Defined benifit pension – Final pay

In this defined benefit system, the pension is related to final pay. In case of a rise in salary, the entire pension is increased with retroactive effect. The costs of funding additional prior benefits resulting from subsequent increases in salary are known as past-service costs. The yearly accrual equals a percentage of the pensionable base. The maximum percentage for tax purposes is 1.657% accrual a year as from 2015. Final pay schemes have become very rare in the Netherlands, due to the past-service element (backservice).