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AOW at 66 in 2020 still on cards

The Dutch minority government that came to power in October - led by the liberal party VVD and the Christian Democrats - has said it will continue the process of increasing the official retirement age for the largely pay-as-you-go state pension AOW from 65 to 66.

However, the coalition - which is being "tolerated" by the anti-immigration Freedom Party (PVV) for the time being - has yet to spell out exactly when this increase is supposed to occur. Considering the fact the PVV opposed any increase in its election manifesto, it is unlikely to happen any time soon.

The coalition has also proposed linking the AOW age to life expectancy and announced that it intends to limit tax benefits for the capital-funded second and the third pillar by 2013.

But the new government will need to consider the views of the social partners of employers and employees, who agreed last summer that the AOW age should increase to 66 in 2020 and become "flexible" - with retirement at 65 still an option (albeit with a 6.5% benefits cut). They also agreed that the retirement age for additional pensions should remain flexible and be linked to life expectancy, adding that this would probably lead to an increase to 67 in 2025.

Their agreement came after the previous government decided to raise the retirement age for the state pension AOW from 65 to 67 within 15 years, indicating that it would change the fiscal treatment of second and third-pillar pensions in a similar way.
The new "tolerated government" has said it will merge the tax-friendly saving schemes spaarloon and levensloop into a new "vitality" scheme, which will provide support for care duties, education, a part-time pension or the start of a company. However, the coalition has already decided the new saving plan can no longer be used for early retirement.

Under the present life course scheme, employees can save as much as 12% of their gross salary each year - up to a maximum of 210% - for parental and sabbatical leave, as well as for care leave and education. Although the main aim of the scheme was to discourage early retirement, it is still possible to take out money for this very purpose. However, the take-up of the life-course scheme has barely exceeded 10%, most likely due to its complexity and the fact employers have to agree that leave can be taken.
The spaarloon allows workers to save a maximum of €613 a year tax free, which can be spent for any purpose after four years. That said, the government has recently abandoned the time limit to encourage domestic consumption.

In the opinion of Sweder van Wijnbergen, professor of economics at Amsterdam University, an increase of the AOW age to 66 in 2020 will be too little and far too late to counter the financial impact of an ageing population. He said: "It is also very likely the new government will wait until 2019 before taking measures, rather than starting now with a gradual introduction."

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