The aging population in the Netherlands and how our pension is under pressure

The Pension System as a Shaky House of Cards

Imagine a house of cards, meticulously built up by generations. Each card represents a working Dutch person, whose premiums keep the house sturdy. But what happens when the foundation gets smaller and smaller, while the upper layers continue to grow? The house of cards is shaking. This is precisely what is happening with our pension system. The Netherlands is ageing rapidly. More and more people are reaching retirement age, while the number of working people is relatively smaller. This creates a challenging balance in a system that relies on solidarity between generations.

The pension system currently works in such a way that young people pay premiums with which the elderly receive their pension. But with a rising elderly dependency ratio – the number of pensioners compared to working people – it is becoming increasingly difficult to keep this model standing. The question is: how long can we keep this house of cards stable without fundamental changes?

The Figures Behind the Challenge

To better understand the challenge, we look at the figures:

• In 2024, the Netherlands has over 3.67 million people aged 65 and over, or 20.5% of the population.
• The elderly dependency ratio – the number of pensioners relative to 20-64-year-olds – is currently 34.9%, an increase compared to previous years.
• Projections show that around 2040, approximately a quarter of the population will be aged 65 and over.
• In 2050, the elderly dependency ratio is projected to rise towards 44%, meaning that for every pensioner there will only be slightly more than two working people.

In addition, it appears that approximately 765,000 employees do not have a pension scheme through their employer, which means that after retirement they are completely dependent on the AOW (State Pension) or individual savings pots. Among the self-employed (zzp’ers), the situation is even more alarming: only 24% build up a substantial pension. This means that for a large group of people, the risk of a pension gap increases, with possible financial uncertainty in later life as a result.

Legislation and Policy Measures

The Dutch government has already implemented several reforms to tackle the pension challenges. The Future Pensions Act (WTP), which came into effect on 1 July 2023, aims to create a more flexible and personal pension system. The core points of this Act are:

• The transition to a defined contribution scheme instead of a defined benefit scheme, making pensions less dependent on interest rates and more in line with individual choices.
• Personal pension pots: Every employee gains insight into their own saved pension assets.
• More accessible schemes for the self-employed (zzp’ers): The self-employed get more options to build up a pension with tax advantages.
• Change in survivor's pension: The new system ensures that the survivor's pension is regulated more simply and transparently.

These reforms are an important step, but the question remains whether they are sufficient to absorb the growing pressure on the pension system.

Practical Examples: What Does This Mean for You?

To make the impact of the ageing population and the new pension law tangible, we look at three fictional Dutch people:

• Emma (25 years old, starter in employment): Thanks to the WTP, she receives a personal pension pot, giving her more insight into her built-up assets and allowing her to respond more flexibly to changes in her career.
• Mark (40 years old, self-employed/zzp’er): He has barely built up a pension yet, but due to the improved schemes for the self-employed, he can now start contributing with tax advantages.
• Hans (60 years old, almost retired): Hans notices that his pension is less guaranteed than for older generations, but he benefits from the new choices in investment options within his pension fund.

These changes make pension planning more personal and transparent, but also require individuals to better familiarise themselves with their options.

International Comparison: How are Other Countries Doing?

The Netherlands is known for a strong pension system, but other countries offer interesting lessons:

• Denmark: Switched early to an individual pension system with collective elements, which ensures a stable and flexible system.
• Sweden: A system in which pension politics have been largely depoliticised. Pensions automatically adjust to economic developments, requiring less political interference.
• Germany: Struggling with challenges because many working people do not have supplementary pensions. Reforms such as an equity fund are being considered to strengthen the system.
• United States: Many Americans do not build up a pension through their employer. Initiatives such as auto-enrollment are trying to improve this, inspired by the British system that has doubled private sector pension participation.

Possible Solutions

What can we do to reduce the pressure on our pension system? Here are some concrete solutions:

1. Linking retirement age to life expectancy
   • The Netherlands already does this in part, but could make it even more flexible, as in Sweden.
2. More options for individual pension management
   • Through digitisation and AI, personalised pension plans can be better tailored to individual needs.
3. Promoting broader pension awareness and participation
   • More mandatory accrual for the self-employed and flexible workers can help close pension gaps.
4. Sustainable investment to increase returns
   • Pension funds can benefit from sustainable investments that deliver stable long-term returns.
5. Better communication about pension choices
   • Employers and pension funds can use digital tools to give employees better insight into their future financial situation.

So What is the Core?

The ageing population presents our pension system with major challenges, but with timely reforms and innovative solutions, we can make the system future-proof. The Future Pensions Act is a step in the right direction, but more is needed to close the growing pension gaps and give younger generations confidence in their financial future.

Core of the Problem: Ageing leads to an increasingly smaller group of working people per pensioner.

Key Figures: The elderly dependency ratio rises to 44% in 2050, and 765,000 employees do not build up a pension.

Principal Solutions:

• More flexibility in retirement age
• Broader pension awareness
• Better communication and personalised pension management

If there is one thing we want to share from this blog, it is this: check your pension via MijnPensioenoverzicht.nl, discuss your accrual with your employer and consider supplementary options such as investing. The sooner you have insight, the better you can plan your financial future. The house of cards can remain standing, but we must strengthen the foundation before the wind blows it down.

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