The agreement on a new pension system in the Netherland includes a so called solidarity buffer where intergenerational risk sharing enhances prospected pension payments. However, this type of intergenerational risk sharing makes the new pension system unnecessarily complicated and difficult to explain, because all kinds of discretionary decisions by the boards of the pension funds hide the transfer of capital within and between generations. It is better to set up the solidarity buffer as a government fund. One argument is that the solidarity buffer has the character of a pay-as-you-go system where the older pay for the younger, under the condition that the younger will also pass the buffer to their children. Making the buffer a government-funded fund therefore contributes to keeping the social contract, whereby the capital still is passed on from generation to generation. In addition, financing the fund is cheap at the current low interest rates, while the investment return of the fund for the young generation and for those with relatively low rates of return on their pension capital provides a larger pension. A government fund also makes it unnecessary to build up the solidarity buffer from existing pension capital which would imply a direct transfer from the older to the younger generation. This is implicit in the agreement on the new pension system as it is approved by the government and social partners in June 2020.
|Translated title of the contribution||The ‘solidarity’ buffer in the new Dutch pension system should be a government capital fund.|
|Number of pages||3|
|Journal||Economisch Statistische Berichten|
|Publication status||Published - 1 Dec 2020|