The Average Salary Scheme Explained for Residents of Leiden

The Average Salary Scheme in Leiden

For many workers in Leiden, such as employees of Leiden University or the Municipality of Leiden, the average salary scheme is a common method for pension accrual. Under this scheme, the pension is calculated based on the average salary over the entire working career. Unlike the former final salary scheme, which relies on the final salary, this approach delivers a more balanced and reliable pension, particularly in a city with diverse jobs in sectors like education and healthcare. Since 2015, it has been the standard at most pension funds, protecting against income fluctuations—a key benefit for Leiden workers with varying careers.

Legal Basis of the Average Salary Scheme

The average salary scheme is enshrined in the Pension Act (Act of 21 December 2006, Bulletin of Acts and Decrees 2007, 1), which took effect on 1 January 2007 and replaced the former Pension and Savings Income Act. Book 2 of the Civil Code (from Article 1) and the Pension Act stipulate that accrual is capped at a maximum of 1.875% per year of service on the pensionable salary. Leiden residents with questions can turn to Het Juridisch Loket Leiden for free advice.

The shift to average salary was mandated by the Act Reducing Pension Accrual and Introducing a Maximum Premium (2014), effective from 1 January 2015. This caps accrual at 1.875% of average salary, based on the fiscal brackets. The Tax Authorities enforce compliance with tax rules under the Income Tax Act 2001 (Articles 11 and 19), making the scheme tax-efficient while preventing excessive benefits. For disputes in Leiden, the District Court of Leiden has jurisdiction over local proceedings.

How the Average Salary Scheme Works in Practice

Under an average salary scheme, employer and employee contribute premiums to a fund or insurer. The average salary is the weighted average earned during the participation period, adjusted for salary changes. For example, someone starting in Leiden at €30,000 and later earning €50,000 would have an average salary of around €40,000 as the basis.

Accrual proceeds as follows:

1. Contributions: Employer and employee pay premiums, often split equally, depending on the collective labor agreement in sectors like Leiden's healthcare or education.
2. Accrual Rate: Each year, 1.875% of the average salary converts to pension rights.
3. Indexation: Pensions may increase through indexation, based on the fund's returns.
4. Payout: Upon retirement, a monthly amount is paid, typically 70% of average salary after 40 years of service.

For variable income, such as bonuses at Leiden companies, usually only fixed salary counts unless the collective labor agreement states otherwise. This provides predictability but is less favorable for late-career salary boosts, such as advancing in local government.

Differences from Other Pension Schemes

The average salary scheme differs from the final salary scheme, which dominated until 2015. An overview:

There is also the defined contribution scheme, with fixed contributions and returns-dependent outcomes. The average salary scheme offers greater certainty, ideal for stable jobs in Leiden.

Rights and Obligations under the Average Salary Scheme

Employees are entitled to clear information, such as annual pension statements (Pension Act Article 40). Value transfer has been mandatory since 2019 for large funds upon job changes. In Leiden, Het Juridisch Loket provides advice on these rights.

Obligations: Promptly report salary changes to the employer, who notifies the fund; failure reduces accrual. Employers must pay contributions and ensure proper administration, or face fines from DNB. In cases of divorce or death, uniform distribution applies (Pension Act Article 15), with equal sharing between partners. The District Court of Leiden handles local divorce proceedings related to this.

Practical Examples of the Average Salary Scheme

Consider Anna, a teacher at a Leiden school, working 30 years. She starts at €2,500 gross monthly and ends at €4,000. Her average salary is about €3,250, yielding 52.5% accrual after 30 years: roughly €1,706 monthly old-age pension (excluding AOW).

Or Bas, a civil servant at the Municipality of Leiden, with an early peak and later stability. With an average salary of €5,000, he accrues €3,500 after 40 years. Under final salary, it would be higher due to his peak, but average salary protects against drops. In Leiden sectors like education (ABP) and government, collective agreements compensate for the transition to average salary with extra contributions for local workers.