Population ageing in the Netherlands: Demographic and Financial arguments for a balanced approach
1 Introduction
Today’s inhabitants of the Netherlands live an average of 79 years, which is over 30 years longer
than a century ago. The share of people aged 65 and over in the population currently amounts to
14%, compared to 6% then; according to forecasts this figure will be 24% by about 2040. In the light
of these demographic projections, there has been much speculation in public debate and
government policy about major economic repercussions. A smaller segment of the population will
be productive and older people will receive a larger share of the income while at the same time
generating much higher costs, especially related to health care. This has prompted a raft of far-
reaching policy measures and studies aimed at reviewing pension schemes, combating early
retirement and privatising health care, to be followed probably by a raising of the official retirement
age.
In this paper I will question the seriousness of this demographic trend and its financial implications,
with demographics and older people’s incomes central to my argument. I will omit issues like
healthcare costs because I share the conviction that the increasing cost of care has more to do with
the end of life itself than with the later age at which this occurs (compare e.g. Seshamani, 2004).
Actually, if additional life expectancy is spent in reasonable health, the cost increase will be
postponed with growing life expectancy. Central to my argument are people aged 65 and over, who
form the hard core of the ageing population. Older employees, 50 to 64 years old, and their
potential exit from the workforce before the age of 65, constitute a topic which would deserve
separate treatment but in the Netherlands their employment behaviour has already changed much
to the better over the last decade and more than in most other countries (see OECD, 2005, Figure
2.4). I will look at first-order effects only - that is, the effects of the changing population structure
that accompany population ageing, assuming that individual behaviour remains unchanged. I will
demonstrate that these effects will be limited, thereby rendering any study of second-order effects,
aimed at changes in that behaviour, unnecessary for the time being. De Vries (2006) as well as
Verbon (2006) also do not view the future increase in public expenditure in relation to ageing as
one of disastrous proportions and challenge the need to adopt draconian measures at this time.
Large model-based studies, such as the report on population ageing from the Netherlands Bureau
for Economic Policy Analysis (CPB) (Van Ewijk et al., 2006) are indispensable for identifying second-
order effects but the false impression that we are able to predict the future decades in advance. The
report forecasts a budget deficit of 3 to 3.5% of GDP in 2040, which is 34 years from now. Note
that it was the same CPB that was 3.5% out in its projections for the 2002 budget deficit, which
forecast was made in April 2001 - only eight months in advance.
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