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

Wiemer Salverda

devotes an entire chapter to costs and partly for this reason argues for a national pension savings
scheme. Their costing target is 0.3% of the built-up value. However, this dimension of costs and
administrative structure is altogether absent from Dutch policy-making; it may reflect complacency
as a result of the high pension savings in international comparison.

Figure 8 Administration costs of occupational pension*, % of deposits, payments and
capital income, 2004

*) Administration costs and exploitation surplus

Source: calculated from CBS/Statline, National Accounts

Figure 8 shows the administration costs for the three types of pension provision and for two types
of providers - funds and private insurance companies. The Turner Commission measures the costs
as a percentage of the balance of pension funds - the 0.25% of the Dutch funds then compares
favourably in international terms and is also mentioned by Turner. That measure is seen indicated to
the right of the figure and is 16 times lower for pension funds than for the private insurance
companies. A better measure, however, is to relate costs to the three types of administrative
activity that pensions entail: acquiring and registering participants, administering pension payments
and realising capital revenues. Costs on this basis are indicated on the left-hand side of the figure.
The advantage is that this measure also allows a comparison with the pay-as-you-go system, which
after all does not have a balance and no capital management costs. The AOW is by far the cheapest.
The administration of both occupational pensions and annuities by private insurance companies is,
however, exorbitantly expensive - 10 times more than for pension funds. Therefore it seems logical
that the greater the demographic OADR value is, the smaller the role of private providers should

AIAS - UvA

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