum contribution per month into account. This may mean that you temporarily receive a lower net pension income until the full income-dependent ZVW contribution has been deducted. Is your pension income lower than the maximum contribution per month? Then you will temporarily not receive pension income until the full income-related ZVW contribution has been paid.
Need advice on your choices?
We are happy to help you make choices for your pension. These choices may have major financial implications. Our guidance covers only your pension scheme with Zwitserleven. Whether a choice is right for you obviously depends on your whole personal situation, now and in the future.
Perhaps you should consider contacting an adviser, who can give you an overview of all your financial affairs and help you to make the most suitable choices.