Amount of pension benefit closely connected to trust in the pension system

The level of the pension benefit is the most important aspect of our pension system for both employees and the self-employed. That is the conclusion of a Netspar study by Martin Olsthoorn (SCP) into the preferences of employees and the self-employed. Freedom of choice, flexibility and customization only partially compensate for disappointing benefits. As long as the amount of pension benefits remains behind, confidence in the system is not expected to recover. In fact, with declining benefits, confidence is also expected to fall.

The pension is the income for your old age. It is therefore not surprising that both employees and self-employed find the height of their benefits the most important. The current system is under discussion due to the aging population and the financial crisis. In addition, confidence in the pension system is under pressure. The SCP investigated the assumption that confidence and legitimacy can be restored by offering freedom of choice, flexibility and customization. However, the emphasis in all groups is on benefits.

Preferences of the self-employed
Self-employed are negative about the obligation to participate in the second pillar of the pension building. At the same time, they are positive about voluntary affiliation subject to personal pension assets, and about a number of options discussed in the context of the reform. The following options make joining the second pillar more interesting for them:

  • Customization and participation in how their pension is invested.
  • The possibility to temporarily not pay a premium or to withdraw part of the accrued pension.
  • The possibility to transfer the pension to a new institution.

At this point, the results of this study support the route taken earlier this year by the government: The desire to make voluntary affiliation more attractive for self-employed people with specific reforms that are positively valued by self-employed people. This does not alter the fact that the self-employed are probably not enthusiastic about joining the second pillar if they expect the benefits to be disappointing.

Employee preferences
Although employees are particularly interested in the level of benefits, they also prefer options such as personal pots. It is unclear what employees mean by this. Employees also appreciate the possibility of being able to retire earlier. Even if that means that they receive a lower benefit. The preferences of employees and the self-employed with regard to the reform of the pension system are not in conflict with each other and are sometimes even in line with each other. This argues for reconciling the debate about reforms in the second pillar and whether or not the self-employed are connected. If affiliation by the self-employed is desired, it is reasonable to include their preferences in the chosen direction of reform.

About this study
Read the paper ‘Legitimacy and pension reforms‘ here (in Dutch). The results and reporting of this study were established before the resumption of negotiations for a new pension agreement at the end of May 2019. The principles of the current agreement in principle were therefore not tested in this study.

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 Europe.

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