Great Variation in Retirement Savings Among Dutch Households

This Netspar brief considers the issue of how much money Dutch households are saving for retirement and how this compares to their retirement goals. We do this through an extensive empirical study of all the sources that contribute to a retiree’s financial position. We then compare the adequacy of Dutch pensions and retirement savings plans to those of other countries. It is important to understand the adequacy of pensions and retirement savings when making decisions about the future of the pension system, and as such this brief contributes to the national pension dialogue.

A Netspar Brief spotlights certain research findings to bring them to the attention of a wide circle of pension professionals, policymakers and academicians. The point is to supply the building blocks for a well-informed debate on the Dutch pension system. In this new medium, research in the areas of pensions and aging is summarized, with a particular focus on analysis and interpretation. Here you can read the summaries of two Netspar Briefs. The full version of the Netspar Briefs can be found on the Netspar website:

Major findings 

  1. Dutch people, on average, are saving well for retirement. When you take only their social security benefits (AOW) and supplementary retirement savings (both occupational and private plans) into account, the average household with people in the age group 35 to 64 is projected to receive a gross pension of 71%, or net pension of 84%, of their current income. When you add in other private savings and home equity, the average net replacement rate is as high as 101%. Total savings will drop as a result of the enactment of limits on tax-deductible pension contributions (the so-called Witteveenkader), but this will be compensated in part by people working longer.
  2. There are vast disparities in retirement savings. Approximately 30% of households will have a pension of less than 70% of their current income, and approximately 20% of people will fall short of what they have indicated to be their minimum spending needs. There is a relatively high likelihood of insufficient pension among certain groups of people, such as the self-employed and divorcées/divorcés. In addition, people with high incomes often see their incomes reduced by a relatively high percentage upon retirement.
  3. One group of people is saving a great deal. Over one fourth of households are projected to have as much net income after retirement as before. For half of these people, post-retirement income will be at least 18% more than what they have indicated they will need. These could be considered cases of sub-optimal distribution of lifetime consumption; the people may have been better off if they had saved less for retirement and had more money to spend during their working lives.
  4. Pension outcomes will remain relatively high in the Netherlands, even in the future, compared to countries such as France, the United States and Norway. That was the finding from an international comparison study based on data on individual savings plans.
  5. The fact that we see so much variation in retirement savings between groups and that people’s retirement desires differ so widely presents an argument for introducing greater flexibility and individualization in the system for saving for retirement. A transition toward personal pension accounts for capital accumulation, which the Dutch Social and Economic Council (SER) plans to further explore, would provide better options in this regard. This will necessitate having a good choice architecture in place to prevent people from making the wrong decisions and failing to save enough for retirement.

Text by: Marike Knoef, Kees Goudswaard, Jim Been, Koen Caminada (all: Leiden University)