NETHERLANDS - The state pension (AOW) retirement age should be raised beyond the government’s proposed retirement age of 67 by an extra year to 68, to meet growing life expectancy in the Netherlands, according to Lans Bovenberg, director at the Netspar centre for pensions and ageing at Tilburg University.

He told IPE that an increase of the present AOW retirement age of 65 is necessary to finance the rising life expectancy, so an increase taxes or a cut in AOW benefits can be avoided.

“Life expectancy has risen considerably during the past four years, so there should be an additional increase for a person retiring of one year per decade,” explained Bovenberg.

“Linking the pension age to life expectancy would act as an automatic stabiliser of costs and benefits of the AOW,” he added.

The government has proposed earlier this year that the AOW age rise from 2011 to 67, though no exact time frame has been established as yet as to when the increment should be effective.

According to Bovenberg, a rise in the AOW age is also needed because the continuing drop of the fertility rate is worsening the ratio between the contributors to the state pension and the benefactors of the AOW.

“A solution for this might be to encourage people who need to care for fewer children, to save for retirement, either on an individual basis or through taxes,” he suggested.

The affordability of the AOW, which has been worsened by the credit crisis, has also been hit because people are living longer in retirement than the contribution period, research indicated.

“If the working period could be prolonged, the AOW age could be lowered,” said Bovenberg.

He also contends that increasing labour participation by women does not outweigh the decreasing participation by men as women are said to stay in education longer, retire earlier and work shorter hours.

The research suggested life expectancy is divided along socio-economic classes, with a six-year difference between the lowest and highest classes and a difference of 17 years where individuals are in good health.

In Bovenberg’s opinion, however, the AOW age must not be made life expectancy-dependent, as he believes vulnerable groups should be given tailor-made income support at local authority level.

Instead, he suggests a gradual rise of the AOW age would allow workers to prepare for it while a slow increase will also benefit the large baby-boomer generation, who are enjoying the increased life expectancy.

“A gradual rise would also shift the burden to future generations, which are already facing the effects of the credit crisis on the government’s finances,” said the Netspar director.

Bovenberg also made it clear that he supports the principle of ‘continuous generation accounts’ - to level AOW costs and benefits per generation - as an instrument to be used in the linking of the AOW age to life expectancy.

“If the present generation needs to work longer, it is still fair if they also benefit longer from the AOW,” he explained.

The Dutch government has decided to raise the AOW age by two years to 67, but it has proposed the Social and Economic Council (SER) looks for an alternative way to save €4bn.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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