Tuesday afternoon, 11 November. I leave my office and call out to my colleagues that I’m heading to the UM pension event Appeltje voor de dorst (Nest Egg for a Rainy Day). “Well, have fun”, they snigger. “Better you than us”, the thirty- and forty-somethings seem to think.
Pensions are not exactly a “sexy” topic, as Lisa Brüggen and Rob Bauer know all too well. The two professors, both affiliated with the School of Business and Economics, deal with it every day in their work. “For younger people in particular, but even for people in their forties and fifties, their pension seems like a distant and abstract concept. They are focused on the here and now,” they explain in Bauer’s office on Tongersestraat 53. But there’s no escaping it. In the past three years, 228 UM employees have retired (early or otherwise); in the coming four years, another 105 UM employees will reach retirement age. That’s why Brüggen asked attendees at the pension event – including many younger employees – to close their eyes and imagine their life after retirement. Who are the people around you? Where do you live? What do you do? Do you go on holiday? Do you have a car? What are your hobbies? “To help make it feel more real.”
Plummeting shares
Apart from the fact that many people find financial matters difficult and prefer to avoid thinking about them, “the pensions industry has made little effort to make pensions sexy”, say the two professors. “It’s only since the 2008 financial crisis that they realised they have to explain things. That’s when pension funds were grappling with plummeting shares. For comparison: today, ABP [the Dutch pension fund for employees in the government and education sectors] has about €120 in assets for every €100 in pension liabilities; after 2008, this was below €90.” In the years that followed, national newspapers such as NRC, Trouw and De Volkskrant ran negative articles about pension funds, accusing them of not delivering on their promises: there was no indexation, and pensions weren’t increasing. Funds felt compelled to respond.
Survivor’s pension
But why should someone in their early thirties care about a pension they won’t receive for nearly forty years? “It’s an important employment benefit that can have a huge impact even early in your life”, explains Brüggen, referring to the survivor’s pension for widowed partners. “If you’re not married or in a registered partnership, you need to register your partner with your pension fund yourself. If you haven’t, your partner will receive nothing if you pass away.” She urges people to check this as soon as they can.
Divorce
With any major life change, it’s important to check the implications for your pension – illness, death, changing jobs, getting married, having children. “And divorce”, stresses Brüggen. “Make sure there are proper pension arrangements in place. In the Netherlands, the standard split is 50/50. Research has shown that the pension gap between men and women is 40 per cent. Of course, this is partly because women are more likely to work part-time and be paid lower salaries. But to my astonishment, half of all women getting divorced waive the standard 50/50 split. In some cases this makes sense – if both partners earn about the same and are about the same age. But a lot of the time, women do it because they don’t want to make a fuss, feel guilty, want to be accommodating, or get to keep the house instead. They often don’t fully realise the consequences and find themselves at a serious financial disadvantage once they reach retirement age.”
New system
The new Pension Act that came into effect in July 2023 has shaken up the Dutch system. UM employees – whose pensions are with ABP, which manages around €500 billion – will switch to the new system on 1 January 2027. In the second half of 2026, they will receive a letter from ABP stating the size of their personal pension pot. “Being able to see exactly how much you’ve built up is new”, says Bauer. “This can amount to hundreds of thousands of euros. You’ll now be able to see whether the markets have had a good year – your pot will go up. If share prices have fallen, the amount goes down.” The amount will fluctuate more for younger people, as funds take more risks with investments that have more time to recover from setbacks. “For older employees, this risk will be lower because they’re closer to retirement.”
Misconceptions
There are a lot of misconceptions about the new system, says Brüggen. One misconception is that the new system is much riskier. “This isn’t true. Funds used to promise certainty –pensions would rise with inflation – but they couldn’t keep that promise. After the 2008 crisis, many retirees saw years of zero indexation. Their pensions barely increased, or even decreased. There was no certainty then, and there will be no certainty in the future, as certainty would simply mean much lower pensions. Under the new system, funds promise to do their best. It doesn’t sound the same, but the difference is much smaller than it might seem at first glance. So no, they’re not gambling with your pension.” What is true is that your chances of later receiving more than expected have increased. But monthly amounts may be lower in times of falling markets.
Another misconception is that younger people will end up paying for older people’s pensions but later receiving nothing themselves because the money will have run out. This isn’t true either. “Everyone has their own personal pot of money invested in a way that is tailored to your life cycle”, explains Bauer, adding, “We live in a world where there is little trust in the government and institutions, including pension funds, as well as low financial literacy.” In other words, an environment where misunderstandings thrive.
Bauer and Brüggen both emphasise that the Netherlands has the world’s best pension system, partly thanks to the basic state pension (AOW) that’s the same for everyone: currently around €1,050 for people who live with a partner and a little over €1,500 for people who live alone. On top of that, UM employees have their pensions with ABP. “A good scheme”, they say. And no, they laugh, “They’re not paying us to say that.”