What about pensions and holiday pay?

Financial planning plays a crucial role in a carefree retirement. A frequently asked question is: how does holiday pay work during your retirement? During your working life, you were used to receiving holiday pay annually in May, usually 8% of your gross salary. But how does that work when you are retired? In this article, we explain whether and how you receive holiday pay as a pensioner, and what you can expect in terms of payment term and amount.

What is holiday pay?

Holiday allowance is an extra compensation – usually around 8% of your gross annual income – intended to cover holiday expenses. Employees in paid employment often receive this once a year (usually in May) in addition to their regular salary. As a pensioner, you are also in principle entitled to holiday allowance, only the method of payment may be different from what you were used to during your working life.

Two ways of paying out holiday pay during retirement

There are two common ways you can receive holiday pay during your retirement, depending on your pension provider:

Option 1: Vacation allowance once a year
You will receive your regular pension payment twelve times a year, plus a separate vacation allowance payment once a year (often in May, just like with your salary in the past). So this feels similar to how you were used to it when you worked: a fixed amount every month and an extra in May.

• Advantages: You get a larger amount in one go, which can be useful if you are planning a large expense or trip in the summer, for example. It also feels like a bonus, just like you were used to during your working life.
• Disadvantages: You must have the discipline to manage this large amount well yourself. Moreover, your other monthly payments are slightly lower than they would be if the holiday pay was spread out, because something is “deducted” to be able to give that annual payment.

Option 2: Monthly payment of vacation allowance
Your holiday allowance will be paid out every month together with your pension payment. You will therefore receive twelve equal pension amounts per year, without a separate extra payment in May. Here, your monthly amount is slightly higher than with option 1 (because the holiday allowance is distributed).

• Advantages: You get a slightly higher income every month, which can help you spread your expenses evenly over the year. You don't have to wait until May for the extra and you don't have to set aside a portion for holiday yourself every year.
• Disadvantages: The holiday pay feels less “special” because it does not come as a separate bonus. You miss that one festive moment in May. Moreover, if you were used to the holiday pay being for your holiday, you must now reserve an amount for holiday in your budget, since it is already in your monthly amount.

No state pension yet, but a pension nonetheless

Suppose you have retired (for example, through an early retirement scheme or your own resources) before you have reached the state pension age. You will then already receive pension payments from your pension fund or insurer, but no state pension yet. Are you entitled to holiday pay during this phase? Yes, usually you are. How much you receive and when depends on the scheme of your pension provider. A pension fund often pays out holiday pay annually, but it is wise to check this with your pension fund or insurer. The amount is usually comparable to 8% of your annual pension payment, but the exact calculation and payment date may differ per provider.

Tip: Check with your pension fund how they handle holiday pay before your state pension starts, so you won't be surprised. Each fund has its own rules and it is nice to know whether you can expect something extra in May, for example.

With state pension (AOW)

Once you reach the state pension age and receive AOW (General Old Age Act benefit), you will also receive holiday pay on your AOW. The Social Insurance Bank (SVB), which pays out the AOW, pays out this holiday allowance once a year – usually in the month of May.

• Payment: The holiday allowance is calculated over the period from May to April of the previous year and is paid every year in May.
• Amount: The amount of this holiday allowance on your AOW depends on your AOW situation. Do you have an AOW for singles or for cohabiting persons? Do you receive a full AOW or part of it (in case of incomplete AOW accrual)? The payroll tax credit is also taken into account. You can see how much holiday allowance has been accrued in your AOW specification.

In short: in addition to any holiday allowance via your pension fund, you will also receive a holiday allowance amount from the SVB (Social Insurance Bank) in May on top of your AOW (state pension) benefit.

Pension fund versus pension insurer

Just a step aside: there are different ways in which you receive your pension, which can affect holiday pay:

• Pension fund: This is a collective pot (for example, from your industry or former employer) from which your pension comes. Pension funds often pay out in a manner similar to salary. With many pension funds, holiday allowance is paid separately (annually). They reserve a portion of your pension each month to combine it in May into your holiday allowance. The exact policy varies: some large funds do it monthly inclusive, but usually it is annually separate.
  Example: ABP (large pension fund) pays out pension 12x per year and an extra holiday allowance in May.
• Pension insurer (also known as annuity payment from an insurer): This is an individual arrangement, often through an insurer or bank, where you have built up a pension pot yourself (for example, as a self-employed person or through extra contributions). Here, the holiday allowance is usually already included in the monthly payment. The insurer calculates your annual payment and divides it by 12 equal monthly amounts; you do not receive a separate holiday allowance in May, but your monthly amount is actually inclusive of holiday allowance.
  Example: If you have an annuity payment through a bank or insurer, you will receive the same amount every month and no separate holiday allowance payment. You actually receive your “holiday allowance” spread throughout the year.

Please note: it is good to know which category your pension falls under, so that you know when to expect your holiday pay. Are you in doubt? Contact your pension provider for clarification.

What about your individual pension (for example, with Vive)?

Not everyone has their pension through an old-fashioned pension fund. More and more people have individual pension pots or products (think of self-employed people who arrange something themselves, or modern pension solutions). At Vive – where you contribute and invest for your pension yourself – you invest for your pension according to your own insights, but you can only invest for your pension, not arrange a pension payment. In such cases, the word “holiday allowance” does not appear as a separate component. Instead, in the payout phase (when you retire and have your pot paid out), you determine how you want to receive the money. You then contact various banks or insurers that make pension payments and arrange the payments with them. Often you simply opt for monthly payments of a certain amount over a certain period. Your holiday allowance is included in this, similar to the working method of pension insurers.

The most important thing is: know how your pension payout is structured. If you are with an old-fashioned pension fund, read their information about holiday pay. If you have your own fund or insurance structure, realize that you have to take care of your own 'holiday bonus' if desired.

What can you do now?

Whether you opt for an annual payment of holiday pay or monthly additions to your pension, it's important to know how it works and which option best suits your financial planning. At Vive (and our pension partners), we are happy to help you make your financial future carefree and clear. Check with your pension fund or insurer how they handle holiday pay, so you know exactly when and how much to expect. Then: enjoy your pension and your well-deserved holidays!