Pension System Netherlands – The Institutional Architecture

Pension system in the Netherlands is characterized by the coexistence of different schemes. While no major reforms had been introduced in the last decade on old-age pensions, the trajectory of pension programmed radically altered after the Second World War. In the Dutch case, the public pension regime was completely changed in the 1950s: from the traditional Bismarckian model it shifted towards the universal social-democratic ideal-type realized in Scandinavian countries.

Then, its evolution was characterized by the presence of public and private institutions covering the old-age risk, in line with the multi-pillar paradigm. Thus, the first (public and mandatory) pillar consists of basic pensions covering all residents from the age of 65. These are flat-rate benefits indexed to wages but with the possibility for the government to suspend it in cases of rapid growth of beneficiaries.

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The first pillar in the Pension System Netherlands

The first pillar is financed by social contributions depending on taxable incomes (with premiums being part of the personal income tax). In 2000, the basic public pension represented around 50% of the retirement income, and 70% of the minimum wage for a single pensioner. In 1998, the government introduced the public pension savings fund (buffer fund) to face the expected future population ageing.

The fund is financed by public debt reduction. Total public pension spending was at 7.9% of GDP in 2000. It is expected to increase to a maximum level of 14.1% in 2040. A basic safety net is represented by the so-called social minimum: it is a means-tested programme for people in need. Local-level governments provide such social assistance.

The second (private and quasi-mandatory) pillar is then represented by supplementary funded pensions, taking the form of occupational funds at company and/or sectoral level. Admission rules for supplementary schemes are usually defined through collective agreements between employers and trade unions, even if the state defines by law their broad.

Framework

They are quasi-mandatory but in fact universal (covering more than 90% of the active population). They are financed though contributions and fully funded (of a ‘defined-contribution’, or a ‘defined-benefit’ type). Hence they are consistent with the ‘salary savings’ approach with a reduced re-distributive impact (but not eliminated, especially in the case of a ‘defined-benefit’ mechanism). They are administered by social partners. In the mid 1990s, public pension was around 50% of the retirement income, the occupational pensions about 30%. In 2001, total assets from occupational schemes amounted to 131% of GDP. The third pillar is then private, individual, and voluntary. One of the possible schemes is represented by annuity insurance. Contributions are tax deductible. In 2000, annuities provided for more than 10% of pensioners’ income.

Peter Diamond describes the state pension system in the Netherlands as a comparative example at #SocSecInnov: pic.twitter.com/WtjIZFw8o8

— National Academy of Social Insurance (@socialinsurance) October 19, 2017

Pension System Netherlands – The Administrative Structure

The safety-net for citizens with low income or no means of subsistence (social assistance) consists of a social assistance programme called social minimum. This social assistance programme is managed by municipal agencies. The universal insurance scheme, represented by flat-rate benefits, is administered by the Social Insurance Bank (SVB), a state bureaucratic structure that left little room to corporatist bodies.

Workers insurance, the second pillar of the Dutch social security, provides for earnings-related benefits to wage earners in the case of illness (sickness insurance), accidents (disability insurance), and unemployment (unemployment insurance). These schemes are administered by autonomous Industry Insurance Associations (bipartite bodies) which were put under the control of the tripartite Social Insurance Council. In 1995, this was replaced by two new bodies: the Supervisory Board (CTSV), composed by independent members with no direct links with social partners; and the National Social Insurance Institute (LISV) a tripartite body coordinating social protection activity.

Future Challenges

The main challenges to the financial sustainability of the Dutch public pension system are represented by the population ageing and generous indexation methods. All these factors will produce a certain increase of public spending in the first decades of the new century. As to the occupational schemes, the main limits are represented by the lack of full coverage for more flexible working careers and especially for women. The future financial viability of both occupational and individual schemes is mainly related to developments in financial markets.

The first years of the XXI century showed a rapid decrease of pension assets. This all means that it is important to give attention to your own pensionplan when living in The Netherlands. Don’t hesitate to contact us so we give assistance in how to deal with your own pensionplan.

Information on the pension system Netherlands

Employee liability and managerial liability are risks that can significantly affect the business profits in the Netherlands. There are few experts in the Netherlands who can advise in terms of the working conditions for the employees, pension, and business risks. Therefore, when choosing an Dutch adviser, take the advisor who is qualified and in possession of all the obligations that the supervisor requires.

Gerrit-Jan Doorneweerd is an independent insurance broker that meets all the requirements. The pension advice, employee benefits and business insurances are therefore in good hands with me and my company.

• Please give me a call. Mobile 0651-471 nine – six – five

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