Providing generous, guaranteed retirement benefits to an aging population is as expensive in the Netherlands as it is everywhere else.
The Dutch have long been famous — at least to pension nerds like me — for their retirement system, which is well-funded and well-managed. Now that reputation is in jeopardy: As it turns out, providing generous, guaranteed pensions to an aging population is as expensive in the Netherlands as it is everywhere else.
Many countries, especially in Europe, are struggling with aging societies and unsustainable pension systems. In the last few years, the Dutch have been reforming their system. It used to consist of a flat, fairly modest state benefit and a more generous, employer-provided benefit. Now those defined-benefit pensions from employers are being replaced by something called a collective defined-contribution plan, known as collective DC.
It is a hybrid of a traditional defined-benefit pension and a defined-contribution plan like an American 401(k). With a collective DC plan, individuals make contributions, the pension invests the money, and whatever the asset balance is when they retire determines their benefit.
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
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