NETHERLANDS - A wholesale shift from occupational defined benefit schemes to defined contribution schemes does not attract much support in the Netherlands, according to new research.
‘Policy approaches to promote private and occupational old-age provision in the Netherlands’ is a paper by Lex Meijdam, prepared for the Bertelsmann Foundation as part of a multi-country project examining old-age provision in different nations.
Many Dutch occupational pension schemes aim to achieve a collective pension (i.e. the sum of benefits from the first and the second pillars) of 70% of final earnings, before taxes, in case of a career of 40 years.
Most pension funds achieve this aspiration level by using a so-called franchise on which no occupational pension rights are accumulated because the government provides the pension on these earnings through the minimum public pension. In practice, many workers do not achieve the 70% final-wage aspiration level because of incomplete careers.
Meijdam’s study also found that most occupational schemes employ the franchise to take into account the public pension in determining pension rights. More and more pension funds no longer directly link the franchise to the public pension, thereby shifting the political risk of lower public benefits to workers.
Currently, a new Pensions and Savings Act is being designed which most probably will prescribe that employees start to accumulate pension rights at latest at age 23, leaving more discretion to the individual in personal pension plans of the defined contribution type.
As a result Meijdam predicts the third pillar of pension insurance, which is currently quite small in the Netherlands, is likely to gain in importance in the future.
By Luke Clancy
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