The Centraal Plan Bureau (CPB), a Dutch government think tank, has proposed Dutch workers save less for their pensions so they can increase their liquid financial buffers.
The CPB has criticised the “lack of flexibility” of the Dutch pension system in a new policy brief. “More flexibility in the way Dutch pensions are being accumulated would be beneficial given the low levels of liquid assets of Dutch households,” the think tank said.
A quarter of households with more than €100,000 in accumulated pension rights has less than €4,000 in liquid assets, while a similar percentage of households with more than €200,000 in pension assets has less than €7,000 in readily available funds, according to CPB.
“Buffers of this magnitude give little room for manoeuvre in case of unexpected income shocks or expenditure,” the agency notes. Dutch pension assets total more than €1600bn.
CPB therefore welcomed the pending introduction of the possibility of a 10% lump sum payment at retirement. But as far as CPB is concerned this is only a start.
Its most concrete proposal to increase liquidity buffers of higher-income households is a reduction of the pensionable salary threshold. This is currently set at €112,000. The suggestion follows a proposal by liberal coalition partner VVD and D66 to make pension savings voluntary for incomes above €60,000.
The new pension system does not introduce any additional flexibility elements beyond the lump sum, CPB said.
To address the higher cash needs of people early on in their career, CPB has controversially suggested young workers could be given the option to start accumulating pensions at a later age because they have higher costs such as servicing student and mortgage debt and child-related costs when they are young, “although this brings the risk of a lower pension”.
CPB has also proposed pension accumulation could be made more flexible for all workers throughout their career.
“Households pay a fixed percentage in contributions throughout their working life and do not have the option to dip into their pensions before retirement. However, events could occur that make a lump sum payment before retirement desirable, such as a divorce or unemployment. A contribution pause or a temporary reduction in accumulation could be helpful in other circumstances,” the think tank said in its policy brief, while realising such changes could lead to “households making mistakes in their financial planning”.