Netspar and CPB Report on the effects of abolition of the system of uniform contributions

The abolition of the system of uniform contributions in retirement benefit agreements, implements the implicit transfer from younger to older participants and is in line with the increasingly dynamic labor market. The Ministry of Social Affairs has asked Netspar and the Netherlands Bureau for Economic Policy Analysis (CPB) – also in the light of the low interest rates – to provide an overview of studies on the effects of abolition of the uniform contributions system and to make an updated estimate of the transition effects.

Main result: Low interest rates mitigate transition effects

The transition effect can lead to redistribution between generations. In this new study, smaller transition effects are found than in previous studies. This is because lower interest rates are assumed. Also, the space within premiums, created by abolition of the uniform contributions system, is taken into account. The effects are measured as the balance of changes in pension structure and premium; it is about the net profit. Looking at the pension result, the adverse effect for the existing participants in middle ages is now limited to adverse transitional effects, up to 5% of the second pillar pension. The macro-effect of all cohorts that have a negative impact on each other is in the first years about 2.25 billion euros per year, decreasing to zero euro in 2065. Increased over all years (until 2065), the total macro effect for these cohorts adds up to about 55 billion euros. When a new pension contract is simultaneously transferred, the effects are expected to be further reduced because fewer buffers need to be built than under the current scheme.

Read the full report here. (only available in Dutch)

Background papers (in Dutch)

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europa.

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