In the seventeenth century, the winds of change were blowing through Europe. European monarchies were characterised as absolute or more modern in nature, as were the Netherlands. When England harboured an ambition for a change of king, it looked to the Netherlands. With it came the revolution which brought the joint monarchy of English Queen Mary and her Dutch husband William of Orange to the throne, ridding England of an absolute monarch and replacing him with a more modern alternative.
Fast-forward 300 years or so and it’s not so much the Netherlands’ monarchy but rather her pensions system which could be seen as the modern alternative for the rest of Europe. Typically defined benefit in nature, its strength has been the capital-based nature of its second pillar. But even this renowned pension system is not immune to demographic changes and the eurozone crisis enveloping Europe. The solution has been to shift risk to employees, but some condemn reform as a means of shifting burden to future generations of Dutch people. Whether they will be prepared to carry this burden is unclear.
The Dutch pension system is characterised by a three-pillar model: basic state old-age pension under a statutory insurance scheme (first pillar); supplementary pension schemes by virtue of the employer (second pillar); and private savings for retirement (third pillar).
According to Netherlands’ Ministerie van Sociale Zaken en Werkgelegenheid, the largest pillar in terms of the overall Dutch pension system is the second pillar for occupational non-statutory pension schemes. The employer usually pays more than 50% of the pension contributions. The ministry said in 2008, before the global economic downturn, that the country’s system of supplementary pension schemes has a “rich history and is the backbone of the old-age pension system in the Netherlands,” adding that “in per-capita terms, the Netherlands has one of the largest pension reserves in the world.”
Dutch Insurance industry figures from Verzekerd van Cijfers estimated that in 2011, 78% of Dutch pension plans were defined benefit.
While the global economy has changed dramatically since 2008, in 2011 the Dutch pension system was still ranked first by the Melbourne Mercer Global Pension Index. However, Mercer reported that the Dutch pension system is “unsustainable” in its present form. In September of last year, the Dutch government announced measures to introduce pension reforms to tackle issues connected to an ageing population in the midst of a eurozone crisis.
The government announced it would introduce an increase of the retirement age from 65 to 66 years in 2020, an increase to 67 in 2025, and an extra increase of the state pension of 0.6% in 2013 to ensure that people with low incomes can seek early retirement before 2020.
Of course, the Netherlands is in the eurozone and much coverage has been given over to the perilous state of its finances, but the need for reform of the Netherlands’ pension system was evident even before the crisis hit.
Figures from Dutch banking giant ABN Amro reveal people over 65 as a percentage of the Dutch population that has grown in number from 10% in 1950 to around 16% today. That figure is set to peak at 17.5% in 2030.