Published on 1 Jun 2014 Sections , ,

Going Dutch – should our pensions be modelled on Holland’s?

Dutch-style collective pensions are reportedly due to be unveiled by the government in the Queen’s Speech, but would they leave us better off?

Changes to pensions set to be introduced in 2016 could allow people to invest in collective pensions of the kind used in the Netherlands.

Supporters say these pensions would benefit from lower costs and increase pension values by as much as 30 per cent.

But critics argue the advantages of moving away from Britain’s current annuity model are not certain – and Dutch politicians have even proposed switching to the British method, raising questions about whether their system is really better.

So what are the supposed pros and cons of each approach?

Benefits

  • Collective funds, which is what the Dutch system is based on, benefits from economies of scale, attracting lower running costs. This would mean pensions would be worth more in the long run,
  • Under this system, pensioners would not need to buy an annuity, meaning that money that would have been paid to annuity companies could instead improve the pension’s value,
  • The level of pension income will be determined by actuaries, who try to keep income steady or increase it slightly.

Drawbacks

  • The newly proposed Dutch system would only give targets for the pension’s eventual worth – not guarantees, as Britain’s current annuity method offers,
  • Pension values could fall if the investments made on behalf of pensioners do less well than expected,
  • Retirement incomes were recently cut in the Netherlands, leading politicians to question the wisdom of the system.

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