Tuesday, October 21, 2014

The Straightforward Pension System

The New York Times ran a story on October 11, 2014 about the Dutch pension system. No Smoke, No Mirrors: The Dutch Pension Plan focuses on the straightforward way that the Netherlands runs their pension program. "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."  The Dutch system works well, but it isn't without costs. The workers put away almost 2% more than U.S. workers but the Americans are including Social Security, which is not intended to fully replace pre-retirement earnings, but instead should  "provide just 40 percent of a middle-class worker’s income in retirement."

The article notes that Dutch employers, like those in the U.S., contribute as well, but usually with a ceiling on contributions. Seem odd to have it capped? The article offers that this is actually an incentive for employers to stay with the plans. There's also another advantage to the Dutch system-if the markets do well and the pension has a surplus, the employer can't access it.

There are additional provisions that ensure success and checks and balances put into the system. Check out the article.

 

 

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Comments

The Dutch system is the way Social Security should work. With that alternative to the system in the United States and elsewhere, every generation takes responsibility for its own retirement and does not become a burden on successor generations. Obviously, absent intergenerational equity, a large generation of retirees presents an unfair burden to a smaller generation of workers. It's politically popular though to pay out a self-reliant generation 's savings to others so private retirement programs tend to be more equitable than government systems.

Posted by: Jack Cumming | Oct 21, 2014 7:33:46 AM

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