“We shouldn't focus too much on that first place”

Published on: 21 October 2021

The Netherlands has the second-best pension system in the world according to the Global Pension Index. This ranking of national pension systems is published every year by research agency Mercer. The Netherlands has beaten its score from last year but lost its lead to newcomer Iceland. Denmark completes the top three. What does the Netherlands’ second place mean? We let our experts do the talking. “The Netherlands’ pension system is still world-leading.”


Iceland scored better than the Netherlands on various measures, including household savings and household debt, the minimum retirement age, and mandatory pension accrual if someone is disabled and cannot work or is on maternity leave. “In practice, the latter will often be regulated at fund level, but not by law,” says Strategic Policy Officer Tinka den Arend. The Netherlands also performs slightly worse on the employment rate of people over 55 and government spending on pensions.

Actuarial Director Alexander Paulis warns that we shouldn’t focus too much on that first place, pointing out that the Netherlands even scored better than last year. The Netherlands dropped one place because Iceland was included in the list for the first time this year. “It’s not that we’re doing less; we’re actually doing better and are also working on all kinds of things to increase the sustainability of our pension system.” He also stresses that the ranking is less global than you might think. For example, it now covers the pensions of 65% of the world’s population (that percentage was lower before) from 43 countries.

Iceland is particularly strong in terms of the sustainability of its system, scoring 84.6% compared with 81.6% for the Netherlands. Mercer looks primarily at the ratio of national debt to gross national income. “While we’re doing fine on that front in the Netherlands, Iceland outperforms us. Our take on sustainability also differs from Mercer’s,” said Paulis. “We think of sustainability more in terms of the new pension system and the options it offers. I think this is much more important than getting bogged down in the details of whether or not the national debt is one percentage point lower. As far as I’m concerned, things are looking good for the Netherlands. And we’re still world-leading, alongside Iceland and Denmark.”


Eduard Ponds, Senior Strategist Research & Analytics who is also associated with Tilburg University, also emphasizes the Netherlands’ high score of 87.9 for integrity. “The governance of the Dutch pension system appears to be very well organized.” Ponds does question Mercer’s assertion that the Dutch pension system will improve further if the people in the Netherlands save more. “I don’t quite follow that recommendation.” One of the Netherlands’ major weaknesses is a lack of flexibility. Mandatory mortgage repayments partly explain why the Netherlands is a country of excessive savers, which leads to a high net worth. Higher-income earners definitely have more money than they can spend in their lifetime. I think ‘flexibility’ would’ve been a more logical recommendation for the Dutch pension system.”

Mercer also believes that, given the increase in life expectancy, the Netherlands can do more to keep older people in work for longer. Both Ponds and Den Arend praise the country’s efforts to keep older people in employment for longer. “The Netherlands has adopted a very successful policy in this regard: firstly by raising the retirement age, and secondly by abolishing early retirement payments before state retirement age. This also shows the relativity of the ranking,” concludes Ponds. “The rise in the actual retirement age in the Netherlands has been extremely rapid,” adds Den Arend.


Gender Gap
The Mercer study also highlighted the gender gap. This means that women in the Netherlands generally accrue less pension than men, as women are more likely to work part-time. “It makes sense that if women work less, they also accrue less pension,” responds Den Arend. “The question is how pension funds respond,” says Paulis. “Do you say something about it? Or could you even solve the problem? Personally, I don’t think the solution lies primarily with pension funds, but they can contribute to it.”