NETHERLANDS - Increasing productivity growth is the key for long term growth, and would help ease the burden of population ageing, according to a new report on The Netherlands.
In its latest economic study, the Organisation for Economic Co-operation and Development (OECD) says that the economic growth in the region will be more dependent on a rise in productivity than on employment growth. Higher productivity is also expected to make it easier to deal with an ageing population in so far as it would facilitate de-coupling of government expenditure from GDP growth, as has occurred over the past two decades.
This, the study said, would ease pressures on defined benefit schemes by increasing contributions.
Due to its large funded occupational pension system, The Netherlands is still better placed than most European countries to deal with the problem of an ageing population, according to the OECD.
However, the government was also urged to disincentivise early retirement, introduce more flexible employment contracts and modify the close dependence of DB pension entitlements on the last wage.
The survey also points to the implications of current below-average market returns, stating that if the level is maintained, this would have significant implications for the amount of pre-funding required by pension funds and the government. Although it is too early to conclude future rates of return, action to be considered early involves increasing funding and or/reducing pension entitlements.
By Madhu Kalia
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