“The fact that we want to reform the system shows courage”

Published on: 29 November 2021

The Netherlands has one of the best pension systems in the world. This is what Mercer has been stating for years. But if you ask the average Dutch person if he has confidence in it, only 4 out of 10 people reply that they do. Are we spoiled in the Netherlands? Or is there something else going on?


“Pension funds try to provide security in an uncertain world. That is practically impossible.” These are the words of Harry van Dalen. He is a professor of economics at Tilburg University and senior researcher at the NIDI research institute. Some people will remember him from his previous columns in the Volkskrant and Zin Magazine. He regularly conducts research on confidence and pension choices for knowledge institute Netspar.


Do we still have some confidence in it?
“In 2004, we started to measure what people think about banks, insurers, brokers and pension funds. At that time, 6 out of 10 people had confidence in the pension funds. If you ask the question now, only 4 out of 10 people express that confidence.”


Does that apply to everyone?
“Young people clearly have less confidence than older people. For people who have not yet retired, the money is only something they see on a pension overview and it is pretty abstract. Retirees see the money showing up in their bank account every month, so for them it is something concrete.”



And does it apply to all funds?
“Yes, that applies to nearly all pension funds. Incidentally, confidence in pension funds is higher than in banks or insurers. And people’s own pension fund often also “scores” better than the pension system in general. You’re more familiar with your own fund. We asked people if they would change to a different pension fund if they had that choice. That is an indirect way of inquiring about confidence. 20 % said they would consider it, so that means 89% would not.”


What mainly affected people’s confidence?
“Anything that feels like a breach of contract. After the credit crisis, starting in 2008, securities fell away. Funds were no longer able to index. Some funds even had to reduce their pensions. When the government then also raised the eligibility age for Old Age Pensions, people were fed up. Especially people who were almost 65 at the time.”

“Since then, confidence has bounced back a bit. Now we’re talking about a new pension system and things are going to change again. We’ll have to see how that works out in terms of confidence. What we know for sure is this: people hate uncertainty when it comes to money.”


This is already a time of uncertainty…
“Yes. People are sitting at home, there is pandemic, prices are rising. Economists are saying that is just temporary, but in the meantime, people are feeling the crunch. And then there is the discontent regarding that you have the displeasure of that huge pension pot, while no indexation is possible. The regulator’s rules are strict, but they are there for a reason. Pension funds have to be able to pay not only the pensions of today’s retirees, but also those of future retirees.”

“And don’t discount the ‘radiation effect’ of declining trust in government and politics either. Issues around supplements contribute to this. And our research shows that groups that have lost all confidence in the government also have very little confidence in pension funds.”


Yet, Mercer says: the Netherlands has one of the world’s best pension systems.
“Mercer looks at how well pension systems around the world prevent poverty among the elderly, as well as at their integrity and future-proofing. For participants, of course, only the Dutch situation matters. It does not matter to them that things are a fraction better in Iceland. To them, a pension fund is nothing more or less than a system for saving for the future. They don't see what else the fund provides and what risks the fund covers for them collectively.”

Can you give an example of that?
“One example would be the “risk” that you live longer than you had expected. Say you set up your own pension pot and you live 7 years longer than you had anticipated. The amount of money you need for that is almost enough to buy a house. When you’re part of the fun, you share that risk with the other participants.”

“As an employee, your employer often pays most of the premium. People often don’t see that, because it’s not on their pay slip. That is why self-employed people find a pension very expensive. After all, you are an employer and an employee and you pay the full price.”


Are we spoiled in the Netherlands?
“That’s a hard question. I’d say: count your blessings. The pension system is complex and maybe it isn’t perfect. I still think the mix of Old Age Security and a supplementary pensions is valuable. And to get to the point: pension funds try to provide security in an uncertain world. That is practically an impossible task. The fact that we are thinking about reforming the pension system shows courage, because you have to face the reality of an aging society.”