The Dutch pension system has a reputation for being one of the best in the world; however, the Dutch people express a bleak outlook on their retirement future, echoed by GR3 data. So what is going wrong?
In this snapshot, we’ll examine the Dutch people’s unease, unknowing and distrust as the Netherlands transitions away from an unsustainable Defined Benefit (DB) construct, amidst prolonged public debate, and towards a model that borrows heavily from Defined Contribution (DC) plans.
The Dutch have a low level of pension awareness
Dutch people don’t have a strong sense of responsibility regarding their pension provision, nor do they have much knowledge of the plan particulars, as reflected by survey respondents not knowing how much they had saved to-date, the level of contributions they make versus their employer, or what investment or drawdown choices are available to them.
The Dutch feel unprepared
Nearly two-thirds of Dutch respondents are not confident that they will be able to retire when desired or maintain their standard of living in retirement. Half of Dutch respondents are not confident that they will be financially prepared for retirement, questioning whether their pension benefit will stay at current levels and last over time. Together, these sentiments are furthering significant anxiety.
Additionally, of the countries surveyed, the Netherlands reflects the greatest gap in estimating retirement income. When workers were asked what percentage of working income they think they will have access to in retirement, they significantly underestimated their pension benefit, assuming they will have to make do living on a third of their current income. Dutch retirees reported a much rosier reality, living on two-thirds of their working income in retirement.
Opportunity for DC innovation
In the Netherlands, lifelong retirement income payouts and fixed benefits are mandatory. However, in 2016, changes were introduced into the regulatory framework that enabled more flexibility in benefit payouts. This relatively new array of retirement income options has not been fully embraced. In fact, of all people surveyed, Dutch respondents expressed the highest preference for their historical payout experience — a steady retirement income payout (42%).
However, even though doubt lingers among many Dutch people, current and planned reforms represent an opportunity for innovation.
Observing the challenges that face legacy DC models in other countries, some of which were established decades ago, the Netherlands is able to bring fresh thinking to optimizing DC scheme design. The new DC model is seeking to deliver a retirement savings structure that combines flexibility in the early years of retirement with fixed and predictable lifelong income later in life. Other planned enhancements include a high contribution level and nearly full participation by all workers.