Edition 28 June 2019, by Femke van Iperen
Following nine years of ‘polderen’ between the government and all relevant parties, on 4 June a Dutchstyle consensus on a reformed pension system was reached in principle. Although the Dutch pension system in 2018 again received the MMGPI (Melbourne Mercer Global Pension) Index A-grade recognition as a ‘firstclass and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity’, it is in dire need of reform. The exact details of the provisional measurements remain to be worked out by employers, employees and the government, and the proposed changes are still to be submitted to members of the trade unions, such as FNV, as well as adopted by the Tweede and Eerste Kamer (the Lower and Upper Chamber). Still, with the provisional pension agreement finally in place, it is to be hoped that the Dutch pension system will become more sustainable and transparent.
In need of reform
Like many European countries, the Dutch pension system is based on a state pension (AOW), supplementary collective pensions for employees, and well as private pension products that individuals can arrange for themselves. In particular the employee pensions have been at the heart of recent debate, with growing worries about the financial and societal sustainability of the system. The Sociaal-Economische Raad (SER), which was requested by the government to outline recommendations for improvement, explains that the financial crisis exposed a number of vulnerabilities in the Dutch system. For example, the indexation of pensions (when pension fund price increases match consumer price increases) can no longer be taken for granted. Furthermore, the current system no longer matches developments in the labour sector, and many Dutch people are not accruing an (adequate) pension. Almost all pension funds in the Netherlands are said to use the ‘doorsneesystematiek’, a type of ‘averaging’, so that all participants, regardless of age or gender, pay the same premium and receive the same pension accrual. But there is discussion whether this system still fits current times, as it may, for example, be unfair for younger participants. By addressing such weaknesses, the new pension system is intended to be more in line with key developments in society and the changing labour market. It will be more personalised and transparent for its users, for example by providing an annual overview into an individual’s pension accruals. In addition, pension funds are no longer required to maintain high ‘buffers’: they must still have enough money to pay for future pensions, but personal investment gains can now be immediately distributed to all participants.
Major social importance
Together with the relevant parties, the SER intends to create a solution for a ‘very complex problem of major social importance’ with the new system. Dutch media sources such as NRC Handelsblad, which reported in June that the new system will ‘yield winners as well as losers’, have taken a closer look at what it will mean for various groups. In the new system, people can work towards their retirement in a “healthy” way. This means that those who cannot work until the scheduled pension age will have more options for early retirement. The new plans suggest that the state pension age should be frozen at 66 years and 4 months until 2022. The age will subsequently rise to 67 in 2024 (after which it will be linked to life expectancy), making the increase much slower than previously planned. This is good news for anyone aged around 64. For the self-employed, who are currently building up little or no pension savings, it will become easier to do so. And, whilst a pension will not be mandatory for this group, disability insurance will be, although an exception will be made for those working in some sectors, such as the agricultural sector. Newspaper AD also mentioned there will be more options for professionals working in the so-called ‘heavy job sector’ (jobs which cause more stress than others, in terms of work hours, safety risks or physical stress) to retire earlier, and that any fines currently imposed on earlier termination will be partially cancelled.