“Home ownership plays an important role in achieving an adequate retirement income”
What is the focus of the paper?
This paper examines the adequacy of retirement savings for 4.3 million Dutch households, based on data from the four pension pillars: state pension (AOW), occupational pensions, voluntary private pensions, and private wealth. The aim is to provide an overview of the expected retirement income and the differences between groups.
What are the key findings?
The median gross replacement rate (retirement income divided by income before retirement) is about 60 percent based on the state pension (AOW), occupational pensions, and voluntary pensions combined, and rises to nearly 70 percent when individual assets (such as savings and home ownership) are also included. Nevertheless, a quarter of the households has a gross replacement rate of 56 percent or less, substantially below the 70-percent benchmark from the literature. The median expected gross retirement income from the AOW is €19,000 per year (30 percent of pre-retirement income) and €14,000 (24 percent) from occupational pensions. On average, voluntary pensions make only a limited contribution to retirement income. However, individual assets play an important role, especially through lower housing costs due to paid-off mortgages. This helps households raise their retirement income above the standard adequacy threshold.
What are the implications?
The authors conclude that the Dutch pension system performs well on average, but that the range of expected pension incomes in considerable. Vulnerable groups include the self-employed, renters, employees with a flexible job, and households with a migration background. The results indicate that labor market segmentation carries over into old-age income security.
