Fiscal space in the pension contribution system is only used to a limited extent

Pension participants who currently have an annuity system contribute much less than is financially possible. On average, 36% of available fiscal space is used.

The Dutch pension system is on the verge of a major reform. All pension participants in the Netherlands will build up their pension through the annuity scheme (DC), including participants who currently have a benefit agreement (DB).

Based on the data it receives annually from pension providers, the AFM determines the amount of premiums paid through the employer. This relates to 1 million participants who already have a premium plan in 2021.

The actual premium contribution is divided by the maximum financially allowable premium and results in a relative utilization rate. The financial maximum is designed to achieve an expected pension income of approximately 75 percent of average salary. In 2021 (in the old system), fiscal space increased with age in five-year blocks, was based on the interest rate and was set annually by the tax authorities.

The figure shows how the relative usage rate is distributed among different age groups. The horizontal axis shows the relative number of participants for each age group, while the vertical axis shows the relative usage. For example, within the age group of 20-24 years, fifty percent of participants receive less than twenty percent of the maximum tax in pension entitlement, while this percentage is sixty percent for people over 65 years of age.

The youngest group received an average of 29 percent of the maximum tax in 2021, while the oldest group received 53 percent.

In light of realistic expectations among participants, it is important for pension providers to communicate information about the pension due in a timely, clear, balanced and correct manner, although pension information will not eliminate all risks of disappointment among participants.