Abolishing the disputed average pension contribution and accrual would improve the effectiveness of the Dutch pension system as well as its suitability for the changing labour market, the Dutch Bureau for Economic Policy Analysis (CPB) has argued. 

In its annual macro-economic analysis (MEV), it said removing the current redistribution of pensions accrual would serve a sustainable pensions system.

The average premium and accrual is a hot issue in the Netherlands, as younger generations pay proportionally more for their pensions than older generations but are unlikely to reap the benefits later due to increased mobility in the labour market.

The CPB said a “degressive” pensions accrual – with an average premium but with an accrual that decreases with increasing age – would be an alternative.

According to the government’s adviser, the costs of a new system – estimated at approximately €100bn – would be considerable but not exceed the costs of abolishing early retirement arrangements (VPL).

It would also be much less than the effects of underfunding on indexation.

However, the CPB noted that ditching the average approach would in particular hit the generations born between 1960 and 1980, as they have been paying more than their share over an extended long period.

It suggested the transition could in part be financed from the contribution, as abolishing the average accrual would free up assets, adding that a combination with less indexation and/or a funding reduction would also be possible.

The adviser pointed out that the transition costs would have to be offset against the advantages of reduced redistribution, fewer barriers for labour mobility as well as lower contributions for the long term, as premiums would generate returns for longer.

The CPB also looked at an average accrual with a progressive premium.

However, it concluded that, given the current labour market conditions, this would damage the position of older workers, as employers pay most of the pensions contribution.

The Bureau for Economic Policy Analysis also cited as alternatives a higher or more certain indexation combined with a lower initial accrual, as well as a system with individual accounts, with accrued assets equating paid and invested premiums plus their returns.

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