Today, the government is presenting the annual budget. Will the position of working and retired people in the Netherlands improve in 2021? Six questions about Prinsjesdag and pensions.
1. The government is talking about a 3.5 percent growth of the economy and a 1.2 percent increase of purchasing power for employed people and 0.4 percent increase for retirees. That sounds – moderately – positive. But how certain are those predictions?
It is a fact that the government is lowering taxes by 1 billion Euros to improve the purchasing power of Dutch citizens. Despite the fact that there is no indexing in 2021 for most retirees, on average their positions will improve slightly (by 0.4 percent). Employees who are keeping their current job in 2021 will also slightly improve on average (by 1.2 percent). This means that many employed people and retirees will have a little more money to spend next year.
At the same time, this requires some comments. In short: purchasing power pictures don’t mean that much, particularly right now. The purchasing power pictures are determined by the development of wages, inflation and government measures. The latter is the only thing the government can fully control. And now that the uncertainties around the development of the economy and the employment market are even bigger due to COVID-19, the predictions mean even less this year than they did in other years.
It is expected, however, that more employees will lose their jobs in 2021. They will be spending less, not more. This figure is not included in the purchasing power pictures. In addition, municipal charges, such as the real estate tax and parking rates may go up, because many municipalities are having financial problems. This has also not (yet) been incorporated into the purchasing power pictures but may have a big impact.
2. We are also hearing about a shrinking economy due to corona, higher premiums and price increases. How will that affect working people and retirees next year, in practical terms?
The purchasing power pictures always take into consideration higher wages, lower taxes, higher prices and slightly higher care premiums. If you add up all the plusses and minuses, most people will be slightly better off. But that is very uncertain. The local municipal taxes could rise (significantly).
3. What role does corona – and a possible second wave – play in this story and in the forecast of pensions in 2021?
If there is a second lockdown in the Netherlands, the Dutch economy will develop less favorably than predicted. That would postpone the economic recovery for some time. For the pensions in 2021, the coverage ratio of the end of December of 2020 will be key. Corona may have an impact on that, but faith in the financial markets is determined by several factors. For example, we saw very high share prices in August of 2020 despite the great uncertainty around corona in, for example, the US, Brazil and India.
4. Today, we also found out that some funds are still below the 90 percent coverage ratio. What could that mean for pensions in 2021? What scenarios are possible?
For pensions in 2021, the coverage ratio of the end of December of 2020 is determining. If the coverage ratio is still below 90 percent at that time, in many cases there will need to be a decrease of pensions. The funds will then still be able to opt for spreading this decrease over time. A decrease in pensions is not included in the purchasing power pictures.
5. Last week, a survey showed that the life expectancy of the Dutch person has been adjusted downwards. Will this have consequences for pensions?
The Actuarial Society has indeed lowered the average life expectancy. This is related primarily to a refining of the model used. The life expectancy has not suddenly declined. According to the Society, a 65-year-old now has half a year less than was expected previously. For a man, the life expectancy at age 65, for example, has changed from 20 ½ years to 20 years. Because pension payments will then have to be paid out for an average of half a year less, the coverage ratio rises by an average of 2 percent. It is important to mention here that the exact figures are different for each fund. The figures do not yet take the corona crisis into account.
6. But do the funds play a role in the recovery of the ailing economy resulting from corona?
Prinsjesdag this year is primarily about how we, as the Netherlands, can come out of the COVID-19 crisis in terms of investments. The government pre-empted this with a recent presentation by the Nationaal Groeifonds (National Growth Fund), which should boost public investment in the coming years. The Dutch pension sector understands and supports this movement towards active economic investment policy by the government. The Dutch pension sector would also like to increase its social role as pension investor in the Netherlands and elsewhere. For example, by pulling the Netherlands out of the crisis, in an accelerated and more sustainable way, based on public-private cooperation with the government
See link for a position paper by the Pension Federation, leading up to Prinsjesdag.