Netspar Brief 20: Low Interest Rates and the Future of Pensions

Low interest rates are putting pressure on the returns and coverage ratios for fully funded pension funds. In the event of a long-term low interest rate, it is therefore necessary to determine again in the future whether more contributions from participants are needed and whether the pension income may need to be adjusted downwards. This is evident from a joint study by the CPB and Netspar: “Low interest rates and the future of pensions”.

This research looks at various options for households to prevent a significant drop in income after retirement. Although the introduction of more pay-as-you-go options, such as the internationally emerging notional defined contribution (NDC) pension plan, would not in itself solve the issue of low returns, it could, depending on how it were implemented, have a beneficial effect on the pensions of current generations. Also,  people can increase their pension income by saving more during their working life, invest in education and sustainable employability and work more or longer.

Need to know more?

Download the Netspar Brief, read the English Summary
CPB Background document by Ciurila, N., 2020, The impact of a lower return on wealth on optimal wealth accumulation

Reading tips

• Roel Mehlkopf (TiU/Cardano) and Servaas van Bilsen (UvA): Interest-Rate Risk, the Life Cycle, and the Pension Agreement (Netspar Brief 19, June 2020)
• Daniel van Vuuren (TiU), Jonneke Bolhaar and Rik Dillingh (CPB), Later Retirement: Decisions for Now and Later (Netspar Brief 12, December 2017)