Here we describe the current state of pensions in the Netherlands and look at the recent pension agreement, ongoing issues and proposed legislation. Will the Netherlands move from defined benefit to defined ambition pensions?
In 2011, the Melbourne Mercer Global Pension Index once again ranked the Dutch pension system first. Nevertheless, the Dutch pension system is unsustainable in its present form and is set to undergo a fundamental change. At present, the pension system in the Netherlands is primarily defined benefit – in 2010, almost 78% of Dutch pension plans were defined benefit – and the system has become unaffordable.
The move to defined ambition
If pension contributions are fixed at today’s levels, the problem of rising life expectancy or lower than expected investment returns must be resolved in another way. The solution agreed upon is shifting this risk to employees. This means that the risks of longevity, interest and return on investments will be borne by employees. In the words of the agreement itself, ‘the social partners set out the basic principles for a new, more transparent pension contract that takes into account developments in life expectancy and the financial markets.’ It seems that the present Dutch nominal defined benefit pension system will change into a form of defined contribution (DC) system (a collective DC or CDC) pension scheme, which some are now calling a defined ambition (DA) pension scheme.
A new era of risk and responsibilities
In 2011, the Dutch social partners finally reached a pension agreement. Now it is up to the Dutch government to implement this agreement. This will result in a rise in the retirement age and a shift of risks (longevity, interest, and return on investments) to employees. The Netherlands has been a defined benefit country for many years, but it now looks like this is going to change. The Netherlands looks set to become a defined ambition country. As elsewhere in the world, employees will have to start taking more responsibility for their own old age income.
Please read more in the full article (4 pages).