The Netherlands is aging. And that affects all sorts of things, such as the housing market, the healthcare system, the economy, the labor market and the pension system. In a series of articles, we cover these topics through interviews with an expert and with people who are part of the gray wave. This time chief economist Thijs Knaap of APG on the influence of the gray wave on our economy and Peter Kentie (63), outgoing director of the Eindhoven city marketing organization Eindhoven365.

On January 1, 2023, the Netherlands had more than 3.6 million residents aged 65 and older (according to data of CBS). That is 20.2 percent of the population. The aging of the Netherlands has increased sharply: in 1990, “only” 12.8 percent were over 65. “How did that happen? It is a combination of three developments,” Knaap says. The first cause: the declining birth rate. “In 1973, the number of children per woman in the Netherlands was 2.1; the most recent figure is 1.49. That is a recipe for population shrinkage in the long run, and thus encourages aging.” The Netherlands, incidentally, is not unique in this, Knaap acknowledges. “In all countries where there is increasing prosperity and decreasing infant mortality, you see this happening.”

On the other hand, there is less mortality due to better medical care, among other things. Knaap: “Life expectancy at age 61 went from 17.7 years in 1950 to 23.5 years now. So someone who is 61 now will live to be 84.5 years on average. This is expected to exceed 30 years this century. Roughly speaking, life expectancy has increased by more than 30 percent since 1950." The third reason for the rising gray wave is the baby boom generation (1945-1955), which is now between 68 and 78 years old. “That is a relatively large generation, most of which is now retired,” said Knaap.

Shifting factors

An aging population is having an effect on the economy. “The ratio of employed versus retired is changing rapidly. In 1950 there were 7 working people for every retiree, now just under 3, and eventually there will be about 2,” Knaap knows. That, he says, is offset by rising immigration. “In 2040, how many people will be between 20 and 65? In 2014 we thought 9.3 million. Due to rising immigration the expectation is now 10.4 million.”

Another shifting factor is the retirement age. “The state pensionable age was always 65 (and lower in practice, ed.) but is now almost 67. I was born in 1972, so for me it will be 68. And for my 18-year-old daughter, it will be 70. That rising state pension age significantly improves the working-to-retiree ratio.”

Yet this cannot remedy the changing population composition. That has hefty consequences, Knaap argues. “This is because the elderly no longer work - in other words, do not produce anything - but consume. That means someone else has to produce for them. That is not surprising; I don’t produce my groceries myself either, but at the level of the whole economy it does have an impact. We have to get more from abroad.” And that's tricky, because consumption by the elderly consists mostly of services, and specifically: more demand for care. "More hands are needed, especially at the bedside. Maybe technology can help us tackle these problems.”

Paying out more pensions

The changing demographics obviously have implications for the pension industry as well. “Just take the rising life expectancy, which is a point of concern. After all, if nothing else changes, we will soon have to pay out 30 percent more pensions. That is quite significant,” says Knaap.

In terms of affordability, he says it makes a big difference whether you finance those pensions through pay-as-you-go (the younger generation of working people currently pays for the older generation who receive the state pension) or through capital funding (employees themselves put in money for their pensions, and receive it after retirement). “In the Netherlands, we do both and we have a third pillar, as well” Knaap chimes in. “Besides the state pension that is financed through pay-as-you-go and the supplementary pensions, which are raised through capital funding, there are the private savings pots. The scope of the supplementary pension is very large, more than twice the gross domestic product (GDP). This makes us almost European champions; we are very good at saving. In Europe the average is less than 50 percent and in Germany, Italy and France even less, only 10 to 20 percent.” But does that much saving make us less vulnerable than other countries, which finance pensions primarily through pay-as-you-go, in tackling aging problems? Knaap: “It certainly helps. But the fact remains that our consumption also has to be produced somewhere. You can lean on foreign countries to some extent in this respect; the Netherlands has accrued a balance there in recent years through our current account surplus. Every year we save 7.5 percent of our national income, which we then invest abroad. So if APG buys American stocks and Asian bonds, we can eventually trade this back for products from those countries to consume here.”

You can’t import everything

But not everything can be imported, and seniors use many services (read care). Working people have to provide that anyway, Knaap thinks. “In short, the pressure on the labor market will increase regardless.”

Migration can help somewhat, and especially young people coming to the Netherlands can do their part. Knaap: “But it can also be the other way around; older people can move to areas where the weather is nice and care is cheap. But the reality is that migration matters very little on the whole. So we have to come up with something else. Right now, nobody really has any idea how we’re going to solve this. Policy makers have their work cut out for them in that regard in the future.”

(On pictures: Peter Kentie)