If there is a top 5 with “abstract financial concepts”, I expect that for most Dutch people the pension will be in the top 2. Actually, that is no surprise, although it is by far the biggest frustration of us financial planners. The Dutch pension system has been around for more than 50 years and this achievement has probably been followed with jealous eyes in countries around us and far beyond for the first 40 years. Because the piggy bank for our old age has an almost obscene size in relation to our population: more than € 1,400 billion or more than € 82,000 for everyone who lives here and then that is on top of the Dutch state pension, the AOW, and any individual additional saving/investment. A wonderful prospect for prosperity during your senior life. There has always been a pension for the current and the preceding generation. And the message has always been: it is neatly arranged, so don’t worry about it. And so most don’t.
It was too good to be true of course. There are a large number of assumptions under the promise to provide a stable income if you have worked for your employer for 45 years as long as you live. At the first economic headwind, employers sighed that pension contributions could not be paid. Two generations ago, when you were 21, your expectation was that you would never leave a boss again. The 4% actuarial interest rate of the obligations of pension funds was below the bottom of the most pessimistic return scenario. And our average age is rising, and fast too.
Nobody will have sniggered when it became clear some time ago that what had been conceived was not sustainable. With a mixture of admiration and incomprehension, abroad saw that the Dutch people (in the field of economy rather self-willed) try to keep the pension system under control with all their might. Such an asset may cost a little; they themselves did it differently. The less settled or fixed, the easier it is to adjust.
After many years of listening, a change is taking place. With the Pension Accord it has finally been acknowledged that the assumptions are no longer correct and that we must assume a system that allows more individualism (you can also hold on to 30 years full-time and maybe 30 years part-time), allows more flexibility(not saving everything for annuities until death, use part of the cash to spend yourself or to donate to your children), looks less patronizing at participants’ financial responsibility (the complexity and rigidity of pensions also makes it not inviting to integrate it into today’s financial solutions e.g. your mortgage) and that good financial advice can be made available (several employers are already starting).
I do not yet know what the Pension Accord means for you. Our company follows the subject through study and discussion with employers, insurers, pension companies and especially our customers. Hopefully there will be clarity within two years about the “buttons” and the “operating instructions” of the new system. We are at the forefront of solutions for employers and employees who want to make Employee Benefits the best. So, you will hear more from us about this subject more often. You have to keep watching this space!