Welfare to strengthen the economy

©ANP/Benelux Press

Like many OECD countries, the Netherlands is in the middle of a debate on how to amend the welfare state. Trends such as population ageing, globalisation, technological progress and individual freedoms make it necessary to consider changes to the social welfare system that go beyond adjusting benefit rates or sharpening financial incentives. A recent policy initiative by the Dutch government merits attention. We call it the individual life-cycle savings scheme (levensloopregeling).
When the current welfare state was built in the 1960s, the Dutch population was young, ethnically homogeneous and living in similar types of households. Today’s welfare arrangements were designed to accommodate the predominant life-cycle pattern of that time: education for the young, then working careers (for men) and running the home (for women), followed by retirement.Dutch society has radically changed since then. The average skill level has greatly improved, women participate more fully in the labour market, and living arrangements have become more heterogeneous. As a result, individual life cycles are much more varied.New pressures have emerged. Population ageing makes it imperative that people work later into their lives. The knowledge economy demands continuous investment in our human capital throughout our careers. Parents have to find ways to combine work with childcare. Many people are under pressure during this hectic “peak time” of life, when children, education and work lay competing claims on limited time. All too often, these tensions lead working people to withdraw from employment prematurely. This may jeopardise the sustainable financial basis for collective provision and social cohesion.To address these tensions we introduced the individual life-cycle savings scheme. Under the scheme, workers can save out of their gross wage, and taxation is deferred until the time when the saving is drawn down. The money in the savings account can be used for various forms of unpaid leave, such as caring for children or ill parents, schooling, a sabbatical or, indeed, early retirement. The maximum amount that can be saved is 210% of the latest annual gross wage.The new scheme allows workers to strike a better balance between their time and income needs during the different phases of their lives. This reduces the risk of unwanted withdrawals from the labour market, particularly by working mothers, and unnecessary absenteeism because of illness or disability. The upshot should be a more responsive welfare state that strengthens the economy, too. This new life-cycle approach to social policymaking has great potential to create a welfare state that supports efficiency and equity, now and in the future. I look forward to ideas and suggestions from governments and stakeholders on how to develop this approach further.©OECD Observer No. 248, March 2005See also replies by five other OECD ministers: Australia’s minister for family and community services, Kay Patterson, Germany’s federal minister for health and social security, Ulla Schmidt, Korea’s Geun Tae Kim, minister for health and welfare and co-chair of the 2005 meeting, Sweden’s minister for social affairs, Berit Andnor, who is also co-chairing, and from the US, Wade F. Horn, who is assistant secretary for children and families at the DHHS.

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