Netherlands gives green light to major overhaul of private pension sector

The Dutch Senate on Tuesday night (31 May) finally approved the reform of the current state of pensions to a defined contribution system, 16 years after the idea was first considered. 

 The new law, which will come into effect in 2028, was backed by the four coalition parties plus the PvdA, GroenLinks and fundamentalist Protestant group SGP, and was passed by 46 votes to 27, Dutch News reported.

The yes vote came despite a last-minute objection from three constitutional law professors, who said that as the law will impact on parliamentarians' pensions, it should be passed by a two-thirds majority.

The new system's backers say it will benefit people with flexible jobs and shorter contracts in particular. It will also, they argue, be better for young people because they will not have to pay toward the higher pensions enjoyed by older generations.

On the downside, the new system is more vulnerable to stock exchange swings and there are no hard guarantees about the final payments.

Pension funds have 4.5 years to make the transition to the new system which is based on everyone having their own pension pot which they will be able to take with them when switching jobs.

The Dutch pension system is currently based on three pillars - the state pension AOW, compulsory corporate pension schemes - either sector-wide or company-based - and individual or private pension schemes.

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