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Recent developments in Dutch pension system International Pensions Conference Montreal, june 9 2014 Benne van Popta International Pension Conference of Montreal Dutch three pillar pension system Public/ universal/ paygo Private/ occupational/ mandatory/ funded Private/ personal/ individual choice/ funded International Pension Conference of Montreal Aim of the Dutch Pension System A replacement rate of about 70% of average income (1st and 2nd pillar) International Pension Conference of Montreal First pillar First pillar • Public • Universal • Benefit is fixed amount, not income/ work related • Paid by part of the income tax International Pension Conference of Montreal Second pillar Second pillar • Funded, assets about 140% GDP • Pensionfonds: industry-wide, company, liberal professions • Number of pensionfonds: 400. Is decreasing • Economies of scale, low investment costs • Pension contract based on collectieve labor agreements International Pension Conference of Montreal Why is the second pillar so large? First pillar aimed at poverty prevention We started early (1950/60s) Mandatory: collective agreements are extended to non-members Mandatory: consequence is that every employee participates International Pension Conference of Montreal PMT figures Average wage: 33,000 euros/year Average new pension 9,500 euros/year Total average pensionincome (including first pillar): 29,000 euros/year International Pension Conference of Montreal PMT figures 33,170 employers, 570,000 participants Asset: 48 billion. Costs assetmanagement: 35.4 bsp Costs pensionadministration per participant (CEM 2012): 80 euros a year (peer average is 152 euros) Average return, 5-years: 9.3% 10-years: 6.6% Since 1995: 7% International Pension Conference of Montreal Changes after dot.com bubble From final pay to average pay From unconditional to conditional indexation Benefit haircut as a last resort measure International Pension Conference of Montreal Discussions after the financial crisis (1) First wave of solutions last for about 5-10 years (Automatic) increase in retirement age Is there something in between flexible, collective DB and individual DC? International Pension Conference of Montreal Discussions after the financial crisis (2) Risk sharing, intergenerational solidarity, individual choice? Compulsory saving for retirement will stay! Independant workers, self employed, small business owners?