After more than 13 years of deliberations, a new pension agreement has been closed. The Netherlands is known as the country with one of the best pension systems, yet, it will be changed. So why was a new pension system chosen?
The impetus for pension reform did not come out of the blue. About 15 years ago, the financial markets looked different. The economic situation was more favorable, and, as a result, pension funds had coverage ratios above 130% on average. Because of these high funding ratios, it was possible to index pensions annually and thus increase them in line with wage growth and inflation. However, then the financial crisis erupted. It caused the average coverage ratio to drop by 35%, making it impossible for pension funds to have sufficient capital for future pension payments.
The financial crisis of '07-'09 was a real wake-up call for the Netherlands and led to a discussion about pension reform. The pension system of that time proved unable to absorb the financial shocks. The Minister of Social Affairs and Employment, Donner, commissioned the Goudswaard Committee to research a new pension system. It was concluded that the current pension system was no longer viable for the future.
However, other factors also play a significant role. Gradually, people are getting older, with the average life expectancy in the Netherlands increasing. As a result, it was agreed in 2011 that the AOW (the state pension) benefit would be linked to rising life expectancy from 2020 onwards. Meanwhile, pension funds also started cutting pensions, forcing the Social and Economic Council (SER) to develop a recommendation to explore a new pension system.
At the same time, the labor market is changing with the developments regarding the state pension age. Work is becoming increasingly flexible. Nowadays, people change employers faster and more often, and flexible work forms are rising. As a result, the number of people who drop out of the classical pension system increases.
In late March 2022, Carola Schouten, Minister for Poverty Policy, Participation, and Pensions, presented the details of the Future Pensions Act to Parliament. If Parliament and the Senate approve the new law, the rules will be in effect from July 1, 2023. The first pension funds under APG should then change to the new system as of 2025.