Myth: there will be no pensions for young people in the future

Published on: 20 February 2024

A lot has already been said and written about the new pension law that went into effect last year, yet misconceptions persist. In the series “Pension myths debunked”, we examine one myth at a time. We put the third one - there will be no pensions for young people in the future - to Ruben Laros, strategic policy officer at APG.


Young people are sometimes under the impression that it makes no sense for them to accrue a pension, because by the time they retire there won’t be any money left for them anyway. Is this a justified fear? No, says Laros. That fear was already unjustified in the “old” system and the same applies to the renewed system.

Laros: “In addition to the state pension, most Dutch people accrue a supplementary pension, which is mandatory – in most cases -  through their employer. The employer has made agreements for this with a pension administrator (a pension fund, insurer or premium pension institution, ed.). Your contributions are invested by this administrator in the financial markets and converted into a lifelong pension benefit around your retirement age. The amount depends on your investment, the return on investment and the development of life expectancy and other things. This, too, will not change with the introduction of the renewed system. Plus, just as now, you can see how much your expected pension benefit will be on, the Uniform Pension Overview and your pension administrator or administrators’ own portals.


More transparent
There are some other changes in the renewed system, however, Laros continues. “The main difference is that your contributions currently go entirely to your personal pension equity. In the old system, through the so-called average system, older workers were subsidized by younger workers. The idea was that this ‘disadvantage’ for young people would automatically be compensated as soon as they themselves fell into the older category. And because most people used to stay with an employer for a long time, this worked. Today, however, this is much less the case. In addition, pension accrual is going to be more transparent. You will get more insight into your personal pension equity and how this equity changes year by year.”


Ghost story
So, the idea that there won’t be any money left for young people is a ghost story? Laros: “That’s right. However, (expected) pension payments could decrease if there are shocks. For example, a stock crash, a drop in interest rates, or a sharp increase in life expectancy. Inflation also affects the value of your pension benefit. But this was also true in the ‘old’ system. Although the mechanics have changed under the hood, not much changes for participants. Ultimately, your pension is still going to be dependent on long-term trends.”


Confidence in the future
The fact that (expected) benefits can fluctuate actually makes the pension system robust and ensures that there will be pension benefits in the future - even for today’s young people, Laros says. “The difference is that in the renewed system, pension assets move more directly with the financial markets. In the renewed system, by the way, pension funds are given more tools to minimize those fluctuations. Finally, there are other safeguards that allow young people to look to the future with confidence. Such as the requirements for pension fund managers to balance the interests of all participants - current and future - and the extensive supervision by the Dutch Central Bank and the Netherlands Authority for the Financial Markets.”  


In the “Pension myths debunked” series, our basic premise is the solidarity premium scheme (SPR), one of two contract forms from which funds can choose in the revamped system. All the funds that APG works for have opted for the SPR.