Population ageing in the Netherlands: Demographic and Financial arguments for a balanced approach
3 Cohort effects on old-age revenue and funding
Figure 3 presents a tentative outline of developments in AOW expenditure since the pension was
introduced in 1957 and of occupational pensions and private life insurances, based on CPB data since
1969 and more definitively on CBS data since 1980. In 1957 AOW expenditures began at around
2.5% of GDP and grew to 6.3% in the early eighties, followed by a period of stagnation and then a
drop to 4.7% in 2004. The decline occurred because the AOW level, like many other social benefits
and the minimum wage, lagged strongly behind other wages and incomes. Occupational pensions
have shown a clearly rising trend which - after 1980 - has more or less compensated for the decline
in the AOW, while private life insurances have risen from 1995 onwards. On balance, total pension
payments have increased from around 7% in about 1970 to over 11% today: rises of 4.2% for
occupational pensions and 2.6% for life insurances on top of the AOW. The calendar-OADR value
went up from 19% to 23% over the same period. The income position of older people has improved
but the implicit level - 11% financial share as against 23% demographic share - is less than half of the
general average (if children are excluded from the calculation).
The recent CPB study on population ageing anticipates that in 2040 the AOW will amount to 8.8%
of GDP and occupational pensions to 8.7%; life insurances are not mentioned although they too are
important for government finances (Van Ewijk et al., 2006, 85). This means that the share of old-age
expenditures in GDP will almost double. However, the relative income position on the basis of the
calendar-OADR will remain fairly constant - 18% as opposed to 43%.
The above illustrates financial developments for the AOW and occupational pensions in the way
they are usually shown as a percentage of GDP1, but we have to ask ourselves whether this in fact
presents the right picture. Firstly, GDP is not the most adequate basis on which funding should be
measured. AOW contributions are levied on individual income from work and enterprise, while
occupational-pension contributions are levied on wages, both of which have declined in relation to
GDP. Whereas the AOW contribution was still levied on 47% of GDP in 1980, this was only 22% in
2004 following the Van Oort and Zalm/Vermeend tax reviews of 1990 and 2001 respectively - the
contribution rate rose in inverse proportion. The wage share from which pension contributions are
paid also declined in the same period, from 58 to 51%, but this matters less as wages are precisely
what such contributions aim to cover. Secondly, GDP does not permit much detail, either in terms
of age of the income receiver or type of income. Older people may have incomes other than just
their pension. In addition, pensions do not go exclusively to people over the age of 65. Annuities can
be enjoyed at any age provided that the relevant fiscal savings regulations are complied with. Nor
are occupational pensions the exclusive preserve of people aged 65 and over thanks to early
pensions, job-related early retirement or survivor’s pensions.
1which is what i also did for the oecd (2005).
AIAS - UvA
17