The principles of the Dutch pension system The problems we are facing, a callenge for trade unions
The Dutch pension system is a three-pillar system and is partly based on pay-as-you-go and is partly capital funded After 35-40 years of paid work, workers are in general eligible for a pension covering 70% of the last earned income. The pillars 1. The first pillar is the basic old age pension (Old Age Pensions Act, or AOW). The AOW is the statutory old age pension scheme of the Netherlands. It provides all residents of the Netherlands at the age of 65 with a flat-rate pension benefit that in principle guarantees 70% of the net minimum wage. It guarantees a decent minimum income for all citizens. Other forms of income have no effect on the AOW benefit. In comparison to other EU countries, the state pension in the Netherlands is only a limited part of the total old age pension system. All residents of the Netherlands between the ages of 15 and 65 are insured for the AOW. No distinction is made between men and women, between civil servants, employees, self-employed and housewives. During the period of insurance, entitlement is accrued in 2% steps for every insured year. This leads to a 100% entitlement to the relevant pension benefit on reaching the age of 65, provided there are no gaps in the period of insurance. A gap occurs when a person resides outside the Netherlands. People who are not entitled to the full AOW benefit and who have, together with other sources of income, a total income below the subsistence level (i.e. less than 70% of the legal minimum wage) are entitled to receive social assistance. State old age pensions are financed according to the pay-as-you-go system: today’s contributors finance the pension payments made to the pensioners of today. The ageing of the population has put pressure on this system of financing. At the moment there are over 2 million old age pensioners in the Netherlands, but this number will double over the next few decades. 2.