Reform Options for Mature Defined Benefit Pension Plans: The Case of the Netherlands
IMF Working Papers, January 25, 2019
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- Reform Options for Mature Defined Benefit Pension Plans: The Case of the Netherlands
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Bibliographic details
- Authors: Marc Gerard
- Published: January 25, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484395912.001
Background and context
- Author: Marc Gerard
- Publication date: January 25, 2019
- Series: Working Paper No. 2019/022, Issue: 022, Volume: 2019, Pages: 30
- DOI: https://doi.org/10.5089/9781484395912.001
- ISBN: 9781484395912; ISSN: 1018-5941
- Core context: The Netherlands operates fully funded, defined benefit second pillar pension schemes that have ranked high worldwide for delivering high replacement rates and featuring strong solidarity among members. Recent protracted low interest rates and unfavorable demographic developments have undermined long-term sustainability and intensified controversies over intergenerational transfer mechanisms, prompting a national debate over greater individualization while preserving financial security at retirement for all.
Main findings and analysis
- Core finding: Long-term sustainability of Dutch pension funds weakened by protracted low interest rates and unfavorable demographic developments.
- Controversy identified: Intergenerational transfer mechanisms within defined benefit plans have become contentious amid fiscal and demographic pressures.
- Methodology mentioned: The paper draws on stress testing simulations and comparative assessment vis-à-vis solutions implemented in peer countries.
- Purpose: To discuss the main policy trade-offs associated with the reform of mature pension systems in advanced economies, illustrated by the Dutch experience.
Stress testing and comparative assessment
- Approach: Stress testing simulations applied to Dutch pension funds to illustrate vulnerabilities under low interest rates and demographic change.
- Comparative angle: Assessment of Dutch reform options vis-à-vis solutions implemented in peer countries to highlight trade-offs and policy choices.
Policy trade-offs and reform options (theme)
- Tension summarized: Move toward more individualization versus preserving collective financial security at retirement for all members.
- Trade-offs discussed (as framed by the source):
- Individualization: Potential reduction in intergenerational transfers and stronger link between contributions and benefits.
- Solidarity/collectivization: Preservation of high replacement rates and risk pooling that benefit retirees and vulnerable members.
- Reform considerations: The paper discusses how reform paths affect solvency, benefit indexation, benefit curtailment, and intergenerational equity through the lens of pension mathematics, solvency ratios, and stress-test outcomes.
Subjects and keywords (as listed)
- Subject: Aging, Expenditure, Labor, Labor markets, Pension spending, Pensions, Population and demographics, Wages
- Keywords: Aging, benefit, benefit curtailment, benefit indexation, defined benefit plans, defined contribution plans, fixed income, fully funded, Global, indexation benefit, industry wage development, inflation shock, interest rate, labor market, Labor markets, pension funds, pension mathematics, Pension spending, Pensions, rate of return, ratio, replacement function, risk pooling, solvency, solvency ratio, stress tests, wage, Wages, WP
IMF Working Paper: Reform Options for Mature Defined Benefit Pension Plans: The Case of the Netherlands (Marc Gerard, January 25, 2019; Working Paper No. 2019/022).