Advertise On EU-Digest

Annual Advertising Rates

10/13/14

The Netherlands: No Smoke, No Mirrors: The Dutch Pension Plan - by Mary Williams Walsh

The Netherlands: Imagine a place where pensions were not an ever-deepening quagmire, where the numbers told the whole story and where workers could count on a decent retirement.

Imagine a place where regulators existed to make sure everyone followed the rules.

That place might just be the Netherlands. And it could provide an example for America’s troubled cities, or for states like Illinois and New Jersey that have promised more in pension benefits than they can deliver.

“The rest of the world sort of laughs at the United States — how can a great country like the United States get so many things wrong?” said Keith Ambachtsheer, a Dutch pension specialist who works at the University of Toronto — specifically at its Rotman International Center for Pension Management, a global clearinghouse of information on how successful retirement systems work.

Going Dutch, however, can be painful. Dutch pensions are scrupulously funded, unlike many United States plans, and are required to tally their liabilities with brutal honesty, using a method that is common in the financial-services industry but rejected by American public pension funds.

The Dutch system rests on the idea that each generation should pay its own costs — and that the costs must be measured accurately if that is to happen. After the financial collapse of 2008, workers and retirees in the Netherlands took the bitter medicine needed to rebuild their collective nest eggs quickly, with higher contributions from workers and benefit cuts for pensioners.

The Dutch approach bears little resemblance to the American practice of shielding the current generation of workers, retirees and taxpayers while pushing costs and risks into the future, where they can metastasize unseen. The most recent data suggest that public funds in the United States are holding just 67 cents for every dollar they owe to current and future pensioners, and in some places the strain is palpable.

The Netherlands, by contrast, have no Detroits (no cities going bankrupt because pension costs grew while the population shrank), no Puerto Ricos (territories awash in debt but with no access to bankruptcy court) and nothing like an Illinois or New Jersey, where elected officials kicked the can down the road so many times that it finally hit a dead end.

About 90 percent of Dutch workers earn real pensions at their jobs. Their benefits are intended to amount to about 70 percent of their lifetime average pay, as many financial planners recommend. For this and other reasons, the Netherlands has for years been at or near the top of global pension rankings compiled by Mercer, the consulting firm, and the Australian Center for Financial Studies, among others.

Accomplishing this feat — solid workplace pensions for most citizens — isn’t easy. For one thing, it’s expensive. Dutch workers typically sock away nearly 18 percent of their pay, most of it in diversified, professionally run pension funds.

That compares with 16.4 percent for American workers, but most of that is for Social Security, which is intended to provide just 40 percent of a middle-class worker’s income in retirement.

Read more: No Smoke, No Mirrors: The Dutch Pension Plan - NYTimes.com

No comments: