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

Wiemer Salverda

At the end of 2005 the book value of the pension funds corresponded to 130% of GDP. The
Netherlands ranks first in the world in this respect, together with Switzerland and Iceland.
Provisions for old age in many European countries are largely funded by pay-as-you-go systems. This
contrasts with the Anglo-Saxon countries where capital funding is the rule, but even there the
savings accumulated in capital funds are only half the size of what is found for the topranking
countries. Pay-as-you-go funding is not in itself a disadvantage; in a demographic steady state it can
even be more economical because it is much simpler - and hence cheaper - to administer and it is
not susceptible to fluctuating interest rates and share returns. The advantage of capital funding,
however, is that it can also benefit from revenue from investments abroad, where the demographic
situation may be more favourable. In addition to pay-as-you-go or capital funding, private savings
(and debt) are also important, but they are more difficult to measure and compare internationally.
Van Aggelen et al. (2006) state that countries like Italy have huge savings tied up in house ownership,
partly for the purpose of old age, and they also take debt - such as the high mortgage debt in the
Netherlands - into consideration, alongside pension savings. It should be noticed that the magnitude
of the pension funds is a mixed blessing because any erosion quickly becomes of considerable
magnitude in relation to the national economy. This was illustrated by the recent Dutch experience
after the dotcom bubble burst when aggregate pension savings fell by 20% of GDP. Any adjustments

AIAS - UvA

<<   16   17   18   19   20   21   22   >>

More intriguing information