The Netherlands: Imagine
a place where pensions were not an ever-deepening quagmire, where the
numbers told the whole story and where workers could count on a decent retirement.
Imagine a place where regulators existed to make sure everyone followed the rules.
That
place might just be the Netherlands. And it could provide an example
for America’s troubled cities, or for states like Illinois and New
Jersey that have promised more in pension benefits than they can
deliver.
“The
rest of the world sort of laughs at the United States — how can a great
country like the United States get so many things wrong?” said Keith
Ambachtsheer, a Dutch pension specialist who works at the University of
Toronto — specifically at its Rotman International Center for Pension Management, a global clearinghouse of information on how successful retirement systems work.
Going
Dutch, however, can be painful. Dutch pensions are scrupulously funded,
unlike many United States plans, and are required to tally their
liabilities with brutal honesty, using a method that is common in the
financial-services industry but rejected by American public pension
funds.
The
Dutch system rests on the idea that each generation should pay its own
costs — and that the costs must be measured accurately if that is to
happen. After the financial collapse of 2008, workers and retirees in
the Netherlands took the bitter medicine needed to rebuild their
collective nest eggs quickly, with higher contributions from workers and
benefit cuts for pensioners.
The
Dutch approach bears little resemblance to the American practice of
shielding the current generation of workers, retirees and taxpayers
while pushing costs and risks into the future, where they can
metastasize unseen. The most recent data suggest that public funds in
the United States are holding just 67 cents for every dollar they owe to
current and future pensioners, and in some places the strain is
palpable.
The Netherlands, by contrast, have no Detroits (no cities
going bankrupt because pension costs grew while the population shrank),
no Puerto Ricos (territories awash in debt but with no access to
bankruptcy court) and nothing like an Illinois or New Jersey, where
elected officials kicked the can down the road so many times that it
finally hit a dead end.
About
90 percent of Dutch workers earn real pensions at their jobs. Their
benefits are intended to amount to about 70 percent of their lifetime
average pay, as many financial planners recommend. For this and other reasons, the Netherlands has for years been at or near the top of global pension rankings compiled by Mercer, the consulting firm, and the Australian Center for Financial Studies, among others.
Accomplishing
this feat — solid workplace pensions for most citizens — isn’t easy.
For one thing, it’s expensive. Dutch workers typically sock away nearly
18 percent of their pay, most of it in diversified, professionally run
pension funds.
That compares with 16.4 percent for American workers, but most of that is for Social Security, which is intended to provide just 40 percent of a middle-class worker’s income in retirement.
That compares with 16.4 percent for American workers, but most of that is for Social Security, which is intended to provide just 40 percent of a middle-class worker’s income in retirement.
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