The Dutch Pension System

Abstract

Public pensions were first established in 1919. In this funded scheme, the insurance view dominated as individual pension rights were closely linked to contributions. However, also elements of a state pension crept into this law. Workers older than 65 years were entitled to a state-financed benefit if their income was below a certain level. The real value of benefits quickly eroded as pensions were not indexed. This led to calls for reform. After parliament had taken temporary measures in 1947, it established a more definitive public pension scheme in 1956 in the General Old-age Act (Algemene Ouderdoms Wet). The law introduced compulsory pay-as-you-go old-age insurance for all residents. In contrast to the previous public system, employers did not contribute to the system. Pension benefits were payable at age 65 and not means tested, did not depend on premiums paid, and were indexed to contractual wages. The public pension benefit was increased several times on top of the indexation incorporated in the law. In the early 1970s the after-tax public pension for a couple was set equal to the after-tax minimum wage.1