Unbiased Analysis of Today's Healthcare Issues

Social Security Around the World VIII: Netherlands

Written By: Jason Shafrin - Jul• 06•06

While France, Germany and Italy struggle to reform their gigantic old-age pension system, in the Netherlands the problems are not nearly as acute.  The Dutch have a Social Security system, but it is not as large as in the countries to its south.  A large portion of the a Dutch individual’s pension comes from their employer; thus the fiscal strain on the government is not as severe.  On the other hand, the Netherlands ranks only behind Italy in terms of the amount of individuals between ages 56 and 65 who are out of the labor force.  This is mostly due to the fact that workers can leave the labor force and rely on the generous Dutch safety net (Unemployment Insurance, Disability, etc.) to replace the majority of their income until they reach the age for Social Security eligibility.

Pensioen (State Old-Age Pension) 

The Dutch social insurance (sociale verzekeringen) program for its state Old-Age Pension (Pensioen) is a flat rate benefit that all residents receive after they have reached 65 years old.  The rate is generally 1/2 the after tax statutory minimum wage (minimumloon), with supplements for single individuals and for married couples with one spouse who is younger than 65.  This way, all individuals are assured at least a living standard of a minimum wage worker, which is about 1350 per month ($20,700 USD/year).  This pay-as-you-go system is financed through a 17.9% payroll tax up to a maximum and pensioen expenditures account for 5% of GDP.

Other Programs

Although the official retirement age in the Netherlands is 65, a variety of other programs allow workers to retire much earlier.  Disability insurance (DI) “guarantees employees who lost more than 80 percent of their earnings capacity a benefit equal to 70%…of their daily wage (up to a maximum).”  In the 1980s, this program was such a popular means for employers to get rid of less productive elderly workers that the Dutch government had to reduce the benefit (the benefit was 80% of wages before 1985) and increase the stringency of the eligibility requirements. 

Unemployment benefits (UI) are a less desirable means of getting to early retirement, since benefits are of limited duration.  For people aged sixty of above, however, one can expect to receive UI benefits equal to 70% of their prior earnings up to age 65. 

Private Pensions

Almost 80% of Dutch male residents receive a pension from a private employer or occupation group by the time they reach age 65.  In fact, over half of dutch male residents receive a private pension between the ages of 60 and 64.  Early retirement (ER) was common during the 1980s as a means to reduce unemployment, but as the costs of ER plans have increased and unemployment has dropped to 5.8% as of May 2006, flexible retirement plans are more common where benefits increase as the age one chooses to retire rises.

Overall, the Netherlands has a relatively minimal public pension system (compared to other OECD countries), but generous social welfare benefits and private pensions have made early retirement an attractive option for many Dutch. 

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