NETHERLANDS – The Netherlands’ collective pension system is under threat due to young people’s “growing pension consciousness” according to leading pensions academic Lans Bovenberg.
“A growing pension consciousness of younger employees, threatens to undermine the collective system,” wrote Bovenberg and co-author Roel Jansweijer, in a newspaper article.
“The effects are disputes about pension contracts, a movement to sectors with a lot of young employees and salary demands,” they said the daily Het Financieele Dagblad.
Bovenberg is director of Netspar, a public-private educational and research network for pensions. Jansweijer is a researcher of the Scientific Council for Government Policy, or WRR.
“In order to keep the legitimacy of the pension to young workers, and therefore the important intergenerational risks sharing, the link between the paid premiums and the pension build up need to be reinforced.”
They said the mandatory average premiums with the time-proportional build up of Dutch pension funds need to be reviewed to prevent conflict between the generations.
The collective Dutch pension system is based on an average premium with time-proportional build up. “This is unwise, because it undermines the legitimacy of the system to young employees, and exposes their older colleagues to political risks.”
“Employers who want to get rid of their pensions risks, need to buy off the risks that young workers take over from them.
“This redemption money should be used for gradually abandoning the average premiums with time-proportional build up, in favour of a transition scheme for older employees.”
“The transition from final salary to – conditionally indexed - average salary schemes, is putting more risks at the active members of pension funds,” the researchers argued.
“Moreover, an increasing number of companies are withdrawing as risk-bearers in pension funds.”
According to Bovenberg and Jansweijer, young employees are insufficiently rewarded for the risks they take over from employers.
The transition to average salary schemes is making matters worse. “While young employees are being underpaid, the older ones are being overpaid,” they said.