In these schemes pension premiums were deductible from the worker’s gross salary, while early retirement benefits were being taxed as if they were a regular source of income. Due to the progressive tax system the tax advantage was considerable. With this policy measure, the government aimed to increase the labour force participation of elderly. Despite all the massive protests, the law came into force in 2006 and turned out to be quite successful. The effective age of labour market exit has increased by 2.1 years, from age 61 in 2006 to age 63.6 in 2012.1
The Hague, 29 June 2011. Delegates of groups promoting the interests of young workers frustrated the parliamentary debate about a proposal to reform the pension system in the Netherlands. This pension proposal, agreed between social partners and supported by the Dutch government, contains an increase in the pension entitlement age and a conversion of accrued pension entitlement from nominal guarantees to entitlements which are more conditional on stock market performance. The proposal is an answer to population ageing and the global financial crisis which have put the funding ratios to historical minima. At the end of 2012, the average funding ratio of Dutch pension funds amounted to 102%.
As illustrated by these two events, any reform in collective pension systems evokes large social resistance. The illustrations are referring to recent pension reforms in the Netherlands, but we could equally well take examples from other countries like Greece, France or Italy. The social involvement with pension reforms is a widespread phenomenon in all modern countries. If we just take a look to some statistics, it is not surprising that people are concerned with their pension entitlements. In most countries, the share of first-pillar and second-pillar benefits in total pension income is larger than 80%. In the Netherlands, this share is about 90% (DNB, 2009). The average replacement rate, the ratio between pension income and last-earned labour income, is 57% in the OECD countries, albeit with great variation across countries. In the Netherlands the average replacement rate is much higher and amounts to 88%. Taking the first pillar and second pillar together, the average share of pension expenditures in GDP amounts to 8.4% in the OECD countries. The Netherlands is again a positive outlier; there the percentage of pension expenditures is 10% of GDP (OECD, 2011).