Ditching average Dutch premium selfish and short sighted, says legal expert
Younger workers who favour abolishing the current Dutch system of average premiums for pension funds as it does not favour them are elitist and selfish, a professor of pensions law at Amsterdam’s Free University (VU) has argued.
Erik Lutjens said during a debate on solidarity last week that those advocating for the abolition of the current premium rate would only see it benefit their own age group, without taking the interest of others into account.
“They only focus on the disavantages of the average contribution approach, while they ignore its positive points. Moreover, they don’t look at the disavantages of ditching the average premium,” he said.
Younger employees have become increasingly vocal in opposing the current contribution, a fixed percentage of workers’ salary.
They argue that they are paying proportionally more for pensions accrual than older colleagues, while they are less likely to benefit at older age, because of increased labour mobility.
Many advocating for a change would prefer a ‘degressive’ approach, which would allow them to accrue proportionally more pension rights at a younger age.
Earlier, the Netherlands Bureau for Economic Policy Analysis (CPB) concluded that while the introduction of such new premium principles would be feasible, it may come at a costs of no less than €100bn.
Lutjens pointed out that a degressive accrual would come at the expense of other groups, such as women who enter the labour market after their children have grown up, or people who have been tied up in long-term care and rejoin the work force later in life.
“Would these groups then suddenly accrue a proportionally smaller pension,” he asked.
“Insisting on a more direct link between the amount paid in and accrued, would also mean a bomb under the mandatory participation, and would push the system in the direction of individual DC,” the professor warned.
However, in the opinion of Sandra Oostvriesland from law firm Baker McKenzie and also affiliated with PensioenLab, a think tank of young workers, it is the “unfair” subsidy from young to old, which threatens the system.
She called for a hasty end to the average contribution.
Martin de Gelder, head of pensions policy and actuarial business at pensions provider AGH, advocated a compromise, through investing the employers’ part of the contribution in the current system of collectivity and solidarity, while investing the workers’ part in an individual DC system.
“The latter is approximately one-third of the total contribution, exactly the proportion that young workers pay too much through the subsidy they may recoup when they are older,” he explained.
That said, De Gelder acknowledged that, under the current tax regime, his proposed solution is not possible.