The World Bank’s Pension Policy Framework and the Dutch Pension System: A Paradigm for the Multi-Pillar Design?

Abstract

Since the early 1990’s the World Bank has utilized the multi-pillar framework as a model for the design and evaluation of pension systems. This model is derived from the principle that the primary functions of pension systems, (poverty alleviation, consumption smoothing and insurance) are most effectively and sustainably performed when they are made transparent through separate and distinctive elements of the system. The model emphasizes the advantages of private management, pre-funding and managing risk through diversification among the pillars. The pension system of the Netherlands is considered in relation to this multi-pillar model. It is found to be well aligned with the anticipated structure and main principles of the model. It diverges from the ideals of the design primarily in the balance among the pillars and in the complex forms of hidden redistribution that are inherent to the collective occupational funds that are the dominant element of the Dutch system. Overall, the pension system of the Netherlands, consistent with other recent evaluations, is found to be among the most consistent with the benefit adequacy, sustainability and affordability objectives of the model and among the closest to the ideals of the framework to be found in the world today.