Submission Statement: The Netherlands has long been a model of pension security and stability for governments around the world. But as the world ages, even the Dutch is going for pension reform as demographics increasingly strain its system
Retirement systems around the developed world generally relies on three pillars: the state pillar (think Social Security), employer pillar (think defined benefit pension plans and increasingly, 401k defined contribution plans), and the personal pillar (think personal savings, insurance, IRA accounts)
The trends of the past few decades have been the state pillar increasingly under strain due to debt and aging societies, and the transition in the employer pillar from the defined benefit model (you get guaranteed monthly payouts from the company pension plans) to the defined contribution model (you contribute to your 401k and do whatever you want with your money when you retire, including a lump summif you want)
The Dutch reforms target many sectoral employer pensions and will create a hybrid “collective defined contribution” model where employees contribute in a DC fashion, but to a collective employer DC pool that then invests as a whole (as opposed to 401ks where you pick your own options as part of a menu or through a brokerage window). You can take an annuity at retirement or take a lump sum depending on market performance and the overall balance of the CDC
A side effect is that these CDC funds will pivot away from long term government bonds as the collective employee base will prefer equities and higher returns vs the older DB funds that buy up a lot of longterm government bonds as a hedge. This will pose an interesting question to interest rates as well as governments’ long term bond sales as a stable buyer base pivots elsewhere
1 Comment
Submission Statement: The Netherlands has long been a model of pension security and stability for governments around the world. But as the world ages, even the Dutch is going for pension reform as demographics increasingly strain its system
Retirement systems around the developed world generally relies on three pillars: the state pillar (think Social Security), employer pillar (think defined benefit pension plans and increasingly, 401k defined contribution plans), and the personal pillar (think personal savings, insurance, IRA accounts)
The trends of the past few decades have been the state pillar increasingly under strain due to debt and aging societies, and the transition in the employer pillar from the defined benefit model (you get guaranteed monthly payouts from the company pension plans) to the defined contribution model (you contribute to your 401k and do whatever you want with your money when you retire, including a lump summif you want)
The Dutch reforms target many sectoral employer pensions and will create a hybrid “collective defined contribution” model where employees contribute in a DC fashion, but to a collective employer DC pool that then invests as a whole (as opposed to 401ks where you pick your own options as part of a menu or through a brokerage window). You can take an annuity at retirement or take a lump sum depending on market performance and the overall balance of the CDC
A side effect is that these CDC funds will pivot away from long term government bonds as the collective employee base will prefer equities and higher returns vs the older DB funds that buy up a lot of longterm government bonds as a hedge. This will pose an interesting question to interest rates as well as governments’ long term bond sales as a stable buyer base pivots elsewhere