Mandatory pension regulation

Mandatory Pension

Per January 1, 2012, all employees in the private sector will be granted with a pension right based on a defined contribution system (“beschikbare premie”), or a defined benefit system (final pay system or average pay system). Since the defined benefit system is not common in the private sector, only the defined contribution system will be elaborated upon.

The mandatory pension age is currently 60, but will be increased gradually in the coming years as follows:

The premium is set on a minimum of 6%, dividend by employer and employee, each 3%. A transitional regulation for the introduction of the mandatory pension has been introduced in which the minimum premiums are determined as follows:

The pensionable salary is defined as at least 12 times the fixed gross monthly salary, increased with the average of the variable wage components of the past three years in case the employee works based on a variable components. The variable wage components focus on commissions and such.

The employer chooses the best insurance company available for the employees. The pension is transferable in case the employee switches employers. The employee is however no longer allowed to buy off his pension rights if (s)he only has a limited number of years, unless the monthly pension payment is lower than AWG 50 or the employee permanently leaves Aruba (in which case the pension may be bought off three years after the employee left Aruba).

The maximum premium amounts to 25% of the pensionable salary, unless a pension deficit is present, in which case the maximum premium amounts to 120% of 25% = 30% of the pensionable salary. 

Old Age Pension and Widow & Orphans Pension (AOV/AWW)

The total premium amounts to 14.5%, which premiums are due up to a maximum wage of AWG 85,000 (USD 47,486). The total premium is in principle divided between the employer (10.0%) and the employee (4.5%). The employer can however pay the employees’ part of the premiums tax exempt. The AOV/AWW premiums are only due until the employee reaches the retirement age.

As of January 1, 2015, the total premium will amount to 15.5%, which premiums are due up to a maximum wage of AWG 85,000 (USD 47,486). The total premium is in principle divided between the employer (10.5%) and the employee (5.0%).

Source: W-Tax and Services aruba (WTS).