WILLIAM BRANGHAM: It’s early morning in a suburb outside Amsterdam and Josephine Lightart is getting ready for work. She’s a police officer, and after decades of work, she’s just a few years away from hanging up her gun and retiring.
JOSEPHINE LIGHTHART: Well I love taking walks and biking so I think that I’m going to spend a lot of time doing things that right now I can’t do -- so walking, biking, going to museums, reading books - I have really a whole stack of books that I still want to read over there.
WILLIAM BRANGHAM: Josephine lives with her husband and daughter, and when she does retire, she will join millions of other Dutch retirees who count on generous pension payments to sustain them for the rest of their lives.
WILLIAM BRANGHAM: The Dutch pension system is regularly ranked one of the greatest pension systems in the world. The average Dutch worker, when they retire, can expect to receive about 70 percent of their income, every year, for the rest of their lives. What’s more, the entire country is practically covered: over 90 percent of Dutch workers will get these pensions. Retirees in the Netherlands not only get something similar to Social Security, but they get a pension through their job. And these pensions aren’t just for police and teachers and other public workers: bakers get them, hairdressers, grocery clerks, even the staffers who sell pot in the Netherlands infamous coffee shops get them. Each industry sets up a non-profit pension fund for its own workers.
WILLIAM BRANGHAM: At Loumann’s Butcher Shop in the heart of Amsterdam, forty-one year old Roland Otter has been working for over 20 years. With every paycheck, a bit of his salary is automatically taken out and put into a pension fund. Employees puts in a little; employers put in a little more, and that money – from tens of thousands of people invested together builds up the fund.
ROLAND OTTER: Well it’s all really quite well organized. My employer pays a part of my pension and then when I’m 65 or 67 then they’ll pay it out to me. You do get a nice document overview in the mail at your house but yeah, I read that through quickly maybe once and then I put it aside again. Really I don’t look into it that closely.
WILLIAM BRANGHAM: Franz Loumann is Roland’s boss and he says, depending on their line of work, employees have roughly 10% of their pay diverted into their pension. Loumann argues that the great feature of this system is that the savings happen effortlessly.
FRANZ LOUMANN: Well it’s really quite simple. If you get 20 euros a week extra in your hands, then you go for an extra drink, a cigarette, something extra for the kids, a bouquet of flowers for your wife and quickly that 20 euros is gone. But if you put away 20 euros each week, and you do that for forty something years of your working life, then it becomes a substantial amount
OLAF SLEIJPEN: What makes it successful is that you basically force people to save for their old age. I think that is the success factor of the Dutch pension system
WILLIAM BRANGHAM: Olaf Sleijpen is a director at the Central Bank of the Netherlands, which helps oversee the country’s pension system. Sleijpen says their approach is backed up by research in “behavioral economics” which tries to understand how and why people make financial decisions.
WILLIAM BRANGHAM: What about the argument that some Americans make, which is, ‘I appreciate the philosophical underpinnings of the program, but don't force me -- let me have my money and-figure out how I wanna deal with it.’
OLAF SLEIJPEN: Yeah. I understand that very much. But being a human being, I think we have to realize that because our horizon is so short, you sometimes have to force yourself or basically ask somebody else, "I know that I'm kind of short-sighted. I'm myopic. Please do it for me. Because if you do not force me, I know that, you know, I'm not going to do it." And that's basically how it works. It has to do with human behavior. Because for somebody who's 25 or 30 or even 40, it's very abstract, what will happen when you're 65.
WILLIAM BRANGHAM: Twenty six year old Melanie Martens is the kind of person Sleijpen is talking about. Melanie lives with her parents south of Amsterdam. Though she has a graduate degree, she’s working at Starbucks now and looking for a better job. We talked with her and her dad about their pensions.
MELANIE MARTENS: I hope to stop working at 65 – that would be a nice age. I don’t know if that would be possible. Maybe if I save up some money it should be possible, but I don’t know – it’s hard to think about something that’s forty years in the future.
WILLIAM BRANGHAM: John Martens – her dad – is a 50 year-old railway engineer, and he’s worried about Melanie’s future -- that she won’t have the comfortable retirement he’s expecting. But even his retirement has already been delayed.
JOHN MARTENS: I’d counted on working until I was 61, then I’d have worked for forty years for the Dutch railway, but the government said I’ve got to work until I’m 67, so that’s still quite a while.
WILLIAM BRANGHAM: The retirement age is going up because in the Netherlands – much like the U.S. – their population is getting older. There are more retirees, and they’re living longer. For the Dutch, that means more payments coming out of the pension funds for longer. And also like the U.S., there are fewer young workers, so there are fewer people paying into the funds. This imbalance is expected to accelerate. What’s more, the funds themselves – many of which are invested – took a huge hit during the financial crisis. So something had to give. In spring of 2013, the Dutch pension funds had to take an unprecedented step. 66 of the country’s 415 funds announced that they were going to make cuts to payments they made to pensioners. Some of the cuts were modest at just half a percent; others were steeper at up to 7 percent.
WILLIAM BRANGHAM: Those cuts came about because Dutch law requires that pension funds have to sock away at least 105% of all their current liabilities. If a fund drops below that level, pension managers have the authority to make workers pay more, or give out less to retirees. It’s this collective sharing of risk that’s another hallmark of the Dutch system. Unlike public pensions in the U.S., where workers are guaranteed a set payment no matter whether the funds are there or not, or an individual retirement plan like IRA’s or 401ks, where each individual bears the sole risk, the Dutch have spread the risks -- and the benefits -- across tens of thousands of workers. This makes the system much more resilient in tough times.
YVONNE HOFS: No one wants to think about retirement -- they’re like mortgages –they’re so boring to people.
WILLIAM BRANGHAM: You just want them to work, but you don’t want to think about it.
YVONNE HOFS: Yeah, just so complicated.
WILLIAM BRANGHAM: Yvonne Hofs is the economics editor of Volkskrant, one of the biggest newspapers in the country. Hofs says, yes, the dutch system is resilient but, she argues, despite the wishful thinking of many, these demographic challenges aren’t going away anytime soon.
YVONNE HOFS: It’s structural thing, it's not only the crisis. And I think-- part of the population doesn't get it yet. They think, why do we have to lower the pensions now? Because It's only temporary. We just have to sit out the crisis and then we can go back to the old ways. But-- yeah, so it's an adjustment process, which is just very painful.
WILLIAM BRANGHAM: So the question becomes: to keep the system going, who exactly has to adjust? John Martens worries that in the end, younger workers like his daughter Melanie will have to shoulder more of the burden by paying more in and getting less out.
JOHN MARTENS It’ll be a problem for Melanie. She won’t get the same money like me. I get that money because I’ve already built up for 30 years so, in the end it’ll be okay for me. But for Melanie, it won’t be enough.
WILLIAM BRANGHAM: John understands he may have to make adjustments to help out his daughter’s generation.
JOHN MARTENS: If I have to pay higher pension premiums or have to receive a lower pension in order to ensure that my daughter will have a pension, then that’s what has to happen.
WILLIAM BRANGHAM: Police officer Josephine Lighthart, just a few years from retirement, belongs to one of the pension funds that already did make a small cut to retirees.
JOSEPHINE LIGHTHART: It could be that if the crisis continues that it will have to be lowered again. That’s possible. I hope not. It’s less than I’d expected, but still, it’s enough. I think I can be happy with the pension I’m gonna receive.
WILLIAM BRANGHAM: Despite its recent troubles, it’s important to remember the Dutch pension system is nearly 100% funded, covers a huge majority of the country, and remains a model for the rest of the world. Josephine used a common Dutch expression to express her realism about the future.
JOSEPHINE: I just don’t think that the tree can keep growing into the heavens.
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