WP 48 - Population ageing in the Netherlands: Demographic and financial arguments for a balanced approach

Population ageing in the Netherlands: Demographic and Financial arguments for a balanced approach

The assumption is that the amount exceeding the current AOW aggregate level is drawn entirely
from taxes, which are paid for also by those aged 65 and over proportionate to their income. That
amounts to a difference of approximately 1.5 percentage points in the financial OADR. Of course
the uncertainty about population forecasts discussed above continues to make itself fully felt here;
however, the impact on the OADR has been shown to be limited as the forecast variation affects all
ages. Added to this is the uncertainty about economic developments which by definition are omitted
here in order to focus as much as possible on the first-order effects of population ageing itself5.

Table 2 Extrapolation to 2038 of AOW funding* from the income of 20-64-year-olds

Sources: amounts according to CBS/IPO, 1985-1999 figures according to Kroniek ratios, 2038 total according to current CBS population
forecast, average incomes and tax payments according to IPO.

The calculations show that the present 8% relationship to the aggregate income of 20-64-year-olds
will rise by over 4.5 percentage points to 12.7%. Although considerable, for various reasons this
increase does not appear insurmountable. Firstly, as we shall see later, during the recent pension
crisis the premium rate levied on gross average earnings rose by a larger percentage (7%) in the
space of only a few years. The increase does not therefore appear unmanageable, especially as in this
case the consequence of the drop in demand of recent years will not eventuate because the revenue
leads directly to AOW payments, which are basically received and spent within the Netherlands, and
not to (pension) savings which are largely invested abroad6.

5 van eekelen and olieman (2003) discuss “bull” and “bear” scenarios in which the AOW can vary as a percentage of GDP from 6% to 8% at its highest
point.

6 CPB (2006, 10) notes that European countries with a pay-as-you-go system experienced less fall in demand in recent years than the Netherlands due to
the increase in premium rates for the capital-funded pension system

AIAS - UvA

<<   13   14   15   16   17   18   19   >>

More intriguing information