IMF Country Report No. 19/45

KINGDOM OF THE
NETHERLANDS—NETHERLANDS
SELECTED ISSUES
February 2019

This Selected Issues paper on the Kingdom of the Netherlands—Netherlands was
prepared by a staff team of the International Monetary Fund as background
documentation for the periodic consultation with the member country. It is based on the
information available at the time it was completed on January 23, 2019.

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International Monetary Fund
Washington, D.C.

© 2018 International Monetary Fund

KINGDOM OF THE NETHERLANDS—
NETHERLANDS
SELECTED ISSUES
January 23, 2019

Approved By

Prepared by Ruo Chen and Izabela Karpowicz

European Department

CONTENTS
CORPORATE SAVING IN THE NETHERLANDS___________________________________________3
A. Introduction _____________________________________________________________________________ 3
B. Sources and Uses of the Dutch Corporate Gross Saving ________________________________ 5
C. Roles of MNCs __________________________________________________________________________ 7
D. From the Saving-Investment Balance to the CA ________________________________________ 9
E. Conclusion_____________________________________________________________________________ 10
References _______________________________________________________________________________ 11
TABLES
1. Decomposition of NFC Gross Value Added of Selected OECD Countries _______________ 6
2. Uses of NFC Gross Saving of Selected OECD Countries _________________________________ 6
3. Large MNC Activities by Primary Industry Classification_________________________________ 8
SELF-EMPLOYMENT AND SUPPORT FOR THE DUTCH PENSION REFORM __________ 12
A. Introduction ___________________________________________________________________________ 12
B. Background on the Pension Reform and Political Economy ___________________________ 13
C. Self-Employment and Pension Reform Support _______________________________________ 16
D. Model Estimations ____________________________________________________________________ 21
E. Conclusions____________________________________________________________________________ 26
References _______________________________________________________________________________ 28

KINGDOM OF THE NETHERLANDS— NETHERLANDS

FIGURES
1. Composition of Self-Employment, 2008–17 ___________________________________________ 18
2. Composition of Self-Employed Jobs, 2017 ____________________________________________ 19
3. Self-Employed Education and Income, 2017 __________________________________________ 19
4. Answers to Questions on Pension Preferences, 2017 __________________________________ 21
5. Psychological Traits, 2017 _____________________________________________________________ 24
APPENDICES
I. Data and Tables ________________________________________________________________________ 30
II. The DNB Households Survey (DHS) ___________________________________________________ 31

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CORPORATE SAVING IN THE NETHERLANDS1
The Netherlands’ current account (CA) surplus in percent of GDP is among the highest in the world.
The non-financial corporation (NFC) net saving is the largest contributor to the CA surplus. To
understand the high NFC saving, this chapter provides details of the sources and uses of the NFC
saving, highlights the role of multinational corporations (MNCs), and discusses the implications to the
external sector assessment and policy recommendations.

A. Introduction
1.
The Netherlands has a long history of CA surpluses, however a surplus of more than
10 percent of GDP in recent years hit its
highest level in decades. The Netherlands has
been running CA surpluses since early 1980s,
with a historical average at about 5 percent of
GDP. From early 2000s, the surplus has been on
a steady increasing path, reached its peak of
10.7 percent of GDP in 2012. Since then, the
surplus dropped to 6.3 percent of GDP in 2015
and rapidly increased to 10.5 percent of GDP in
2017. The trade surplus in goods, at average of
10 percent of GDP over the last decade, is the
biggest contributor to CA surplus. Export
destinations are primarily European countries while the Netherlands incurs deficits with Asia and the
United States. The balance of trade in services has been small deficits for a long time, but turned
into small surpluses in last couple years, to some extent, contributing the resurging of CA surplus.
Net income balances have been small and volatile.
2.
High non-financial corporate (NFC)
net saving is behind the high CA surplus in
the Netherlands. Dutch households have high
pension savings but also high debt through
residential investment. Household net saving
has improved since the global financial crisis
(GFC), contributing to the rising CA surplus, but
it started to decrease again in line with the
recovery of house prices since 2014. On
average, household net saving stays around
¼ percent of GDP over the past two decades.
1

Prepared by Ruo Chen (EUR). The author is grateful to helpful comments and suggestions from the authorities. The
author would like to thank Anvar Musayev for superb research assistance.

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On the other hand, fiscal consolidation improved government net saving from about–5½ percent of
GDP at the peak of GFC in 2009 to about 1 percent of GDP in 2017. Unlike many other countries,
Dutch corporates have always been net savers, with an average net saving of around 6 percent of
GDP since 2000. High NFC net saving is due to high gross saving as well as low corporate
investment (see Section B).2
3.
The large Dutch international investment position (IIP) reflects its status as an
international corporate center. Gross international assets and liabilities increased from close to 6
times of GDP in 2003 to more than 11 times of GDP in 2017, of which about 60 percent of assets
and 50 percent of liabilities are foreign direct investment (FDI). Net IIP moved from a small negative
position before 2009 to 60 percent of GDP in 2017, which is explained by the increase in net FDI
position. About a half of Dutch foreign assets and liabilities belong to special financial institutions
(SFIs), whose shares are directly or indirectly held by non-residents and whose activity is to receive
funds from non-residents and channel them to non-residents on behalf of multinational
corporations (MNCs) (DNB, 2004). However, even after adjusting for SFIs FDI would remain the
largest component in IIP, especially in recent years. Due to the friendly business environment,
proximity to major port routes, and favorable tax treaties, many MNCs locate their headquarters in
the Netherlands, collect financial resources, and allocate FDI through the Netherlands.3

4.
Understanding the fundamental reasons for high NFC net saving is important for the
external sector assessment. In the Fund’s 2018 External Sector Report (ESR), the Netherlands’
external position was assessed as substantially stronger than implied by fundamentals and desirable
policy settings, calling for policies to boost domestic demand. A better understanding of the high
2
CBS revised national accounts and balance of payments statistics in September 2018. The analysis in the rest of this
chapter relies on statistics from the OECD for cross-country comparison. However, OECD data does not reflect the
latest update, showing slightly lower net saving by NFCs and higher saving by financial corporations. Nevertheless,
the main results stay the same.
3

According to CPB (2015), the main reasons for MNC’s location are “market size, agglomeration and clustering
effects, business climate, institutional quality, socio-political stability, and labor force characteristics” while the
favorable tax system is “one of the least relevant motives.”

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NFC saving could help identify more specific policy recommendations to foster effective external
rebalancing. This chapter documents the sources and uses of corporate saving in the Netherlands, in
comparison with other European advanced countries; examines the role of MNCs; and discusses
how NFCs’ saving-investment balance reflects on the CA surplus, which also indicates the large
impact of MNCs. The chapter concludes with implications to the external sector assessment.

B. Sources and Uses of the Dutch Corporate Gross Saving
5.
The rising Dutch NFC gross savings reflect increasing profit and, to a lesser extent,
decreasing profit distribution. NFC gross savings, or retained earnings, is defined as gross value
added (GVA) less costs of labor, taxes, interest
and rent, dividends, and other net transfers
(including reinvested earnings from FDI). From
1995 to 2012, the increase of NFC gross saving
outpaced the increase of GVA, reflecting lower
costs (including tax and net interest and rent)
and lower net dividend payments. Since 2012,
gross savings dropped slightly due to higher
dividends and net transfers. The saving rate,
defined as gross saving in percent of GVA,
increased from 26 percent in 1995 to 35
percent in 2012 and dropped to 29 percent in
2016. Throughout the period, labor costs have been quite stable as a percentage of GDP, even
though NFCs’ GVA has increased moderately, indicating a declining labor share in GVA.
&
1
2
6.
Compared with some advanced European countries, the Dutch NFC saving rate is
among the highest. At the aggregate level, Dutch NFCs’ cost structure is similar to that of Danish
NFCs; and Dutch NFCs’ saving rate was slightly lower with higher dividend payout. Relative to other
advanced European countries, Dutch firms had either low costs, or low net dividend payout, or a
combination of both. For example, German NFCs maintained very low costs (including labor, tax, net
invest and rent), but on average paid much higher dividends than their Dutch peers. Compared with
Swiss NFCs, Dutch firms enjoyed much lower labor costs. Overall, Dutch firms successfully contained
their operational costs, enjoyed high dividends distributed by their subsidiaries, paid only moderate
dividends to their own shareholders, and therefore maintained high savings.

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KINGDOM OF THE NETHERLANDS— NETHERLANDS

Table 1. Selected OECD Countries: Decomposition of NFC Gross Value Added
(percent of GVA, 1995-2016 averages)
Labor cost

Tax

NLD

60

4

DNK
SWE
IRL
CHE
GBR
DEU
LUX
FRA
ITA

59
52
43
68
61
59
64
64
52

4
13
5
3
7
2
4
7
7

Interest Other net
and rent transfers
2
1
3
2
4
2
3
1
7
4
3

1
0
6
-2
-2
0
7
2
1

Net
Dividend
4

Gross
saving
29

Dividend
paid
12

Dividend
received
7

1
6
17
5
9
18
-1
4
20

31
27
24
24
22
20
19
18
18

9
23
17
15
15
21
30
18
23

7
17
1
9
6
3
31
13
3

Source: OECD, and IMF staff calculations.

7.
However, Dutch firms spent the lowest share of their gross saving on domestic
investment compared with their European peers. During the period between 1995 and 2017,
about 10 percent of GDP per year was invested on capital formation by Dutch firms, which was not
extremely low for an advanced economy. However, with the average gross saving rate at 17 percent
of GDP, Dutch firms spent only 63 percent of their savings on domestic business investment. With
similar gross savings in percent of GDP, Sweden and Danish firms spent 96 percent and 78 percent
of their savings on domestic investment, respectively. With much lower gross savings in percent of
GDP, French and Italian firms spent more than 120 percent of their saving on investment. Therefore,
Dutch firms have the highest net saving rate (i.e., gross saving minus domestic investment) among
European advanced economies.
Table 2. Selected OCED Countries: Uses of NFC Gross Saving
(percent of GDP, 1995-2016 averages)
Gross Domestic
saving investment
NLD

17

10

DNK
SWE
IRL
CHE
GBR
DEU
LUX
FRA
ITA

15
16
14
14
12
11
8
9
8

12
15
13
15
10
12
10
11
10

Source: OECD, and IMF staff calculations.

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Trade
Current
receivable
assets
s
2
1
0
1
2
1
1
1
2
1
1

0
1
5
0
0
1
4
1
1

Net
Net
equity debt/loan

Others

Investmentsaving ratio

4

-1

1

0.62

2
-2
-1
1
2
1
0
0
0

-1
-3
0
0
-3
-1
-4
-2
-2

2
3
-3
-3
1
-2
-4
-2
-1

0.78
0.96
0.89
1.09
0.86
1.02
1.27
1.21
1.25

KINGDOM OF THE NETHERLANDS—NETHERLANDS

8.
The net saving accumulated by Dutch firms were mostly used for equity purchases.
Dutch NFCs have large financial transactions, including equity and debt/loan issuances and
purchases. Therefore, identifying the ultimate
usage of NFCs’ net saving is not
straightforward. For example, the net saving, at
average of 7 percent of GDP during the period
between 1995 to 2017, plus issuances of equity
(4 percent of GDP) and debt/loans (6 percent of
GDP), were used for purchases of equity (8
percent of GDP) and debt/loans (5 percent of
GDP) and current assets (2 percent of GDP). On
a net basis, most Dutch NFC net saving went to
equity purchases. Firm’s financial transactions
do not indicate whether equity was purchased
from domestic firms or foreign firms. However, the co-movement of firm’s net equity purchases and
net FDI flows indicates that Dutch firms use net saving for foreign equity purchases to a large extent.

C. Roles of MNCs
9.
Dutch NFC gross savings are highly concentrated in a few companies. Based on financial
statements of publicly listed firms, large firms contributed, on average, half of NFC gross savings
during 2010-17.4 The top 24 firms (according to
their total assets) contributed about 40 percent of
total NFC gross savings. Just one company, Royal
Dutch Shell plc (Shell), reported gross savings of
about 2.8 percent of Dutch GDP in 2017, about 15
percent total NFC gross savings. Such calculations
based on consolidated financial statements could
overestimate Dutch MNCs’ gross savings in the
Netherlands if not all consolidated profits are
reported in the Netherlands. However, this is
unlikely since most Dutch MNCs have their global
or European headquarters located in the country.
10.
MNCs allocate their saving to investment globally. During 2010 to 2017, the top 24 firms
spent around 84 percent of their gross savings on investment either in the Netherlands or abroad.
This compares with an average rate of domestic investment of only 54 percent. However, excluding
Shell, the two investment ratios are similar. Between 2010 and 2017, Shell invested on average about
1½ times its gross savings, financed by debt or equity issuance, an amount close to 2.8 percent of
Dutch GDP in 2016. 60 percent of this expenditure was for upstream investment (for exploration and
research), of which only 17 percent was invested in Europe. Assuming that all its European
4

The definition of gross saving of firms follows the calculation in Chen et al (2017).

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investment was in the Netherlands, Shell would have contributed 1.8 percent of GDP to the
Netherlands CA surplus in 2016. Similarly, other MNCs would invest globally, which would lead to
higher net savings in the Netherlands than their consolidated net savings. Since other MNCs in the
sample have similar investment-saving ratio as that in the national accounts, their contribution to
the net saving would be higher than their contribution to the gross saving. Therefore, the low
investment-saving ratio shown in the national accounts could be largely driven by MNCs investing a
large fraction of their savings abroad rather than in the Netherlands.
11.
MNCs’ investment intensity varies significantly across sectors. International evidence
about large MNCs shows that companies in the
energy, consumer staples, industrials, and
communication services sectors have the
largest contributions to gross saving. IT and
health care sectors invested less than 20
percent of their savings. Low investment is
correlated with large intangibles and stock
buybacks, as firms keep high saving for R&D to
maintain high level of intangibles or for stock
buyback to boost shareholders’ wealth. High
investment sectors, like energy and utilities,
tend to issue debt to finance their investment.
Table 3. The Netherlands: Large MNC Activities by Primary Industry Classification
(2010-2017 average)

Energy
Consumer Staples
Industrials
Communication Services
Information Technology
Materials
Health Care
Utilities

Share in total
gross saving
32.8
17.1
15.7
12.4
8.0
6.1
6.0
1.9

Investmentsaving ratio
0.99
0.80
0.39
0.46
0.14
0.62
0.16
3.21

Stock buyback Debt repay in
in percent of
percent of
gross saving gross saving
5.9
-37.1
17.1
-23.6
16.5
12.9
7.0
-67.5
36.0
4.2
5.9
3.8
20.1
2.7
3.4
-152.0

Intangibles in
percent of
total assets
1.6
25.2
40.2
46.8
35.6
19.8
36.2
0.9

Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.

12.
MNCs’ retained earnings (or gross saving) should be attributed to their ultimate
shareholders, but this may not be feasible in practice. Dutch MNCs are largely owned by
foreigners. If foreigners own the shares as portfolio investors, or if they own controlling shares
indirectly through a Dutch company, the retained earnings corresponding to their ownership shares
are not recorded as a primary income outflow in the CA. For instance, if the largest investor of a
Dutch MNC is a Dutch holding company, most of the MNC’s retained earnings will be attributed to

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Dutch residents even if the holding company is owned by foreigners. Taking Shell as an example
again,5 the largest shareholder in Shell is Nederlands Centraal Instituut Voor Giraal Effectenverkeer
BV (a Dutch holding company), holding 41.2% of the shares. The second largest investor is
BlackRock Investment Management (UK) Ltd., holding 4.7% shares, who would be classified as a
portfolio investor. Therefore, all retained earnings of Shell are attributed to Dutch residents.
However, according to Eggelte et al. (2014) around 90 percent of Shell shares are owned by
foreigners. Due to complicated holding structures of MNCs, it is difficult to allocate retained
earnings to their ultimate shareholders around the world.

D. From the Saving-Investment Balance to the CA
13.
Large exports, particularly re-exports, reflect MNCs’ activities. Major Dutch exports are
manufactured goods, mainly machinery and transport equipment, food and fuels, and their primary
destinations are other European countries (e.g. Germany, France, United Kingdom, and Belgium).
The list of top export products is consistent with major MNCs’ primary business sectors, such as
industrials, IT, consumer staples, and energy. More than 40 percent of Dutch exports are re-exports,
as the port of Rotterdam, the largest port in Europe, provides a prime location for good transport in,
out, and within Europe for MNCs. OECD (2017) shows that foreign-owned firms in the Netherlands
are more export intensive than domestic-owned firms, and MNCs play an important role in foreign
market penetration. The significant amount of goods transferred via the Netherlands is largely for
geographic reasons but could also be related to profit shifting. Like intangible assets, movable
tangible assets, such as transportation equipment (a major Dutch export category), could be used
for tax planning as their legal ownership could be assigned to a leasing company resident in a low
tax jurisdiction.

14.
The small primary income balance implies that a large part of dividends is paid to
foreigners. As discussed above, Dutch firms’ profits include a significant part of dividends from their

5

Shareholder information is taken from London Stock Exchange as of November 16, 2018.

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KINGDOM OF THE NETHERLANDS— NETHERLANDS

foreign subsidiaries, which seems inconsistent with the small net primary income balance. However,
dividends paid by Dutch firms could also go to their foreign investors, particularly within MNCs’
networks. Both dividends received and paid by Dutch firms are within the range of large gross
investment income flows (around 30 to 40 percent of GDP), derived from even larger stock
positions. When the primary income flows are driven by MNCs, depending on how the dividends are
distributed within MNCs’ networks, the net balances may not match to the rising stock position.

E. Conclusion
15.
The high Dutch CA surplus is driven by high corporate saving, which is dominated by a
few MNCs. The Netherlands is an attractive location for MNCs partly due to its favorable
international corporate taxation regime. Dutch NFCs, particularly MNCs headquartered in the
Netherlands, receive substantial dividends and interest payments from their foreign subsidiaries,
which are exempted from domestic corporate taxes under the “double participation exemption”.6
MNCs’ savings are used for global investment through foreign equity purchases, which are again
subject to exemption on capital gains on foreign equity. As a result, the Dutch BoP registers high
corporate net saving. While MNCs are domiciled in the Netherlands, they are largely owned by
foreign shareholders. In principle, retained earnings should be attributed to foreign shareholders,
thereby giving rise to CA outflows, but this may not be feasible in practice due to MNCs’
complicated holding structures, potentially leading to an overestimate of the CA surplus. Large trade
surpluses and small primary income balances are consistent with the dominance of MNCs in the
Netherlands’ external positions.
16.
Separating MNCs’ activities from the Dutch CA for the external sector assessment
would help identify underlying policy distortions. Rising corporate saving is a global
phenomenon, which could be related to rising market power or profit shifting, possibly associated
with rising intangible asset intensity. Granular information on MNCs’ activities in the Netherlands is
needed to further disentangle global factors and domestic policy distortions. Separating MNCs’
activities would help identify imbalances of other economic sectors. The small and medium
enterprises (SMEs) are stagnant and remain financially constrained. Small household net saving
hides the fact that households are still highly leveraged, and their consumption constrained by a
stagnating disposable income. Therefore, improving statistics and separating MNCs’ activities from
both internal and external accounts would help identify domestic policy distortions and address
imbalances effectively.

6

The “double participation exemption” refers the tax exemption of both dividends paid by foreign subsidiaries and
capital gains on the disposal of foreign equity, which was designed to avoid double taxation.

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References
Chen, P., Karabarbounis, L., and Neiman, B., 2017. "The global rise of corporate saving," Journal of
Monetary Economics, vol. 89(C).
CPB, 2015, “Causes and Policy Implications of the Dutch Current Account Surplus,” CPB Policy Brief
2015/05.
DNB, 2004, “Direct Investment Technical Expert Group: Background paper on Special Purpose
Entities,” Background Paper Issues #9 and 11, Prepared by Balance of Payments and
Financial Accounts Department, DNB.
Eggelte, J., Hillebrand, R., Kooiman, T., and Schotten, G., 2014, “Getting to the Bottom of the Dutch
Savings Surplus”, DNB Occasional Studies Vol. 12-6.
OECD, 2017, “Netherlands, Trade and Investment Statistical Note”.

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SELF-EMPLOYMENT AND SUPPORT FOR THE DUTCH
PENSION REFORM1
A. Introduction
1.
The Netherlands’ proposed pension reform is under discussion in the context of a
system that has widely been regarded as one of the world’s strongest and most sophisticated.
According to the Melbourne Mercer Global Pension Index 2018, the Dutch pension system ranked
first in a group of 34 countries, on a scale evaluating adequacy of benefits and the system’s
sustainability and financial integrity across 40 indicators. The pension system is viewed as having
achieved high participation rates, provided adequate retirement income, and ensured sustainability
through a model that adroitly takes advantage of the strengths intrinsic in defined-benefit (DB) and
defined-contributions (DC) frameworks. However, pressure points are arising because of population
aging, low long-term interest rates, and changes in the labor market structure that have strained
redistribution, bringing to the fore intergenerational tensions. In 2014, the government initiated a
series of consultations with social partners on a possible reform. The coalition agreement of 2017
proposed a route for reform, and the agreement with social partners was expected in early 2018
with legislation to be passed in 2020. While there appears to be a broad consensus on the need for
reform, an agreement on the final package has been delayed.
2.
In this chapter, we analyze pension system preferences and self-employment.
Facilitated by favorable tax treatment, self-employment has increased in recent years and is now
among the highest in Europe. A further switch of younger generations to self-employment could,
however, put substantial pressure on the long-term solvency of the collective schemes (Gerard,
2019) and represents a risk of termination of the social contract. Building on the work on Parlevliet
(2018) who analyzed public acceptance of the increase in retirement age in Netherlands in 2012, we
study the individuals’ pension system preferences and their choice of labor contract.
3.
Support for specific pension system characteristics inherent in the proposed reform is
significantly associated with self-employment status. We find that, after controlling for
demographic characteristics and individual psychological traits, individuals who have a preference
for pension plans with more freedom of choice and more investment risk are significantly more
likely to choose self-employment than regular employment under the current pension system. A
pension reform giving more freedom of choice to regular employees, such as the one proposed by
the government, should thus reduce incentives to go into self-employment and include individuals
who do not enjoy pension coverage into personal savings schemes. These issues are central to the
debate in Netherlands not only in the context of social insurance but also in the context of the dual
labor market.

1

Prepared by Izabela Karpowicz.

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4.
The rest of the paper is organized as follows. Section B provides a background on the
pension reform; section C describes the self-employed population based on household survey data;
section D presents the model and estimation results; and section E concludes.

B. Background on the Pension Reform and Political Economy
5.
As in most advanced economies, the Dutch pension system has three pillars. The 1st
pillar – public, pay-as-you go – benefit, grants a minimum flat pension to the entire population
subject to age and residency requirements (see Table 1, Appendix I). The 2nd pillar mandatory
occupational schemes are the predominant type of pension contracts covering over 90 percent of all
employees and providing supplementary benefits based on lifetime wages. The 3rd pillar pension
schemes are voluntary, tax-exempt contracts. Participation in 3rd pillar is still limited, contributing to
about 10 percent of pension systems’ assets, but growing.
6.
The 2nd pillar Dutch occupational schemes are known for having combined the
features of the DB and DC schemes.


Contributions are quasi-mandatory and derived from collective labor agreements. Contributions
are levied at a uniform rate, independent of age. The rates can be increased in the case the
pension fund falls below the target solvency ratio but have de facto been fix.



Benefits are accrued annually at a maximum rate of 1.875 percent, providing 75 percent of
average lifetime pay after 40 years of contributions. However, in contrast with pure DB schemes,
Dutch DB contracts are structured as deferred variable annuities accumulated through an
investment strategy that targets a stable lifetime income. This makes the system a de facto
“hybrid DB” that displays some features of the DC scheme inasmuch as the final benefit can (and
does) change over time. Annuities are indexed to wages or inflation but can be frozen or cut in
nominal terms conditional on the funding rate.



2nd pillar funds are managed by boards consisting of employers, unions, retirees, and
independent specialists who act as fiduciary trustees and determine investments, contribution
levels, and indexation collectively (Bovenberg and Nijman, 2017). The outcomes of such
decision-making result in solutions that are rooted in a strong consensus.

7.
The advantages of this design are multiple and include high pension coverage, risk
pooling and risk sharing, and long-term sustainability of pension funds. Over a 10-year horizon
(established prudentially) the system is self-sustainable given the possibility (and the obligation) of
the funds to address the eventual funding shortfall through changes in revenues (contributions),
accrual of benefits, as well as payment of earned annuities.2 In this respect, the Dutch occupational
schemes resemble a DB scheme, in which decisions are made collectively and affect all beneficiaries,
2
However, pension funds have used overly optimistic assumptions about expected returns which allowed them to
circumvent nominal cuts (Wills Tower Watson, 2018; and DNBulletin 2017). Pension funds' financial positions have
been improving recently as favorable developments in the equity and foreign exchange markets have been offsetting
the negative consequences of the decline in interest rates. The funding ratio was 108.4 percent in mid-2018, against
the statutory minimum of 104.2 percent (DNB, June 2018).

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current and future ones, while at the same time avoiding underfunding, as in a DC plan. Aside from
ensuring sustainability, collective management of savings lessens concerns stemming from cognitive
constraints and financial illiteracy and strengthens participants bargaining power in financial
markets. Pooling of longevity and systemic macro risks is also a desirable feature that makes the
system closer to a pure DB.
8.
However, characteristics that make the Dutch pension system attractive also govern
some of its disadvantages that have led to increasing complexity and opacity of transfers.
Uniform accrual rates imply an intergenerational transfer from the young to the old, by virtue of the
time value of money, and from the lower educated to the higher educated. This implicit subsidy is,
however, partly offset by the reverse redistribution due to the fact that rights accumulated in the
past at higher real return rates are subsidizing annuities which are valued at the risk-free rate
(Bovenberg and Nijman, 2017). In addition, the indirect link between changes in contributions and
benefits stemming from changes in macro environment and the flow of new entrants into the
system have increased uncertainty. The system has become complex and, as investment risks are
increasingly born by participants, it becomes even more important that allocation of losses and
gains across individuals and generations are transparent. Finally, given the governance structure of
pensions funds, agreement on any potential reform is more difficult and must satisfy multiple, and
at times conflicting, interests.
9.
The pension reform in the coalition agreement proposes to replace variable annuities,
characteristic of the Dutch “hybrid DBs”, with personal entitlements in the form of financial
assets, akin to a DC. Moreover, the new system would feature insurance contracts, hedging
participants against longevity risk, and possibly also collective buffers that allow for sharing systemic
risks across generations. These solutions that have become known in the literature as “third space”
or “personal pensions with risk-sharing and collective buffers” (PPR-CB), seek to produce a more
predictable income stream for participants by means of a collective approach to investment and
decumulation, thus minimizing inefficiencies related to the higher cost of investment. The PPR-CB
offer the possibility to tailor financial instruments to individual risk preferences more closely while
still targeting a desired retirement income stream. The PPR-CB would improve the system’s
transparency, at least the PPR part would do so and, more importantly, the reform would shift to
participants virtually all risks related to pensions that may currently be borne by employers.
10.
As the Netherlands can already praise itself for having a first-class pension system, a
justifiable question appears to be – is this the right time for reform? Given absence of apparent
sustainability or equity pressures, pension reform was not seen as top priority for the government in
a survey conducted by the European Commission in 2018. Among the economic objectives for the
government a significantly greater share of respondents prioritized health, social security and
housing issues. Fewer people in Netherlands today see pension reform as a national priority
compared with the past, although a higher share of individuals still sees pension income as one of
important personal preoccupations, albeit less so than in 2016. Why is then the pension reform
necessary? Who supports it and who gains from it?

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Public opinion of important issues facing the Netherlands 2018

11.
The government views the reform as necessary because of revealed tensions
surrounding intergenerational risk transfers
Two Priorities Identified by Respondents
and the systems’ inadequacy in supporting
(Percent of total)
25%
25%
the needs of the changing labor market.
Personal
National
EU average
20%
20%
Population aging is putting pressure on DB
15%
15%
pension schemes, including in Netherlands,
10%
10%
and making the transfer from young to old
5%
5%
employees less viable. Moreover, transitional
0%
0%
labor markets of today, in which contributions
2009
2013
2016
2018
histories are occasionally erratic and
Source: Eurobarometer, European Commission.
incomplete, imply that risk sharing may be
costlier and no longer the preferred social choice.3 This argument could be a much more prominent
driver of change compared with other justifications, including the preference towards managing
risks individually for which evidence is not clear cut, as van Dalen and Henkens (2017) show.
Although individuals already bear the risks of lower retirement income through the possibility of
benefit cuts, from the perspective of the government, offloading fiscal risks to individuals more
explicitly may also seem an attractive option. The government has promised to provide support for
ensuring a smooth and evenly distributed transition for all age cohorts and participants through tax
instruments.
12.
Employers federations’ interests are aligned with government’s objectives. Employers’
interests mandate that risks related to fluctuations in contributions and liabilities be shifted off their
3

On the contrary, the actuarial fairness principle, on the opposite of the range of social contracts, may be the only
viable solution to this change.

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balance sheets which would be achieved in the current proposal. This would lower uncertainty and
facilitate investment planning and hiring, which could push up growth over time and ultimately
improve pension system sustainability. Introducing regressive premiums, which would vary
depending on a contributor’s age, would lower the cost and facilitate hiring of younger workers and
possibly crowd some self-employed into the pension system. Slowing down the increase the
retirement age in the 1st pillar, however, a proposal put forward by the unions in recent negotiation
rounds, would also be beneficial for some companies that find older workers expensive and more
difficult to retrain. In a survey of 68 companies in 2017, the majority of employers have recognized
their responsibility and willingness to assist employees in choosing options that better fit their
needs, actively help them manage their pension contributions, and provide support with investment
and planning decisions (Wills Towers Watson, 2017).
13.
On the other side of the consultation process spectrum, the labor unions favor
redistribution. The unions would support a system that allows more risk sharing across generations.
This is because the unions have to strike an internal balance between the interests of the young and
those of the retired who retain the membership in pension funds (Ponds and van Riel, 2007).4 The
unions insist on participation in collective buffers being made mandatory at industry level, to
strengthen the bargaining power of pension participants in negotiations with the financial sector. In
addition, self-employed should also be forced to participate in the system which would improve its
capitalization and protect them from old-age poverty. They would, moreover, favor the possibility of
allowing financial buffers of funds to turn negative in the downturn of the economic cycle and avoid
curtailing benefits, an idea strongly opposed by the central bank. Related to that, an important point
of contention is their insistence on using a stable (higher) ultimate forward rate by funds in their
solvency calculation. The unions insist on an arrangement where older generations affected
negatively by the transition would be compensated, which would be necessary in a transition from
accrual based on average pensions to accrual dependent on age, i.e., lower for older contributors
(Preesman, 2017).5 More recently, the decision to increase the minimum retirement age for 1st pillar
pension benefits to 67 by 2021 and link it 1-to-1 to life expectancy thereafter agreed upon in 2012
was challenged as overly punitive for workers employed in precarious occupations.
14.
From this point on, understanding how individuals view the pension system provides
additional insight for evaluating reform support comprehensively but is also helpful in
predicting how the different incentives inherent in the system could affect occupational
choices and system participation. The following sections will shed more light on self-employment
and its relationship with pensions.

C. Self-Employment and Pension Reform Support
15.
In contrast with trends in most other OECD countries, self-employment in the
Netherlands has increased over the past decade. The share of self-employment in total
4
Union representatives on pension boards are also engaged in wage negotiations, thus, the wage and pension
policies are closely linked and redistribution across generations is achieved by means of both policy tools.
5

The estimated cost of this compensation is 55 billion euros.

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employment has picked up by more than 4 percentage points between 2005 and 2017 when it
stood at 15.7 percent. The largest increase was recorded in the category “own-account workers”
which accounted for 11.6 percent of employed in 2017. In contrast to business owners, own-account
workers typically do not employ other individuals (OECD, 2018). Older workers are more represented
among the self-employed, with about 40 percent belonging to the age group 50–64, and slightly
more than one in three self-employed workers are women. While self-employment is widespread
across all occupations, half of self-employed in 2017 were active in four main categoties:
construction, trade, social work and professional, scientific and technical activities. In recent years,
the share of self-employed workers with tertiary education has expanded (Figure 1).
16.
Self-employment offers advantages for workers and employers and contributes to
labor market flexibility. Self-employment is often motivated by the prospects of lowering the
individual tax burden. Indeed, self-employed do not contribute to the sickness and disability
insurance and tax deductions are also available for incentivizing entrepreneurship (Dekker and
others, 2018). Self-employed on average pay 20 percent lower taxes on equivalent gross income
compared to employees (Bosch and others, 2015). Moreover, the cap on tax deduction for
contributions in 3rd pillar DC schemes increases with age. Self-employment is attractive for both
young workers, who need to gain work experience, and old workers, who have built up sufficient
pension capital but would like to remain marginally attached to work. Work arrangements of these
individuals are more flexible and more cost-competitive than for regular employees (IMF 2018)
which contributes to job satisfaction (Josten and others, 2014) as their primary motive for choosing
these contracts is autonomy (Conen and Schippers, 2017). However, these arrangements undermine
the level playing field in the labor market, expose the government to revenue loss, and subject selfemployed to risks, such as unstable contractual relationships and possible income loss. With only
few exceptions, the self-employed are not covered by sectoral or occupational 2nd pillar
arrangements (Mastrogiacomo and others, 2016).
17.
Are self-employed risk attitudes and preference for freedom of choice at the core of
their employment status? How likely is that, given certain demographic characteristics, education
profiles, and psychological traits individuals opt for self-employment as a result of their preferences
for greater risk-taking and freedom of choice in managing pension savings? Answering this question
is key to understanding how their behavior may change in response to the reform. On the one hand,
it is possible that workers who have built up sufficient savings, such as older workers, or have other
sources of income, are not interested in additional risk-sharing. It is also possible, however, that
individuals who do not perceive the current system as sustainable in the long term prefer financing
their old age income in different ways, for instance by investing in individualized 3rd pillar schemes.6
It could also be the case that the current intergenerational risk transfer is not in their favor. These
individuals may welcome the reform and would possibly be willing to transition into contractual
arrangement within the same occupations. We attempt to understand the role of the pension

6
The tax exemptions for DC schemes may also have pushed some employees away from regular contracts for which
participation in the 2nd pillar is mandatory.

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system in ensuring a level-playing field in the labor market using evidence from the Dutch National
Bank household survey (DHS).
Figure 1. The Netherlands: Composition of Self-Employment, 2008–17
(Percent of total employment)
25
20
15
10
5

Norway
Denmark
Sweden
Luxembourg
Germany
Hungary
Croatia
Estonia
Lithuania
Bulgaria
Cyprus
France
Austria
Slovenia
Latvia
Finland
Iceland
Switzerland
Belgium
Portugal
EA-19
Ireland
EU
Spain
Malta
Slovakia
UK
Romania
Netherlands
Czech Republic
Poland
Italy
Turkey
Greece

0

(Percent of active population of age 20-65)
20

100
Employers

15

Education Levels
(Percent of total)

Own-account workers

Tertiary

75

10

Secondary

50

5

Primary

25

0
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0
2008

2017

Source: Eurostat; and Fund staff estimates.

Evidence From the DHS
18.
The DHS is administered annually to about two thousand Dutch households (five
thousand individuals) and includes key questions necessary for understanding risk and choice
preferences of the Dutch population. The first survey was conducted in 1993. The objective of the
survey it to establish the economic and psychological determinants of households’ saving behaviors.
The latest wave (the 25th wave) of the survey was conducted over the period April - October 2017.
The survey consists of six questionnaires which comprise general information on the household and
individuals, including health status, work patterns, income (including from retirement and benefits),
wealth data, other demographic, economic and psychological concepts. Questions included gauge
the risk sharing preferences of respondents, preference for choosing the investment profile savings
individually, and various options available for meeting the possible shortfall in retirement income
and pension system sustainability risks.7
19.
The self-employed in the DHS exhibits similar characteristics to those reported in
official statistics from Eurostat. Two thirds of the approximately 2,000 respondents broadly falling
into the labor force category has a paid job. The share of self-employed with a paid job in total selfemployed population is lower, at 63 percent (Figure 2). The so-called “self-employed and
7 The DHS is administered by CentERdata (Tilburg University, The Netherlands). The main questions on pensions and

the range of available answers are reported in Appendix II.

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freelancers” constitute the overwhelming majority of this group, with individuals owning a family
business accounting for less than 9 percent of total. The age and gender group compositions in the
survey are in line with that observed for the total labor force, with slightly fewer female workers
represented in the self-employed. These features have remained broadly constant over the past
several years.
Figure 2. The Netherlands: Composition of Self-Employed Jobs, 2017
(Percent of total)

Source: DHS, DNB; and Fund staff estimates.

20.
Differences in education levels and income between self-employed and employees in
the DHS are worth noting. Akin to total population, the majority of self-employed has completed
vocational education at high and intermediate level (Figure 3). However, compared to total
population, the self-employed are proportionally more represented at university and high vocational
education. In terms of gross income reported in the survey, about 35 percent of self-employed fall in
the first quintile on the distribution, above the 20 percent recorded for the total working population.
However, the top quintile comprises a similar share of workers across the two groups. On average,
both groups plan to retire around age 66.
Figure 3. The Netherlands: Self-Employed Education and Income, 2017
(Percent of total)
Gross Individual Income Quintiles

Completed Education

40

35

Self‐employed

30

Total

35

Self-employed

30

Total

25

25

20

20

15

15

10

10

5

5
0

0
University

Voc-high

Voc-interm

Pre-university

Low edu

1

2

3

4

5

Source: DHS, DNB; and Fund staff estimates.

21.
Self-employed participate in the pension system only marginally. A question in the DHS
enquires about whether the respondents current or last job before retirement entitles him/her to a
retirement pension (aside from the 1st pillar, AOW, to which everyone is entitled). Only a fifth of selfemployed answered affirmatively compared with 84 percent for the total surveyed employed
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population. Roughly the same share reports participating in one such plan offered by employers
while only 11 percent of self-employed report having made other arrangements for their pension
apart from the customary pension built through their employer either through annuities, whole life
insurance policies, or additional pension rights purchased through the employer. This suggests that
the majority of the self-employed are not covered by any formal pension arrangement though they
may still be accumulating wealth in other ways.8
22.
Self-employed are less well-informed about the pension system. Numerous studies find
that information increases political support
Feeling Informed on Future Pension Arrangement
for reform (see for instance Boeri and
(Percent of total)
80
Tabellini, 2012; Gouveia, 2017; van Dalen and
adequately to well
moderately to no
70
Henkes, 2017). Parlevliet (2018) shows that
60
respondents to the DHS have updated their
50
40
preferences in favor of the increase in the
30
retirement age in 2012 over time possibly as a 20
10
result of a learning process. Participants in the
0
DHS are asked whether they feel adequately
Self-employed
Total
Source: DHS, DNB; and Fund staff estimates.
informed about their pensions. They are
asked also whether they have received a prospectus from their pension fund in the past year (and
which fund they belong to). Although a higher share of self-employed in the DHS feels well
informed about the pension system, overall in the self-employed group fewer individuals feel well,
more adequately or adequately informed and a higher share feels not adequately informed and
uninterested in the pension system. The less-than-adequate information may be related to the
employment status more directly, as self-employed may be more isolated from the key sources of
communication including from pension funds. In fact, while two thirds of workers claim to have
received an overview of pension rights from their fund in 2016 only about 40 percent of selfemployed report the same.
23.
Self-employed express a higher preference for freedom of choice in the management
of their pension savings and are more willing to tolerate risk on their final pension income.
Two key questions in the survey help us understand respondents attitudes towards the pension
reform: a question on savings management and a question on risk managemet. These questions are
central to our study. Compared to total population, the self-employed more consistently opt for
managing their savings independently, about 45 percent of the group. The remaining share is split
between those who would gladly delegate savings decisions to a fund and those who would like to
have a choice of the fund that manages their savings. This is in stark contracts with employees,
about 65 percent of whom gladly delegate pension decisions to a fund (Figure 4). When asked
whether they would rather pay more premium for a guaranteed pension or a lower premium for a
pension that is on average expected to be equally high, but for which the final pension payment can

8 Li and others (2016) report that only around 7 percent of self-employed in their sample were affiliated with the

occupational pension system in 2010. Knoef and others (2017) show that self-employed build less wealth than
employees through the 2nd pillar, in particular at higher income levels, while their net replacement rates are lower.

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vary depending on the investment risk self-employed expressed a somewhat higher attitude
towards risk taking, on average.
Figure 4. The Netherlands: Answers to Questions on Pension Preferences, 2017
Freedom of Choice
(Percent of total)

70

Pension Preferences
(min-1, max-3; higher=closer to DC)
3.0

60

Self-employed

2.5

Risk taking

50

Total

40
30
20

2.0

Self‐employed
All

1.5

10
1.0

0
Rather determine myself
what is done with my
pension

Rather decide myself
which pension fund
manages my savings

1.0

Rather delegate my
pension management

1.5

2.0

2.5

3.0

Freedom of choice

Source: DHS, DNB; and Fund staff estimates.

D. Model Estimations
24.
The starting year for our panel is the one in which the current pension reform draft
was initially proposed, and discussion with social partners launched. Thus, the panel comprises
answers collected during the years 2014-17 for a total of about 20,000 observations. We are
interested in gauging the probability of being self-employed given expressed preferences for
greater freedom of choice and risk-taking, controlling for a number of observable and unobservable
characteristics. We estimate the following model by means of a PROBIT regression:9
,

,

,

(1)

,

Where:
-

The dependent variable, SE is a dummy that denotes the job status and takes the value of 1 if
the individual is self-employed;

-

The independent variables DC are dummies denoting two questions associated with elements of
the proposed pension reform. DC1 takes the value of 1 if the individual has indicated that
he/she is willing to take a risk related to the pension income in exchange for paying a lower
premium; DC2 is a dummy that takes the value of 1 if the respondent has expressed a
preference for managing pension savings individually (as opposed to delegating it).

-

X is a vector of demographic and psychological characteristics; and
is the error term.

9

See Appendix II for more detail on the construction of variables.

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Definition of Key Variables
Dummy variable

Abbreviation DHS code Description

Risk taking
Freedom of choice

DC1
DC2

DNB95
DNB96

Value = 1 if DNB95=2; 0 otherwise
Value = 1 if DNB96=1; 0 otherwise

Self-employed

SE

zelfst

Value = 1 if zelfst=1; 0 otherwise

Stylized Facts
25.
Personal characteristics can influence retirement income preferences and savings
management, as well as the choice of contract type in many ways. 10 The literature on the
determinants of self-employment suggests that women are less likely to enter in this type of
contract, among other reasons because they are intrinsically more risk averse. Age is found to have a
positive influence on self-selection into self-employment, favored by accumulated social, individual
and human capital through years and experience and stronger preference for flexibility. Selfemployed are also more likely to be of older age when they have managed to build up sufficient
savings and are less dependent on income from retirement. Individuals who have children may be
more likely to be self-employed for a variety of reasons including flexibility to manage time, which
helps preserve work-life balance, and pressure from increasing financial needs when the family is
enlarged. On the other hand, risk aversion may increase. The theoretical literature and empirical
evidence on the influence of education on occupation status is ambiguous and suggests the
relationship may be U shaped and obscured when employment industry is not taken into
consideration. The relationship may go both ways because on the one hand more educated
individuals can have better opportunities in contractual relationships while on the other hand, they
can have better managerial abilities that make them succeed in self-employment. For what concerns
income and wealth, individuals with higher income and those whose tax burden is higher may be
more likely to be self-employed as in both cases their contributions would be lower.11 Moreover,
individual with lower liquidity constraints may be more likely to star-up their own businesses with
some initial capital.
26.
Personality traits, also knows and non-cognitive abilities, may also affect occupational
choice. An increasingly influential literature branch shows that individual personality traits are able
to predict a variety of social and economic outcomes and affect preferences (Borghans and others,
2008; Almlund and others, 2011; Hudomiet and others, 2018). Risk attitudes, for instance, are
predictive of investment decisions and entrepreneurship, and are associated with personality.
Individuals do not necessarily maintain the same level of a trait over time, however, which can

10

See, for instance Simoes and others (2015), for an extensive review of literature.

11

However, while income may suffer from endogeneity (the aggregate income variable includes retirement income),
tax could display multicollinearity with income and employment status.

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change as a result of exogenous shocks such as economic crises, or due to temporary changes in
self-control resources, emotions, or stress (Schildberg-Horisch, 2018). The DHS allows us to
construct personal profiles based on a set of questions administered to respondents almost every
year. Answers to psychological question in the DSH do not reveal stark differences across the two
population groups with a slightly lower average score on “risk aversion” and higher on “patience” for
the self-employed (Figure 5). The average score on “risk aversion” is the predominant trait across the
entire surveyed population, with the average score of 5 in a range of 1 to 7 based on 6 questions.12
Based on literature, we expect that the probability of entry into self-employment is greater for
individuals with lower levels of risk aversion. We also postulate that “patient” and “controlling”
individuals are more likely to accept a self-employed status given that they are more likely to feel in
charge of their working life and future income (+ sign) (Eren and Sula, 2012). Those “mindful” are
less likely to do so (- sign) as self-employment is associated with higher but more uncertain income
and less redistribution due to lower contributions.

12

See Appendix II for more detail.

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Figure 5. The Netherlands: Psychological Traits, 2017
(average score, unit)
Risk Aversion

8

Control

8.0

7

7.0
Max

6

6.0

5

5.0
Avg

Avg

4

Max

4.0

3

3.0
Min

2

Min

2.0

1

1.0

0

0.0
Self-employed

Mindfulness

5.0
4.5

Self-employed

Total

8.0

Max

Patience

7.0

4.0

Max

6.0
3.5

Total

Avg

5.0

3.0
2.5

Avg

4.0
Min

2.0

3.0

1.5
Min

2.0
1.0
1.0

0.5
0.0

0.0
Self-employed

Total

Self-employed

Total

Source: DHS, DNB; and Fund staff estimates.

Regression Results
27.
Individuals who have a preference for pension plans with more freedom of choice and
more investment risk are significantly more likely to choose self-employment than regular
employment. The regression shows that, given an expressed preference for “risk and choice”, the
probability of being self-employed is positive. The DC1 and DC2 dummies summarizing preference
for freedom of choice and risk taking are significant and bear the expected sign. Self-employment, is
also more likely at older ages, in line with findings in the literature, and at higher education levels.
Interestingly, the reported perceived information level about future pension conditions which we

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include in the regression is not significant. Self-employment is less likely when individuals pay higher
taxes. This may be because self-employed have in general a lower tax burden being exempt from
part of contributions. Psychological traits confirm expectations: self-employment is more probable
when individuals feel in control of their life and savings and less common when they are mindful.
Time dummies, gender, having children or not, civil status (not reported) and gross income are not
significant in the estimation.
Reform Preferences and Self-Employment
Regression Results - PROBIT
Dependent var

SE

DC1

0.019 *
(0.010)

DC2

0.036 ***
(0.010)

Age group (35-45)
<35

-0.020
(0.016)

46-55

0.029 **
(0.013)

56-67

0.041 ***
(0.013)

Gender (F)

0.015

Gross income

(0.010)
0.000
(0.000)

Tax burden

-0.020 **
(0.008)

Children (Y)

-0.012

(0.010)
Education (primary and below)
Vocational_interm.

0.063 ***
(0.019)

Vocational_high

0.042 **
(0.019)

Pre-university

0.046 **
(0.022)

University

0.062 ***
(0.020)

Informed

0.002
(0.004)

Psychological traits
Risk averse

-0.004
(0.005)

Patient

-0.001
(0.006)

Controlling

0.015 **
(0.007)

Mindful

-0.030 ***
(0.011)

N obs

1,847

Pseudo R2

0.130

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28.
These findings suggest that pension system architecture in the Netherlands could be
one of the determinants of individual employment choices. If the reform decreases pension
wealth, or the perceived pension wealth, for instance, some individuals could find it necessary to
increase savings including by spending more time in contractual employee relationships in response.
This was true in the case of the 2006 reform that abolished preferential tax treatment of early
retirement for certain groups and lowered the share of people willing to use their liquid assets for
entrepreneurship, and thus self-employment (Mastrogiacomo and others, 2016). Moreover, a reform
that introduces individual contracts which allow more flexibility should incentivize participation into
the pension system and discourage self-employment.

E. Conclusions
29.
Our findings suggest that individuals who prefer pension plans with more freedom of
choice and more investment risk are significantly more likely to choose self-employment as
labor relationship. Encouraged by favorable tax treatment, self-employment in the Netherlands has
increased over the past decade, and more pronouncedly so among older workers and those with
higher education levels. Self-employed, however, participate only marginally in occupational
pension schemes. In the DHS, self-employed have expressed a higher preference for freedom of
choice in the management of pension savings and greater willingness to tolerate risk on final
pension incomes. Mapping survey answers into pension reform support is not unequivocal and the
current proposal, while broadly comparable to a transition toward a “plain” DC framework, is
markedly complex. Despite possible limitations, after controlling for observable and unobservable
individual characteristics, we show that the link between self-employment and the support for
greater individualization of savings plans appears strong. Our analysis offers a starting point for
shaping considerations surrounding the labor market effect of the pension reform.
30.
Because of the complexity involved in managing new pension options, consensus and
successful implementation may take time. The PPR-CB may indeed be the best of the two worlds
in combining the most attractive features of both DB and DC plans while moving a step forward
towards greater individualization. However, as the reform brings the system closer to the individual
preferences and increases transparency it will also increase complexity. The new framework will
require people to take more active interest in the management of retirement savings which the
majority has not done until now. The learning process may take time, as even individuals who prefer
freedom of choice may not be ready to exercise it (van Dalen and Henkens, 2017). Meanwhile,
maintaining trust in institution, which is currently at its highest in recent years, will be crucial for
reaching a consensus and navigating the transition successfully (Figure 1, Appendix I).13

13

Consumer confidence in the banking sector and employers is also high and rising, according to the latest figures.
(Banking Confidence Monitor 2017, The Dutch Banking Association; Statista 2018, The Edelman Trust Barometer,
2018).

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31.
Greater transparency on the “missing arguments” would help build consensus and
speed up reform implementation. The political economy literature offers numerous insights on
options for overcoming reform resistance through elimination, compensation and information
building (Tsebelis, 2000; Tsebelis and Hahm, 2014; Tompson and Price, 2009; James and Brooks,
2001). Though the literature on pension reform design is vast in the Netherlands, additional
information in some areas could clarify remaining open questions and strengthen government’s
arguments. More specifically, the redistribution cost in the transition to the new contract type
should be made explicit and the modalities of financing it specified. This should clearly identify the
losers and the winners of the reform, highlighting options for compensation in a wider reform
package. Answering these open questions will be key to reaching a reform consensus in one of the
most inclusive and equitable consultative societies in the world.

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References
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Appendix I. Data and Tables
Table 1. The Netherlands: Key Parameters of the Dutch Pension System, 2018
Mandatory
1st pillar
Pension parameter
Provider

2nd pillar

Disability and

Minimum pension

Occupational

survivors benefit

Public

Public

Private

All residents (not

Coverage

90% active workers

means tested)

Funding

DB/PAYG

DB/PAYG

Hybrid DB

Increasing to 67 by
Pensionable age

2021, then linked

68 in 2018

to life expentancy
Beneficiaries
4.04

Millions (2016)
Benefit formula

average of all salaries

Accrual rate, annual

1.875

Annual benefit per person, gross
Maximum (in eur, 2017)

103,317

Average (in eur, 2017)

14,737

Percent of GDP per capita
Expenditure (2016)
Billions eur

37.5

13.5

Percent of GDP

5.3

1.9

Indexation post-retirement

41.1
5.8

minimum wages

CPI

Contributions (2016)
8.89

Contributors (millions)
Contribution rate (average)

the AOW franchise

Contributions (gross, billions)

49.6

31.2

7.0

4.4

Percent of GDP

employers 17, workers 7

Interest rate on contributions (monthly, Dec 2017)
Size of fund (in 2017)
Billions eur

1620

Percent of GDP

220

Non-indexed funding ratio (2017)

103/105 (regulatory min)

Source: OECD Aging Report.

Figure 1. The Netherlands: Trust in Institutions, 2000–18
Political Parties

80%
70%

2000

2009

2013

Parliament

70%

2018

2000

60%

60%

2013

2018

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%
Tend to trust

Tend not to trust

Tend to trust

Don't know

Government

Tend not to trust

Don't know

Press
80%

70%

70%

60%

2009

50%

2013

2018

60%

2000

50%

40%

2009

2017

40%

30%

30%

20%

20%

10%

10%

0%
Tend to trust

Tend not to trust

Don't know

0%
Tend to trust

Source: Eurobarometer.

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Tend not to trust

Don't know

KINGDOM OF THE NETHERLANDS—NETHERLANDS

Appendix II. The DNB Households Survey (DHS)
Variables Description


The dependent variables DC1 and DC2 are constructed from the responses reported in variables
dnb95 and dnb96 in the survey. DC1 takes the value of 1 if the individual has indicated that
he/she is willing to take a risk related to the pension income in exchange for paying a lower
premium; DC2 is a dummy that takes the value of 1 if the respondent has expressed a
preference for managing pension savings individually.



The variable age is constructed from the variable birth less the year of the survey. It is used to
construct 5 dummies for the main age groups. Individuals who are older than 67 are dropped
from the estimation.



The educational dummies reflect completed education level of respondents which is grouped
into “low” if the respondent has completed primary education or below or special education (a
limited number of individuals in the survey report it). Other dummies encompass university, preuniversity and vocational education at high and intermediate level.



Female is a gender dummy that takes the value of 1 if the respondent is female.



Children is a dummy variable indicating that the respondent reported having children when the
value is 1.



Married is a dummy which takes the value of 1 if the individual lives in a registered partnership
and 0 if the individual is divorced, living in an unregistered partnership, widowed or has never
been married.



Health is a step dummy indicating the self-reported health status of the individual. It takes the
value of 1 if the reported health status is excellent,2 if good, 3 if fair, 4 if not so good, and 5 if
poor.



Informed is a step dummy variable taking the value of 1 to 6 depending on how informed the
individual feels about his/her future pension arrangements. A lower value is associated with
feeling better informed.



The variable tax is the implied overall tax burden, calculated as a difference between gross and
net income and divided by the net income. We also use the variable income tax ib - calculated
based on the taxable components of the total gross income and includes the social security
premiums - to construct an alternative measure of tax burden.



Total gross and the total net income - btot and ntot - are calculated based on a large number of
reported sources of income on a personal level. They include all forms of income: from work,
benefits (social assistance and social insurance), scholarships, tax credit, rental etc.

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

Employment status dummies:
Employee takes the value of 1 if the individual is employed on a contractual basis or
works in own business.
Self-employed takes the value of 1 if the individual is self-employed, freelancer or in
a free profession and 0 otherwise.
Unemployed takes the value of 1 if the individual is looking for a job after having lost
one or looking for the first job.
Other work takes the value of 1if the individual performs households, voluntary,
unpaid, or other work, is not a student, retiree, employee or self-employed.



Psychological traits variables: respondents in the survey are asked to express agreement over
statements on their personality on a scale of 1 to 7 (from extremely uncharacteristic to extremely
characteristic). Coverage and the number of questions may vary across years.
Risk averse – mean of values (between 1 and 7) associated to answers on 6 questions
depicting personal traits linked to risk aversion.
Patient – mean of values (between 1 and 7) associated to answers on 12 questions
depicting personal traits linked to patience.
Controlling – mean of values (between 1 and 7) associated to answers on 13
questions depicting personal traits linked to locus of control.
Mindful – mean of values (between 1 and 5) associated to answers on 18 questions
depicting personal traits linked to consciousness.

In some instances, the values needed to be recoded and missing variables in certain years replaced
with average responses from previous years.

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DHS Questions on Pensions
(dnb94)
Which of the below mentioned statements applies to you most?
1.
2.
3.
4.

I do not worry about my pension arrangements, we’ll see by then.
It is important to know that my pension is taken care of, without knowing the details.
I keep well informed about any developments regarding my pension.
I don’t know.

(dnb95)
Which of the below mentioned statements applies to you most?
1. I‘d I rather pay more premium for a guaranteed pension (money for pension mainly invested in
bonds).
2. I’d rather pay less premium for a pension that on average is equally high or is expected to be
equally high, but for which the final pension payment can be higher or lower due to the higher
risk of the chosen investment form (money for pension mainly invested in stocks).
3. I don’t know.
(dnb96)
Which of the below mentioned statements applies to you most?
1. I’d rather determine myself what is done with the pension premiums I pay, so that the final
pension payment depends on the decisions I made.
2. I’d rather decide which pension fund manages my pension premiums for me.
3. Building up my pension I gladly leave to the pension fund of my employer.
4. Not applicable.
5. I don’t know.
(dnb207a)
In 2012, it has been decided to increase the general old-age pension age.
To make sure that the general old-age pension remains affordable, which of the following
measures appeals to you most?
1. A lower general old-age pension.
2. An increase of the old-age pension premium for people working.
3. Increase the age on which I will receive the general old-age pension.

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(dnb207b)
Which of the two remaining measures appeals the most to you thereafter?
1. A lower general old-age pension.
2. An increase of the old-age pension premium for people working.
3. Increase the age by two years on which I will receive the general old-age pension.
(dnb116)
Will you adjust your conduct if the pensions are cut down, for example through an adjustment on
the indexation, postponement of the retirement age or a different pension system?

1.
2.
3.
4.
5.

Yes, I will put more money aside for my pension.
No, I will see what I’ll do when it happens.
No, I think I can make ends meet fairly easily with the pension I will have.
Other.
I don’t know.

(dnb210)
Suppose your pension fund makes a choice between increasing the pension premium or increase
the risk of the investment, as a result of which the exact amount of your pension becomes less
certain (there is a 2.5% chance that it will be 10% lower). Will you change your savings behavior if
the fund chooses an investment mix with a higher risk but the premium remains the same?

1.
2.
3.
4.
5.

Yes, I will put more money aside towards my pension.
No, I will see what I’ll do when it happens.
No, I think I can make ends meet fairly easily with the pension I will have.
Other.
I don’t know.

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