The European Commission Green Paper on pensions: Lessons from the Dutch experience

Abstract

The Dutch pension system is generally looked upon with admiration. It scores higher marks for level of participation, level of pension income and sustainability than retirement provisions of most other countries. The Dutch state retirement pension is funded as a pay-as-you-go scheme, second-pillar pensions are collectively funded and third-pillar annuities have a fully funded basis too. The Dutch retirement reserve equals more than 100 per cent of the country's GDP and 90 per cent of the workforce is entitled to a corporate pension. The Dutch practice of a 50/50 split between pay-as-you-go and funded schemes gives a robust and balanced outcome for beneficiaries. The ‘EET’-system, that is, where pension contributions are exempt, accruals to the pension fund are exempt and actual pension income is taxed at the moment of payout, ensures that the tax revenue collected keeps pace with the ageing of the beneficiaries. Nevertheless, the Dutch system also has come under pressure where the Netherlands has to take measures like any other country. And this pressure, partly caused by the ageing population combined with the current and foreseeable economic conditions, painfully shows some of the shortcomings of the Dutch system. Does the Netherlands actually still have the world's best pension system? Maybe the Netherlands used to have sufficiently funded and well-organized pension schemes up until now, but this seems to be rapidly changing. This article intends to provide inspiring examples of dos and donts, which will give more insight in the Dutch system and could be useful for pension practitioners and policymakers in other countries.