Ageing populations: How the Dutch cope

Economics Department
Page 44 

Ageing is one of the top challenges our economies face. As the OECD’s baby-boom generation reaches retirement there will be fewer workers for each pensioner and so, a greater strain on funding. The Dutch example is enlightening. It is one of the OECD’s more stable economies and, for many, a model of sound policymaking. Yet even to the Dutch, the ageing question has proven a hard nut to crack.

The population of the Netherlands is ageing rapidly. As in other OECD countries, the main causes are the decline in fertility rates since the 1970s and rising life expectancy, especially for the elderly. This is set to reduce the number of workers per retired person to less than two by 2030, down from over three presently. Without action, such a shift will slow economic growth and drive up transfers to the elderly, with taxes and social insurance contributions having to rise to pay for pensions and healthcare. While the Netherlands may be better placed than most other OECD countries to meet these pressures, thanks to its large, funded occupational pension system, the government has nevertheless had to implement policies to ease the costs of population ageing.

Rolling back early retirement has been one priority. More people began retiring before the official retirement age in the Netherlands during the period of industrial restructuring in the 1970s and 1980s. Early retirement schemes were introduced to help them and disability insurance and unemployment insurance were made more attractive for older workers. The idea was to make room for the large inflows of younger workers into the labour force. But today, with those inflows shrinking as the population ages, the Dutch social partners have agreed that incentives for early retirement need to be reduced. Eligibility criteria for disability insurance is now more strictly enforced and using disability (or indeed unemployment insurance) to encourage the departure of older employees has been made less attractive to employers. In addition, early retirement schemes are slowly being replaced by pre-pension arrangements, shifting the burden of the cost from employers and employees from a sector to the individual worker making the decision.

Still, more needs to be done to reduce the incentives for early retirement. While the proportion of the older working age population (55-64) in employment has increased in recent years, it is still only 38% of the total, compared with an OECD average of 48%. The government could accelerate the phasing-out of early retirement schemes by immediately replacing its own schemes for public sector employees with pre-pension arrangements. That way, individuals who decide to retire early would draw a lower pension than were they to accumulate more entitlements by waiting until the official age.

The government could also end current practice of providing automatic legal extension of the collective agreements on pensions to all employees in any industrial sector. Moreover, eligibility criteria for disability insurance still have to be more strictly enforced as it continues to be used as way to retire early --- some 20% of the population aged 55-64 receives disability benefit, more than three times the rate for the rest of the working age population. A new system for screening applicants is being progressively phased in, but given the poor record of previous such initiatives, it may be necessary to adopt a more stringent approach. The government-appointed Donner Commission recommends restricting access to the disability scheme to totally and permanently disabled persons, with persons partially (and permanently) disabled as a result of occupational injuries or diseases being covered by a private employers’ insurance.

The government has also been able to partially pre-fund the expected rise in ageing-related budget costs (about 4.5% of GDP by 2040) thanks to its now lower government debt of 53% of GDP in 2001, down from 77% in 1990. It is now considering a policy of entirely pre-funding these costs and believes this could be done by maintaining a budget surplus of 1.25-1.5% of GDP over the next quarter century. By then government debt would be eliminated. The advantage of this strategy is that it minimises the budgetary pressures and allows for some room to grow debt in the future should the need arise.

A major uncertainty surrounding the scale of pre-funding required, both for the government and for pension funds, concerns the returns on capital markets where the funds are invested. Current equity prices are high in relation to earnings, pointing to lower than historical rates of return. If this continues, it would greatly increase the amount of pre-funding required by pension funds (most pension schemes are defined benefit) and, because of the tax deductions for pension fund contributions, by the government. Already, there has been a wave of increases in pension fund contribution rates following the poor equity market returns for the past two years. If future rates of return fail to match historical rates, this will lead to further increases in contribution rates and/or reductions in pension entitlements. Early action would minimise the risk of labour costs being forced up and give people time to prepare themselves for possibly lower pension entitlements.

The Netherlands is well prepared to meet the challenge of population ageing, not least because of its large, funded occupational pension system. If the government adopts the policy of fully pre-funding its ageing-related outlays and at the same time succeeds in substantially rolling back early retirement, the Netherlands will be very well placed to age in comfort.

©OECD Observer No 231/232, May 2002 

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To order your own paper editions,email

Online edition
Previous editions

Don't miss

  • MCM logo
  • The following communiqué and Chair’s statement were issued at the close of the OECD Council Meeting at Ministerial level, this year presided by the Slovak Republic.
  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019