Population ageing in the Netherlands: Demographic and Financial arguments for a balanced approach
of pension funding and its rules should therefore be processed with utmost caution, more so than
has happened with very strong enforced savings in the Netherlands in recent years as Beunders
(2006) observes.
Pension funding occurs through contribution deposits and returns on capital holdings, together
making up almost 10% of GDP. As pointed out above, the return derives from realised investment
income and (non-realised) appreciation. Between 1980 and the second half of the nineties, the role
of returns grew and that of deposits decreased. That situation changed radically following the
collapse of the stock market when the internet hype came to an end, which of course affected the
non-realised value. Since then contribution payments have more than doubled over a short period,
from 2.4% of GDP in 2000 to 5.6% in 2004. As a percentage of gross average earnings (including
employer-paid benefits and taxes), they rose from 4% in 1997-1999 to 11% in 2004, an increase of 7
percentage points.
Pension capital provides for income in old age on the basis of cohorts and cohort savings. As we
have seen cohort ageing is far less rapid, with the cohort that will be retiring in 2040 only 2
percentage points up from the current 27%. All the same, this difference has to be compensated for.
This can be done by working more in the event of unchanged pension contributions or, alternatively,
through additional pension savings. Both are acceptable options and should be open for discussion.
At the same time, we have established that although the share of occupational pensions in older
people’s incomes may be on the increase, it should not be overestimated. There is simply no
question of large numbers of people attaining 70% of their previous earnings, whether this be their
final salary or average salary. Thus the financial outlook for the occupational-pension system
presents few problems on demographic grounds; it does so only because of the negative impact of
new regulations for managing and organising the system, particularly with regard to the actuarial
valuation of property and obligations which are an important aspect of Ewijk (2006) and supervision
by the acting pension-fund authority, the Dutch central bank..
Costs of pension provisions
Market forces are an important policy principle, also for pensions - as implemented for example in
the levensloopregeling (life-course savings scheme) that was introduced by the government in 2006 to
replace early retirement plans. This scheme allows employees to save income for a period off and
pension funds are prohibited from providing this service. This has been decided on the basis of
ideological principles without taking costs and hence economic efficiency into account. Costs are
very important for the net long-term returns on pension deposits in a capital funding system. In a
pay-as-you-go system, their significance is comparatively small; there is after all no capital to be
managed and individual entitlements are simple to administer. The UK’s Turner Commission
AIAS - UvA
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