Social Affairs Minister Piet Hein Donner has said that Dutch employers and trade unions should sit down and try to reform the retirement pensions system. He was responding to observations by the independent Goudswaard commission which said that the current way of financing retirement pensions cannot be upheld and a new approach was needed.

Investment-based
The Dutch retirement pensions system is based on huge investment funds. Money is fed into the funds through the income tax of the current working population, while the returns on the investments are paying for the pensions. As fewer people are in a job, and more take early retirement, the investment funds are at risk of shrinking. The problem is compounded by the longer life span of retirees. They draw pensions for far more years than was envisioned in the 1950s when the system was developed, draining the investment returns ever more.

Minister Donner pointed out that employees and employers pay 18 percent of income tax towards the government pension funds plus 13 percent for the retirement pension funds. Totalling over 30 percent these retirement premium payments cannot be increased further without harming the economy, Mr Donner said. People are paying other income taxes too, which brings the total tax burden to between 33 and 52 percent, depending on how high the gross income is.

Retirement age
In order to relieve the pressure on pension funds, the Netherlands government last year decided to raise the qualification age for a government pension from the current 65 to 67. A similar decision relating to other fund-based pensions has not been made, but the social affairs minister said that he would not bar employers and unions from reaching an early agreement about how to finance future pensions.

Pension funds reacted positively to the findings of the Goudswaard commission. A spokesperson for the joint funds warned, however, that the public's confidence in the pensions system may be undermined when the consequences become clear. "It is hard enough as it is to explain to people that their pensions are dependent on investment results, and that they may go down if returns are poor."

Dutch expats
How will future changes affect Dutch people abroad? Pensions specialist Theo Gommer told NOS public radio,

"The effects will basically be the same as in the Netherlands. People who paid their taxes and thus built up their entitlement, won't notice much. But expats may have to wait until they are 67 before they begin receiving their pensions, while their neighbours would be able to retire earlier if the pensions regime in the country of residence is different."

Another problem, Mr Gommer explained, "is how to index pensions in order to keep pace with inflation. As the number of retirees swells over the next decades, indexation becomes ill-affordable. The total amount of pensions paid annually is 25 billion euros, but will rise to 100 billion by 2020. The indexation issue will become four times as difficult, and we've never had to deal with that. We may have to raise the retirement age even more, to 70. I would prefer for people to be given the option: either retire at 65 and accept a modest pension, or work until 70 and get a better one."

More in March
Social Affairs Minister Piet Hein Donner has said he will raise the pensions issue in the lower house in March, after consultations with the Dutch State Bank DNB, employers' organisations, trade unions and pension fund administrators.

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