Recent developments in Dutch pension system International Pensions Conference

Recent developments in Dutch pension systemInternational Pensions Conference

Montreal, june 9 2014Benne van Popta

Dutch three pillar pension system

Public/ universal/ paygo

Private/ occupational/ mandatory/

funded

Private/ personal/ individual choice/

funded

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Aim of the Dutch Pension System

A replacement rate of about 70% of average income (1st and 2nd pillar)

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First pillar

• Public• Universal• Benefit is fixed amount, not

income/ work related• Paid by part of the income tax

First pillar

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Second pillar

• Funded, assets about 140% GDP• Pensionfonds: industry-wide,

company, liberal professions• Number of pensionfonds: 400. Is

decreasing• Economies of scale, low investment

costs• Pension contract based on

collectieve labor agreements

Second pillar

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Why is the second pillar so large?

First pillar aimed at poverty prevention

We started early (1950/60s)

Mandatory: collective agreements are extended to non-members

Mandatory: consequence is that every employee participates

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PMT figures

Average wage: 33,000 euros/year

Average new pension 9,500 euros/year

Total average pensionincome (including first pillar): 29,000 euros/year

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PMT figures

33,170 employers, 570,000 participants

Asset: 48 billion. Costs assetmanagement: 35.4 bsp

Costs pensionadministration per participant (CEM 2012): 80 euros a year (peer average is 152 euros)

Average return, 5-years: 9.3% 10-years: 6.6% Since 1995: 7%

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Changes after dot.com bubble

From final pay to average pay

From unconditional to conditional indexation

Benefit haircut as a last resort measure

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Discussions after the financial crisis (1)

First wave of solutions last for about 5-10 years

(Automatic) increase in retirement age

Is there something in between flexible, collective DB and individual DC?

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Discussions after the financial crisis (2)

Risk sharing, intergenerational solidarity, individual choice?

Compulsory saving for retirement will stay!

Independant workers, self employed, small business owners?

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