The pension system as a shaky house of cards
Imagine a house of cards, carefully built by generations. Each card represents a working Dutch person, who keeps the house steady with their contributions. But what happens if the base gets smaller and smaller, while the upper layers keep growing? The house of cards is shaky. This is exactly what is happening with our pension system. The Netherlands is rapidly ageing. More and more people are reaching retirement age, while the number of working people is becoming 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 contributions with which the elderly receive their pension. But with a rising grey pressure – the number of pensioners versus working people – it is becoming increasingly difficult to sustain this model. 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 counts over 3.67 million people aged 65 or over, or 20.5% of the population.
- The grey pressure – the number of pensioners relative to 20-64 year olds – is now 34.9%, an increase compared to previous years.
- Projections show that around 2040, approximately a quarter of the population will be aged 65 or over.
- By 2050, the grey pressure is projected to rise towards 44%, which means that there will only be slightly more than two working people for every pensioner.
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. For the self-employed, the situation is even more dire: only 24% are accruing a substantial pension. This means that for a large group of people, the risk of a pension gap increases, possibly resulting in financial uncertainty in later life.
Legislation and policy measures
The Dutch government has already implemented some reforms to address the pension challenges. The Future of Pensions Act (Wet toekomst pensioenen - WTP), which took effect on 1 July 2023, aims to create a more flexible and personalised pension system. The core points of this act are:
- The transition to a premium agreement instead of a 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 accrued pension assets.
- More accessible schemes for self-employed individuals (zzp’ers): Self-employed individuals get more opportunities to build up a fiscally advantageous pension.
- Change in surviving dependants' pension: The new system ensures that surviving dependants' 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 act 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 accrued assets and allowing her to respond more flexibly to changes in her career.
- Mark (40 years old, self-employed): He has barely accrued any pension yet, but due to the improved schemes for the self-employed, he can now start contributing fiscally advantageously.
- 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 where pension politics have largely been depoliticised. Pensions automatically adjust to economic developments, requiring less political interference.
- Germany: Struggling with challenges because many working people do not have an supplementary pension. Reforms such as an equity fund are being considered to strengthen the system.
- United States: Many Americans do not accrue a pension through their employer. Initiatives such as auto-enrollment are attempting to improve this, inspired by the British system that has doubled private sector pension accrual.
Possible solutions
What can we do to reduce the pressure on our pension system? Here are some concrete solutions:
- Link pension age to life expectancy
- The Netherlands is already doing this partly, but could make it even more flexible, like in Sweden.
- More opportunities for individual pension management
- Through digitalisation and AI, personalised pension plans can be better tailored to individual needs.
- Stimulate broader pension awareness and participation
- More mandatory accrual for self-employed and flex workers can help close pension gaps.
- Sustainable investing to increase returns
- Pension funds can benefit from sustainable investments that yield stable long-term returns.
- 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 of 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: Grey pressure rises to 44% in 2050, and 765,000 employees are not accruing a pension.
Main solutions:
- More flexibility in pension age
- Broader pension awareness
- Better communication and personalised pension management
If there is one thing we want to share from this blog, it is the following: 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 over.
