Rethinking the purpose of partner’s pension
Name:
I.M. (Ilse) van Neer Msc
Studentnumber:
9425950
Thesis supervisor:
prof. dr. J.B. (Jan) Kuné
Second reader:
prof. dr. R. (Rob) Kaas
University of Amsterdam
Content
Chapter 1 – Introduction 4 1.1 Motivation 4 1.2 Research questions 5 1.3 Methodology 5 1.4 Thesis outline 6Chapter 2 - History of partner’s pension 7
2.1 History of pension in general 7
2.1.1 Overall history of pension in general 7
2.1.1 History of pension in general in the Netherlands 8
2.2 History of partner’s pension 10
2.3 History of the legislation of partner’s pension in the Netherlands 12
2.3.1 Pensioenwet (1922) 13
2.3.2 No taxes on partner’s pension (1925) 13
2.3.3 Pensioen en Spaarfondsenwet (1952) 13
2.3.4 Algemene weduwe en wezenwet (1959) 14
2.3.5 Algemene Nabestaanden Wet (1996) 14
2.3.6 Pensioenwet (2007) 15
2.3.7 Partner’s pension nowadays 16
2.3.8 Highlights history of legislation of partner’s pension 16
2.4 Calculation of partner’s pension 17
2.4.1 Assumptions about the partner 17
2.4.1.1 Determined system 18
2.4.1.2 Undetermined system 18
2.4.2 Risk base and funded base partner’s pension 19
2.4.3 Interest rate 21
2.4.4 Summary 21
2.5 Possibilities of the third pillar 22
2.6 Summary of the history 22
Chapter 3 - Aspects to evaluate the need for partner’s pension 23
3.1 Demographic aspects 23
3.1.1 Nuptiality rate 23
3.1.2 Participation rate 24
3.1.3 Mortality rate 26
3.2 Financial need aspects 28 3.2.1 Income general 28 3.2.2 Purchasing power 29 3.3 Conversion 30 3.3.1 Introduction 30 3.3.2 Main questions 31 3.3.3 Sub questions 31 3.4 Soft aspects 32
3.5 Summary and conclusion of evaluation aspects 32
Chapter 4 – Recommendations and evaluation 35
4.1 Recommendations 35
4.1.1 Description of the recommendations 35
4.1.2 Evaluation criteria 36
4.1.3 Description of the simulation 37
4.1.4 Assumptions 37
4.2 Evaluation of the recommendations using representative participants 38
4.2.1 Qualitative criteria 38
4.2.2 Quantitative criteria 39
4.2.3 Conclusion 40
4.3 Evaluation of the recommendations using pension funds 41
4.3.1 Qualitative criteria 41
4.3.2 Quantitative criteria 42
4.3.3 Conclusion 42
4.4 Conclusion about the recommendations 43
Chapter 5 –Conclusion 45
5.1 Summary and conclusions 45
5.2 Recommendations 47
Appendix 48
Appendix 1 - Literature 48
Chapter 1 - Introduction
This chapter introduces the topic of partner’s pension. Article 1 of the current Dutch Pension Law defines partner’s pension as:
“een geldelijke, vastgestelde uitkering voor de echtgenoot, de geregistreerde partner of de
partner, de gewezen echtgenoot, de gewezen geregistreerde partner of gewezen partner wegens het overlijden van de werknemer of gewezen werknemer.”1
First the motivation of the topic of the thesis is discussed. Then the research questions are defined and finally the methodology is described.
1.1 Motivation
This thesis is about the sustainability of the current forms of partner’s pension. There are several reasons to look at this topic. Five of which are described below.
Since the credit crisis in 2008 pension funds are less stable and participants of pension plans are more aware of their pension benefit not being guaranteed. The pension world must change and is changing. The current system seems not to be sustainable any more. One aspect of pension plans is the partner’s pension. Although not the most expensive part of a pension plan, it can be interesting to look whether this part is still valid and sustainable in the present economic situation.
Another reason to look at the sustainability of partner’s pension is that the world is changing fast. A valid question is whether the current demographic situation is still comparable to the reality in which the partner’s pension is designed. For example women are working more, their role in society has changed and the world is more individualistic. So has the current partner’s pension evolved with these changes?
In addition the legislation of partner’s pension (like ANW, but also other legislation) has changed over time. So it is interesting whether the changing legislation does affect the partner’s pension.
Furthermore there is no thorough investigation about the sustainability of partner’s pension has taken place.
The final reason is a more personal one. Having worked in the pension sector for some time now the most used phrase when asking about the reason why things are the way they are is: “this was the way it was last year, so it will be this way this year”. I suspect the reason why partner’s pension is started in the past is quite different from the world we live in today and I suspect partner’s pension has not developed to fit in the world today.
In overall partner’s pension caught my attention. Some things haven’t changed (like the need to take care of your family), but some things have (more uncertainty about income). Therefore it is important to investigate the need of partner’s pension.
1.2 Research questions
This thesis focuses on three research questions:
The first question is how and why the partner’s pension in The Netherlands has been created. The second question is concerned with the motivation whether partner’s pension is still needed in the Netherlands by evaluating the aspects of the need and level of benefit of partner’s pension. Finally, the third question is what recommendations can be made to improve the partner’s pension in the Netherlands.
In this thesis orphan’s pension, which is often related to partner’s pension (in event, but also in level and often in financing), is not taken into account.
1.3 Methodology
To answer the research questions the following methodology is adopted:
- Literature study of the history of partner’s pension. The pension sector is divided into
three categories: first pillar (benefit payments from the government), second pillar (benefit payments from working contracts) and third pillar (benefit payments from personal
insurances). The first pillar is assessed by studying past legislation. The second pillar is studied by looking at different substantial pension funds and literature about the
development of these pension funds in the past.
- Data analysis based on data from Statline of CBS.
- Data analysis of mortality tables of the “Actuarieel Genootschap”.
- Simulation of benefits and costs for different kind of partner’s pension by using a
1.4 Thesis outline
Chapter two is concerned with the history of pension. The history in general will be discussed, as well as the history of partner’s pension and the history of the legislation of partner’s
pension. Also in this chapter the calculation of partner’s pension is described and in short the possibilities of the third pillar.
In chapter three the aspects to evaluate the need for partner’s pension are recorded and evaluated. The different aspects are divided in demographic aspects, financial aspects, conversion and soft aspects.
With the information from the previous chapters recommendations are made for changing the partner’s pension in chapter four. The effects on the level of the benefit of partner’s pension and the value of partner’s pension for these recommendations are calculated and discussed. In the last chapter, chapter five, the summary and conclusions are stated. The research questions will be answered and some suggestions will be given for further research.
Chapter 2 - History of partner’s pension
In this chapter an overview of the history of the partner’s pension will be given. First the history of pension in general will be described. Second the history of the partner’s pension will be described followed by the history of the legislation of partner’s pension. Also thecalculation of partner’s pension is discussed. The chapter ends with a short discussion of the possibilities of partner’s pension in the third pillar and a summary of the history.
2.1 History of pension in general
In this paragraph will be first the history of pension in general described and then the history of pension in the Netherlands.
2.1.1 Overall history of pension in general
For the history of pension in general the book “Pensions and insurance before 1800” of C.G. Lewis (2003) is used. Lewis states that the need for insurance and pension comes from personal risk and uncertainty and the tendency of individuals to reduce these elements. When one person is responsible for the family income, there is the risk of dying too soon and leaving the surviving relatives behind without income. There is also a risk of living too long after retirement resulting in poverty when the saved money for pension is exhausted. Lewis says that the solution of these uncertain events was some form of insurance.
Lewis describes the history of pensions as follows. The first official pensioner was mentioned in the Bible (New English Bible, 2 kings, 25, v. 29 and 30) and was situated in 562 BC.
Jehoiachin, king of Judah, was released from prison in his 37th year of exile in Babylon. He
lived as a pensioner of the king for the rest of his life by getting a regular daily allowance. In ancient Greece occasionally pensions were offered to war veterans who were injured. The pensions were unstable and the payment period was uncertain. Funeral expenses were also covered in several societies at that time period.
Soldiers in the Roman army participated in military societies attached to their camps, which provided a lump sum on death in service and also a lump sum payable at retirement (including ill-health retirement).
In the middle ages pensions were developed further. Some occupations (like clergymen, military service, King servant and poets or writers) formed a substantial pension system with no clear retirement age (also due to lack of registration of age). In 1590 the first occupational pension fund arose. This Chatham Chest paid pensions to disabled seamen and was financed by members’ contributions, which were deducted from their pay.
In the seventeenth century collective risk sharing developed. In 1672 the first occupational pension scheme was introduced for the Royal Navy (pay-as-you-go system). Also in 1699 the first pension for widows arose.
Lewis description ends in the eighteenth century when life insurance emerged and pension schemes where all financed based on scientific principles. And here the description of Lewis about the history ends.
2.1.1 History of pension in general in the Netherlands
The overview of the history of pension in The Netherlands is based on another book. The biggest pension fund of the Netherlands is ABP (Algemeen Burgerlijk Pensioenfonds). It is the Industry-wide pension fund for government and education. In 2007 it existed for 85 years and therefore a book was published about the history of this pension fund (Vleugels, 2007). Also the book of Vleugels says that the first pensions (for government employees) were originated in the army. In 30-395 BC veterans from the army in the Roman Empire got a piece of ground to live on after a service of 30 years. In the years 600-1600 those living in a
monastery and other religious people would get a piece of ground. In the Middle Ages due to bounded societies of certain professions, pension for old age and even payments for partners were taken care of. In 1798 the first Dutch government employee care arose and this poverty care was financed from the general means.
The first real partner’s pension scheme for government employees was established in 1802-1804. The pension scheme provided a partner’s pension of 50 percent of the last salary to the partner and when the partner deceased the payments were transferred to orphans. For unmarried employees their mother could be appointed as the surviving relative.
During the nineteenth century pension schemes changed from pay-as-you-go systems (in Dutch: omslagstelsel) to funded systems (in Dutch: kapitaaldekking) and the first pension funds arose (1846). After this more legislation was developed.
In 1890 a widow and orphan’s fund was installed for employees of the government and 5 percent premium had to be paid to finance the benefits (25 percent of the pension base). In 1895 collective old age provision was first subject of discussion in parliament and in 1913 the disability law Talma was accepted. In government-Heemskerk the first social laws (for disability, old age and illness) were passed and all were designed by ds Talma, minister of Industry. Retirement age was set at 70 years, which was a challenge those days. Payments were not index-linked.
Vleugels states that the retirement age declined to 65 years in 1919. During the twenties the pension law was accepted (including partner’s pension). Premium rose to 15.5 percent. In 1947 the “Noodwet Ouderdomsvoorziening” (“Noodwet Drees”) was created to guarantee everyone with an income below a certain level to receive an old age pension.
In the dissertation (2011) of Jan Tamerus the history of pension plans in the Netherlands is discussed. Summarizing, he also described that pension began with the soldiers who got too old to work and got a piece of ground for pension. After that the guilds came, which resulted in more connection between people with the same occupation and between employers and employees. Because of the obligation of pension at the guilds the first form of solidarity was born. Tamerus also stated that the obligated pension for guilds was a predecessor for the pension funds nowadays.
In the nineteenth century Van Marken, founder of the “Gist and Spiritusfabriek”, wanted a good and secure pension for his employees. He has written several books to explain the motivation of the rise of the pension arranged by his company.
In the book “Structuur en Rechtskarakter van het ondernemingpensioen bij J.C. Van Marken
(1845-1906)” by Mr W. de Vries Wzn (1963) the motivation of Van Marken is summarized and
the philosophy of providing pension to the employees is outlined. According to De Vries Van Marken thought that employees should themselves take care of the pensions, but the employer should make sure that they could. This implied that the employer should provide enough means to the employees.
The beginning of pension schemes evolved in the industrial era. The number of companies was growing and therefore the connection between employer and employee declined. Due to this disconnection more general (less personal) pension schemes developed. Van Marken thought a more structured pension in schemes and legislation was required. The pension scheme was 75 percent final pay and the contribution was 25 percent of the salaries. Van Marken was surprised the contribution didn’t meet the obligation.
Tamerus’ description (2011) went on with the company Philips, a social employer. In 1913 Philips started a final pay pension scheme. In 1929 the pension scheme was too expensive and the final pay plan was closed. The pension scheme was too expensive, because the pensions were not calculated correctly (no actuarial basis or risk management) and the participant characteristics were also unpredictable. The growth of the number of participants was erratic and due to individual career developments (back service) costs were volatile. After ending the final pay scheme in 1929, Philips was forced to go back to final pay in 1972 (with reluctance). Although Philips learned from it mistakes in the past and the premium was calculated with sound fundamentals and expectations of the future, in 1997 Philips changed back to an average pay scheme as one of the first pension funds.
This concludes the overview of the history of pension in general and in the Netherlands specifically. In the paragraph discussing the legislation of (partner’s) pension further periods of time are reviewed.
Graph 2.1 summarizes the main events in the history of pensions.
Graph 2.1: Timeline with most important events in the history of pension in general
The main conclusions are:
-‐ Already 2000 years there exists some kind of pension, the first pensions were only for
military functions;
-‐ In the middles ages a beginning was made with a collective form of pension due to the
craft guilds;
-‐ In the 19th century a more scientific approach was adopted to make pensions more
payable;
-‐ Resulting in pension funds in the beginning of 20th century for the working class and/or
low incomes.
2.2 History of partner’s pension
In the previous paragraph the history of pension in general was outlined. In this paragraph the history of partner’s pension will be discussed. The history of the role of the woman will also be mentioned.
The first partner’s pension for the public was in 1699. According to Lewis (2003) in Britain a company called Mercers’ Company of London adopted a scheme, whereby male employees
contributed a single premium of £2 100 in return for which their partner would receive a
lifetime annuity of £ 30 per annum. This was prudent, because the interest rate was 6 percent at that time. But due to lack of administration and solvency the company closed after 50 years and the government took over the obligation of paying the widows.
In 1743 a pension fund was established in Edinburgh by private Act of Parliament to provide pensions for the widows of ministers of the Church of Scotland. Later the pension was extended to the professors of the four older universities in Scotland. The pension fund survived 250 years until it was liquidated in 1993. Subscribers paid 5 guineas per annum and the fund then provided the widows with an annuity of £ 20 per annum. Without partner, the family of children received a lump sum of £ 200. The calculations were probably the work of Dr Robert Wallace and Colin MacLaurin.
Wallace was a clergyman who also wrote on population matters and MacLaurin was a mathematician. The principal credit for founding is generally given to Dr Alexander Webster, who was an evangelistic clergyman.
The first calculations of partner’s pension by Dr Wallace were as follows: A thirty-year-old man supposed to live about 28 years. His wife has a 50 percent chance of still being alive by that time. Furthermore a 58-year-old widow has a remaining life expectancy of only 13 years. This half must pay for only half the time for which their husbands contributed. Wallace clearly stated that this was just an approximation and must be adjusted by experience. When the difference between man and woman was more then 10 years an additional single premium must be paid.
According to Vleugels (2007) a widow fund arose in the Netherlands in 1802-1804 for survivors of ministers and employees of the government, paid out of leges. Benefit payments
were 50 percent of the last income (“reglement van een weduwenfondsvoor de
geëmployeerden tot het algemeen bestuur behorende”).
In 1890 a widows and orphans fund for employees of the government was implemented. The benefit was 25 percent of the pension base. This was financed by the pension fund. The pension fund got some funds from a pension fund of 1846 and the participants had to pay a contribution of 5 percent (also after retirement).
Linked to the history of partner’s pension is the history of the role of the woman, as discussed in the publications of Nouwen (1974) and Van Mourik (1987). In the publication of Nouwen (1974) called “Van weduwenverbranding tot weduwenpensioen” the author describes some developments of the role of the wife when her husband is about to die. It starts with the ban of burning widows in India in 1829. Until the ban widows were burned with their deceased husbands. This wasn’t only out of love, but also because widows in that time and in that place were seen as unclear beings and were treated that way. So the status of the wife after her husband dies, was leading. When the status of the woman alone was better, like in the time the Titanic sank, the “women and children first” rule applied. But even then women refused to go to leave their husbands behind to die.
Special attention in the publication of Nouwen (1974) was given to the widow of J.G.
Reuchlin, member of the board of HAL. She received 5000 guilders per annum fromJanuary
1st 1913 and benefit payments would last until the youngest child would reach the age of 18
years. After remarrying or dying the payments would go to the children. This was all financed by the fund of HAL, founded in 1889. In 1925 the income tax authority accused the widow and HAL that this was generosity, so tax should be paid. The court judged that this wasn’t
generosity and it was an obligation of the employer to take care of the employee when becoming disabled or to take care of the widow when the employee would pass away. This kind of obligation is never generosity. In 1925 Colijn (and again by his successor De Geer) drew a law that no taxes had to be paid for this kind of obligation. HAL wasn’t the first.
Several companies were providing partner’s pension in that period (1850-1900) like Gist- en Spiritusfabriek (see Van Marken in the previous paragraph), Stork, Oliefabriek Delft and Palthe Almelo.
Van Mourik (1987) also wrote about the history of the role of the woman. According to him there was a separation in the role of the woman before and after the industrial revolution. Before the industrial revolution there was a strong connection between work and family life, for instance women also helped with farming. After the industrial revolution the connection between work and family life disappeared and women stayed at home to take care of the children. In the 1960s this changed when anticonception and social security made sure women became more (financial) independent.
Graph 2.2 summarizes the history of partner’s pension.
Graph 2.2: Timeline with most important events in the history of partner’s pension and the role of the woman
Partner’s pension came to existence because of the role of the woman in society. From burning with the deceased husband widows became independent with own income. Partner’s pension was in the beginning only for women and not for men. Even parents could get a partner’s pension.
2.3 History of the legislation of partner’s pension in the
Netherlands
To complete the history of partner’s pension the legislation is considered. In chronological order the following laws and events will be discussed:
1922 Pensioenwet (foundation ABP)
1925 Colijn/ De Geer: no taxes on partner’s pension 1952 Pension- en spaarfondsenwet (PSW)
1959 Algemene weduwe- en wezenwet (AWW) 1996 Algemene nabestaanden wet (ANW) 2007 Pensioenwet
2.3.1 Pensioenwet (1922)
In 1922 the Pension Law was passed. With this also the largest pension fund of the Netherlands was established: ABP. All existing pension funds for employees of the government were transferred to this new fund and a law was designed around it.
The contribution for old age pension was set at 10 percent of the income and for partner’s pension 5.5 percent of the income.
2.3.2 No taxes on partner’s pension (1925)
Because of the widow of HAL a discussion arose whether the payments to the widow were charity or just a benefit as discussed in paragraph 2.2. The discussion was settled in court, but it was the first formal partner’s pension that was discussed in the Parliament where ministers Colijn and De Geer played an important role.
2.3.3 Pensioen en Spaarfondsenwet (1952)
The “Pensioen en Spaarfondsenwet” (PSW) was ordered in 1952. The main purpose of this law was to protect the funded pensions. The exact design of the pension plans was the responsibility of the social partners (employees and employers, collective in an organization or not) as is still the case. The law doesn’t prescribe what a pension plan must look like but only boundaries are stated. In the PSW partner’s pension was not obligated. But when partner’s pension was regulated in the pension plan then certain rules applied. Tamerus (2011) mentioned that the PSW was to guarantee that the aroused pension expectations were to be accomplished. This guarantee was accomplished with the following measures:
-‐ Pension money must be set apart from the company (so in a pension fund or at an
insurer);
-‐ The assets of the pension fund must be enough to cover the pension liabilities. This must
be proven by scientific calculations;
-‐ Investments must be solid and in line with the liabilities. Risk free investments are the
benchmark and not more then 10 percent must be invested in the company.
At January 1st 2002 the PSW (at article 2b) issued that there is a right to convert accrued
partner’s pension to old age pension (Velp, 2007). The article also gave the possibility to convert old age pension into partner’s pension. This is not a right, only the law facilitated the conversion. The reason for this right and possibility is that unmarried people were
subordinated and by giving the right to get a higher old age pension instead of partner’s pension the subordination was ended.
2.3.4 Algemene weduwe en wezenwet (1959)
In 1959 the “Algemene weduwe en wezenwet” (AWW) was installed with the purpose to provide an income for widows. At that time the man was the main provider and when he died the wife was left often without income. In 1988 widowers were added because of the equal rights for men and women.
The AWW is a public insurance. This means that the insurance is based on total solidarity. All inhabitants are insured and premium paying, regardless whether they have the risk to
become a widow. The basic principle is the principle of need. Only those who need the benefit will get the benefit.
2.3.5 Algemene Nabestaanden Wet (1996)
In 1996 the AWW has changed to the “Algemene Nabestaanden Wet” (ANW). According to T. de Jonge of Sociale Verzekeringsbank (2008) the reasons to change AWW to ANW were that women are more self-providing, partner’s pension in the second pillar were higher than in the 50’s and partner’s pension on personal basis was higher than in the 50’s.
The most important changes were:
-‐ Living together has become equal to being married. This also means that when an
ANW-receiver is moving in together with a new partner, benefit payments will stop.
-‐ The ANW takes the income of the partner into account.
-‐ No benefit will be given to individuals born after 1-1-1950 unless the individual has a
child younger than 18 years old or is disabled. The idea behind this is, that people born after this date can provide for their own income
Because of the changes the ANW now only provides a benefit when the partner meets one of
the following conditions: born before January 1st 1950, being more than 45 percent disable
and having children aged under 18. Furthermore the benefit is dependent on the income of the widow/ widower.
Part of the change was an evaluation after 5 years. There was an evaluation on the change by the State Secretary of Social Affairs and Employment in 2001. In this evaluation the most important effects of the change from AWW to ANW were that almost half of the people who received an AWW benefit did not receive an ANW benefit after the change. Also the changes resulted in 3 percent of the people in the evaluation having financial difficulties.
Goudswaard and Caminada (2003) reacted on this evaluation. They said there were three reasons to change AWW. The first reason is that the law was intended to provide benefits only in case of a need. The government judged that a lot of beneficiaries didn’t have the need for the benefit. In the evaluation of the change it was stated that it was necessary that a public insurance based on solidarity has to be based on a need-principle.
The second reason is that the law was only for the married and didn’t cover the unmarried. The third reason is that the change was needed for a saving of the government.
Goudswaard and Caminada also stated that a lot of attention in making the ANW was paid to the question whether the gap caused by the new law was insurable in the market. The government made an intermediate measure for those who were not insurable at all for this gap or for those who the insurance premium was 2.5 times higher than general. Their main objections regarding the evaluation were:
-‐ The evaluation claimed there was no problem with the insurability. Goudswaard and
Caminada looked at this differently. The evaluation stated that the uninsurable
individuals are insured under ANW (born before 1950) and that they can provide for their own income. According to Goudswaard and Caminada this was no argument because the real risk was that the new law caused less protected income. And there was a real risk for those with a child or those who were disable above 45percent and turn now below 45 percent.
-‐ The evaluation was based on a too small group of people. Goudswaard and Caminada
looked at a larger group and came to the conclusion that ANW-benefit declined about 20 percent (on average).
So there are two different views on the change. The government stated the change was carefully and with no real income loss, while Goudswaard and Caminada stated otherwise. In 2008 the “Sociale Verzekeringsbank”, this is the organization which coordinates the ANW, reviewed the financial and demographic flows of the ANW (Covelli, 2008). The conclusion
was that since the introduction of the ANW on July 1st 1996 the number of people entitled for
coverage was declined strongly. The expectation is that this number will decline to about 50.000 in 2015 and end at a total of 46.000 in 2023. This drop resulted in savings (for example in 2007 the difference between ANW and AWW would be € 1.3 billion), but in 1996 the savings were expected to be more. An explanation could be that the execution costs were irregular and structural higher than the execution of the AWW.
In 2013 the government made a proposition to reduce the payment period to one year after 2015 (see website www.rijksoverheid.nl). This proposition was rejected in the budget agreement of the current government in the Netherland at the end of 2013.
2.3.6 Pensioenwet (2007)
According to Velp (2007) security is the central point in the Pension Law just as in the
“Pensioenwet 1922”. The basic assumption is that if pension is promised, it must be sure that the pension will be paid out. The security of the pension law can be divided into three
The most important changes are (see Opdam (2006/2007)):
-‐ Uniform Pension statement (UPO) with information for the participants must be given
with a fixed regularity. The purpose is that pension accrued with different pension funds will be more comparable and participants are more aware how much pension they have accrued.
-‐ Information about indexation must be more uniform and therefore an indexation label
is developed that must be used in communication about pension-indexation
-‐ Conversion of old age pension into partner’s pension when the participant stops
participating in the pension plan, is adjusted and maximized at 70 percent of old age pension.
-‐ There is no waiting period for partner’s pension when a participant is new in the plan.
For old age pension there is a maximum of 2 months waiting period.
-‐ The entry age is age 21 years or lower.
2.3.7 Partner’s pension nowadays
Starting from January 1st 2015 a new Pension Law will replace the Pension Law of. Due to
the fact the law has become available a month ago and the law must be reviewed in the parliament and all specific elements aren’t available yet, this new law will not be discussed.
2.3.8 Highlights history of legislation of partner’s pension
The legislation of partner’s pension in the Netherlands has changed a lot during the last century. In the beginning it was as protection of the widow, a woman. Later on also the man got protected. In the last years the state pension for partners declined and the main idea behind it was that there was enough protection elsewhere (second or third pillar) and because the government had to save.
Graph 2.3 summarizes the history of legislation of partner’s pension.
2.4 Calculation of partner’s pension
In this paragraph calculation of partner’s pension is discussed. In most pension schemes the level of the benefit of partner’s pension is directly related to the level of the benefit of old age pension (mostly 70 percent). This means that by calculating the benefit of old age pension the benefits for the partner will be known. The value of partner’s pension is calculated as the present value of benefit payments of expected partners. The present value of partner’s pension is dependent on three elements: (1) assumptions about the partner (determined/ undetermined), (2) financing (risk/ funded) and (3) the interest rate. The three elements are discussed accordingly.
2.4.1 Assumptions about the partner
In this subparagraph the definition of a partner is given. Then the elements and calculation of the value of partner’s pension will be discussed.
Velp (2007) states that the social partners can decide what a partner is. Whether married or living together, with or without registration by law. So the social partners can decide whether a partner without being married or registered can be a ‘partner’ in terms of the pension plan and receive partner’s pension.
In the pension law the following was mentioned. When a partner in the pension plan has a right on partner’s pension, then this individual also has the same rights as married or registered partners when the relationship ends (so a right to special partner’s pension). This equality holds for not married or registered partners.
Now the definition of partner is discussed, the impact of the assumptions about the partner on the calculation is reviewed. Important is whether there is a partner when the participant dies. The most accurate form is to know whether there is a partner. Unfortunately this knowledge for each participant is not always available (risk of not administrating correctly, risk of not giving the information to your employer, risk of not knowing this is important). There is a possibility to calculate the value of partner’s pension by assuming the possibility a participant has a partner. Usually the possibility that a participant has a partner is dependent on the age of the participant.
Also age and gender must be assumed. Often the most common assumption is when the participant is a man, that the partner is a woman and 3 years younger. When the participant is a woman, the partner is a man and 3 years older.
The paper of Heersterbeek (2009) is about the calculation of the value of the funded partner’s pension. The value of partner’s pension can be based on two kinds of methods: determined and undetermined. In the determined system the value is calculated on two lives (participant
and the partner). In the undetermined system an assumption is made about the probability a participant is married on the moment he is expected to die. For both systems a recursive formula is known as Heesterbeek describes in his paper.
2.4.1.1 Determined system3
The formula can be simply calculated by thinking about the events in next table. In the table x is the participant and y is the partner.
Event Probability Discounting Benefit
x and y stay alive p x * py vt āx+1/y+1
x dies and y stays alive q x. * py vt äy+1
x stays alive and y dies p x. * qy vt 0
x and y both die q x* qy vt 0
Table 2.1: Explanation of the calculation of the funded value of partner’s pension in the determined system
The conclusion of this table is that the funded partner’s pension with the determined method can be calculated by multiplying for each event the probability of the event with the
discounting factor and the benefit and then adding these numbers. This becomes:
āx/y = vt* qx* py* äy+1 + vt* px* py* āx+1/y+1
To make the formula more comparable to the calculation of the undetermined method further on the formula is rewritten to:
āx/y (determined) = vt^1/2 * qx * āy+1/2 + vt * px * py * āx+1/y+1(determined)
2.4.1.2 Undetermined system
The formula of the calculation in the undetermined system looks a lot like the formula of the determined system. The difference is off course the mortality rate of the partner. In the undetermined system the mortality rate isn’t known due to not knowing the partner. The mortality rate is replaced by the mortality rate of an undetermined partner times the probability a participant is married at the moment of dying. This nuptiality rate is assumed to be known
3 In formulas for annuities interest rates are used: Forward rates. Forward rates are one-year interest rates and can be determined from spot rates of the present. Assuming SPt is the Spot rate with term t, then the Forward rate at
time t is (Ft) is equal to: F!= (!!!"!)
! (!!!"!!!)!!!− 1 and v! ! = ! !!!! ! !!!
The standard recursive formulas are:
until retirement age. From the retirement age the nuptiality rate declines with the mortality rate
of the partner. In formula: hx+1 = hx * qy for all x > retirement age.
As mentioned before an assumption about the age difference and gender must be made in the undetermined system.
The next table will provide an overview:
Event Probability Discounting Benefit
x stays alive p x. y vt āx+1/y+1
x dies and is married qx* hx+1/2 vt āy+1/2
x dies and isn’t married qx* (1-hx+1/2) vt 0
Table 2.2: Explanation of the calculation of the funded value of partner’s pension in the undetermined system
When x stays alive it doesn’t matter whether x is married or not. The benefit stays potential. When x dies it is interesting to know whether he/she leaves a partner behind. So concluding from the table the formula is:
āx/y (undetermined) = vt^1/2* qx* hx+1/2* āy+1/2 + vt* px* py* āx+1/y+1(undetermined)
Repeating the determined formula:
āx/y (determined) = vt^1/2* qx* āy+1/2 + vt* px* py* āx+1/y+1(determined)
The conclusion is that both formulas look quite similar. Because of the risks mentioned before about not knowing the characteristics of the partner, only the undetermined partner’s pension calculations will be used in the following chapters.
2.4.2 Risk base and funded base partner’s pension
In pension plans there are two forms of partner’s pension: risk base or funded base (see Beckers (2010)). When partner’s pension is funded, it means that the partner’s pension is really “built up” and the participant of the pension scheme has a right to this partner’s pension. When partner’s pension is on risk base then partner’s pension isn’t accrued. It is a kind of risk insurance. Only when the event (the participant dies) occurs the partner has a right to the benefit. When the event doesn’t occur, there is no right. The value of partner’s pension on risk base is lower than on funded base.
One remark about the two forms is, that after the active period there is a still a right to benefit of partner’s pension for the participant when the partner’s pension was on funded base. There is no right for the participants for who the partner’s pension was on risk base. So when a participant gets unemployed there is a risk when the partner’s pension was on risk base and not on funded base financed.
For comparing the present value of funded and unfunded partner’s pension the assumption is that the method is undetermined (as mentioned before). The present value of the funded partner’s pension was already given in the previous paragraph.
The formula of the present value of a partner’s pension on risk base is simple. The formula is the probability that a participant dies times the probability the participant is married times the annuity of the benefit to the partner.
In formula: the risk premium of partner’s pension on risk baseis vt^1/2* qx* hx+1/2* āy+1/2.
The next graph compares the contribution rate on funded base with that on risk base.
Graph 2.4: Contribution rates of Partner’s Pension with funded and risk base. The assumptions are in Appendix 1.
In the graph the contribution rate for partner’s pension on risk base is lower than the contribution rate for funded partner’s pension. This is only part of the story. After age 67 the contribution rate on risk base will increase substantially and even meet the contribution rate on funded base.
The graph of the contribution rate of the man in graph 2.4 is above the graph of the woman. This is caused by that the probability the man dies is more than the probability of the woman dies. Also will the surviving partner of the man (assuming a woman) life longer than the surviving partner of the woman (assuming a man). So the contribution rate of funded partner’s pension of a man is higher than the contribution rate of funded partner’s pension of a woman.
2.4.3 Interest rate
The last assumption to discuss is the interest rate. Until 2007 according the SPW the present value of pensions for pension funds was calculated with a fixed interest rate (a maximum of 4percent, which in practice usually meant 4 percent). But since the introduction of the Pension Law in 2007 the Dutch Central Bank provides Spot Rates, which must be used to calculate the present value of the different pensions. This so-called “Rente Termijn Structuur” (RTS) is
derived from the European interbank swap market.4 In the next graphs the effect of different
kind of the interest rates and RTS is on the contribution rates of the partner’s pension.
Graph 2.5: Contribution rates of partner’s pension on funded base of a woman with different interest rates. The other assumptions are mentioned in Appendix 2.
The contribution rates are higher when the discount rate is lower. Discounting of future payments causes this. When using the RTS of the end of May also the shape of the graph changes, because the future payments are each discounted with another interest rate.
2.4.4 Summary
For calculating the value of partner’ s pension several questions are important: what is known about the partner (determined or undetermined), is partner’s pension on risk base of on funded base and what is the interest rate. Conclusions about the answers of these questions are:
-‐ The contribution rates of funded base partner’s pension are higher than contribution
rates of risk base partner’s pension;
-‐ Contribution rates of partner’s pension for men are (almost always) higher than of
women;
-‐ The interest rate has a reverse effect on the contribution rates. This means that the
higher the interest rate, the lower the contribution rate.
4
The calculation of the RTS is adjusted during the years. At first at the end of 2012. From a monthly swap rate the RTS became an average of three months. Again the calculation changed in the middle of 2013: the long term
2.5 Possibilities of the third pillar
As discussed in the first chapter the Dutch pension system consists of 3 pillars. In the first pillar there is the state pension and in the second pillar is the collective pension from
employment (with a pension fund or insurer). When these pensions are not sufficient there is a possibility that people arrange individual pensions. For self-employed or employers with not sufficient pension this is an opportunity to build, even fiscally favourable, pension.
Pension of the pillar can be bought with insurers. One final remark about pension of the third pillar is that since 2012 no distinction between men and women is allowed. This means that the insurance premium for pension in the third pillar must be the same for men and women. So men pay more than they get and women pay less than they get.
2.6 Summary of the history
For a long time there is pension, starting about 2000 years ago for military functions. In the next graph the three paragraphs 2.1, 2.2 and 2.3 are summarized (pension in general, partner’s pension and legislation).
Graph 2.6: Timeline with most important events in the history of pension in general, partner’s pension and legislation of partner’s pension
The main general conclusion of this chapter is, that some general aspects must be studied whether they have changed in the passed years. Partner’s pension was created to protect the partner. Is there still a need for partner’s pension (are there still partners? Do participants use partner’s pension?) Can the level of the partner’s pension be the same? So to investigate whether partner’s pension still has a right to be in the next chapter those questions are answered.
Chapter 3 – Aspects to evaluate the need
for partner’s pension
In this chapter aspects are formed to evaluate the need for partner’s pension. These aspects are from the previous chapter, so are based on history of partner’s pension.
After the evaluation there are three situations of outcomes possible:
-‐ There is still a need for partner’s pension, but the level of the partner’s pension can
be adjusted;
-‐ There is still a need for partner’s pension and the level of the partner’s pension is fine;
-‐ There is no need for partner’s pension at all.
The different aspects in this chapter are accordingly: demographic aspects, financial aspects, costs and soft aspects.
3.1 Demographic aspects
Demographic aspects are used to inspect whether the need for partner’s pension is changed during the years. First the nuptiality rate in the Netherlands is investigated, then the
participation rate in the Netherlands is looked at and finally the probability of getting partner’s pension (the mortality rate in the Netherlands) is considered.
3.1.1 Nuptiality rate
The first aspect is the nuptiality rate in the Netherlands. The need for partner’s pension is dependent on whether the participant has a partner. The next graph shows the nuptiality rate in the Netherlands from 1900 until 2012.
The graph shows that during the 20th century the nuptiality rate in the Netherlands increased until 1977. After 1977 a decline had set in. In 1977 the nuptiality rate was about 50 percent and moved to about 40 percent in 2012.
Since 1998 registered partnership is considered the same as married status. About that time partner’s pension was also paid out to registered partner of a participant. So considering registered partner as married is not a problem.
Concluding from this graph there is a decline in the number of married people and this decline seems to continue. So perhaps the need for partner’s pension is also declining. This
conclusion about the need is tentative, because there are more aspects to look at and the effect of decline is not really large.
One aspect to consider is that nowadays more people are living together and that partner’s pension is also paid out to those “unmarried” living together. Usually some constrains are made in that situation. For instance the couple must live together for a period of 6 months or 5 years and that the living together status must be proven from a certificate of residence.
3.1.2 Participation rate
The next demographic aspect is evaluating the participation rate in the Netherlands. By evaluating this aspect conclusions will be made about the need for partner’s pension and also about the level of the benefit of partner’s pension. When more partners of participants are working than before then the need for partner’s pension is less, because partners earn their own income. And because of more income for partners of participants the level of the benefit of partner’s pension can perhaps be reduced.
Graph 3.2: Participation rate in the Netherlands from 1900 until 2012. Three groups are participation rate of men, participation rate of women and participation rate of both men and women. Source: CBS, Statline
Some remarks are made about this graph. The participation rate of the population in the Netherlands is about 40 percent until 1985 and then increases. Women probably caused the increase, because there is a slight decrease of the participation rate of men and an increase of the participation rate of women after 1978. This graph compares the participation rate of men and women but not the income of men and women.
A tentative conclusion can be made about the need for partner’s pension. The need is less due to the increase of the participation rate of women.
Also a tentative conclusion can be made about the level of the benefit of partner’s pension. Due to the increase of participation rate the conclusion can be made that there is more income and thus the level of partner’s pension can be lower. Although to provide for a whole family both incomes are needed.
The publication “Terugblikken, een eeuw in statistieken” (CBS, 2010) gives an overview of statistics in the last century made by the collective database organization of the Netherlands: Central Bureau of Statistics (CBS). CBS states that the Netherlands had a population of 5.2 million in 1900 and 16.6 million in 2010, roughly a tripling. The labour force in the same period
quadrupled from 2 million to 7.8 million. Neverthelessthe participation rate remained constant
until the nineties (around 40 percent). After the nineties the participation rate increased to 48 percent in 2009. CBS stated that the increase of the participation rate was mainly caused by the increase of the participation rate of women.
This was shown in and concluded from graph 3.2. The participation rate of women increased rapidly in the last 50 years. Since 1960 the women labour force doubled from 20 percent in 1960 to 40 percent in 2009.
Van Ours (2008) looked further into the phenomenon of the participation rate of women. He stated that the participation of women on the Dutch labour market is increased strongly in the last decades. More than 65 percent of the women between 15 and 64 years old had a job for more than at least 1 hour a week (this seems not much, but was stated in the article). Thirty years ago this was only 30 percent. The increase of the participation of women is influenced by the increase of part time jobs. More than half of the working women has a part time job. The government stimulated part time jobs to increase the participation of women.
The group of part time working women is according to the analysis of Van Ours:
-‐ 40 percent mother of young children (0-11 years);
-‐ 10 percent young of age without children;
-‐ almost 50 percent above 40 years old without young children.
The four most mentioned reasons to work part time are: taking care of children (38 percent), household (21 percent), time for yourself (17 percent) and time for social contacts or hobbies (13 percent).
The next graph shows the mentioned phenomenon that women work more part-time than men.
Graph 3.3: Development of working hours per week in the Netherlands. Source: SCP (TBO 1975-2005)
The stimulation of the government to provide more part time jobs for women is observed from the graph. There is an increase of hours of women seen after the eighties.
General conclusions after evaluating the nuptiality rate and the participation rate (including the working hours) are that the nuptiality rate is declining regularly and that women are working more and longer, but still they work part time and less compared to men. So it looks like that the need is slightly less and the level of the benefit can decline.
3.1.3 Mortality rate
The last demographic aspect is the mortality rate. Has the probability that a partner’s pension begins (so the event the participant dies) changed in time? In graph 3.4 per age-cohort the number of deceased people who are married are shown.
The graph shows that for age 20 years until 65 years about 20,000 in 1970 and about 12,000 in 2012 of the deceased people were married. Assuming the participation rate is about 50 percent (see graph 3.2) and thus this 50 percent has a pension plan with partner’s pension, this means that the growth of the quantity of partner’s pension per year is about 10,000 in 1970 and about 6,000 in 2012.
The next graph focuses on the working population: people with age from 20 until 65 years. The graph shows index numbers with 1950 is 100 to compare the deceased people who are married for the working population more precise.
Graph 3.5: Index numbers of deceased people who are married in the Netherlands with age between 20 and 65 (1950 = 100). Source: CBS
The graph shows a decline after the early 70’s. This decline indicates there is less need for partner’s pension. After about 1998 also registered partnership had the same rights as the marital status. Unfortunately the numbers aren’t available in the numbers from CBS and thus not in the graph. Especially after 2004 the index declines under 100. Graph 3.1 shows that the percentage of married people was slightly declining the last years. So a tentative conclusion is that the decline after 2004 is mostly due to more registered partnerships.
A final remark about graph 3.4 is perhaps it is surprising that although the population increased from 1950 until 2012 this is not really shown in the deceased people who are married in the Netherlands (graph 3.4). One explanation can be that also the mortality rate has declined.
3.1.4 Conclusion
In the table below the recap of the demographic aspects is shown. The need is slightly declining and there are some arguments for a small decline in the level of the benefit of partner’s pension.
Need Level of benefit
Nuptiality rate Need slightly declines due to
slightly less married people
No information
Participation rate Need declines due to increase of
the working population
Level of the benefit declines due to increase of working hours
Mortality rate Need declines, but probably due to
registered partnership not in data of CBS
No information
Table 3.1: Conclusions about the need for partner’s pension and the level of the benefit of partner’s pension after the demographic aspects.
3.2 Financial aspects
Financial aspects are used to look whether the level of the benefit of partner’s pension can change. The financial aspects are: income in general and the purchasing power.
3.2.1 Income general
Income in general is used to investigate the need for partner’s pension and whether the level of the benefit of partner’s pension is sufficient. In the next graph the total income of the population in the Netherlands is shown.
The graph shows that after 1950 slightly and after 1970 rapidly the total income increases. But immediately the question arises whether the income compensates also the inflation: can the same package of goods be bought in1950 with respect to 1990 or did also the purchasing power increase?
3.2.2 Purchasing power
The purchasing power of CBS can be static or dynamic (see explanation of purchasing power of CBS). The dynamic purchasing power reveals the change in purchasing power, how people experienced it in reality. Income does not only change when the overall income increases, but also when personal changes occur like promotion, accepting work, retiring or composition of household.
Static purchasing power displays the purchasing power with equal personal circumstances.
Graph 3.7: Static purchasing power in the Netherlands. Source: CBS
The static purchasing power was published until 2002 and the dynamic purchasing power was published from 2002.
Remarks about the graphs are that there are no remarkable differences between purchasing power of a one-person household with respect to a multiple person household (not static as dynamic purchasing power). There is also not really a pattern, because no clear decline or increase in purchasing power is shown from the graphs.
Summarizing the two aspects and the conclusion about need and the level of the benefit of partner’s pension is the next table.
Need Level of the benefit
Total income Total income gives not much
information
Total incomes give not much information
Purchasing power No information Purchasing power is too erratic
Table 3.2: Conclusions of the financial aspects about the need for partner’s pension and the level of the benefit of partner’s pension.
3.3 Conversion
As mentioned in chapter 2 about the history of legislation in 2002 the law changes and pension plans were obliged to offer at least at retirement age the possibility of conversion from partner’s pension to old age pension. The Ministry of Social Affairs and Employment (SZW) investigated about this change in the law (Berdowski). The investigation was performed in 2008 so the lap between then and now has to be remembered.
3.3.1 Introduction
In the article of Bedowski (2008) is observed that in the pension law a conversion between partner’s pension and old age pension is regulated. When there is a partner’s pension in the pension plan, then participants have the right to convert that partner’s pension for a higher old age pension. Reason for this adjustment in the law is that at that time it seamed unfair for not married participants that they had a pension sort what they will never use.
Until that time solidarity was preferred to individuality. So it was more logical that unmarried participants also paid for the partner’s pension they would never get. In the last century individualism increases and solidarity became under pressure. The law sets obligations with equal treatment (between men and women) and the law prohibits difference in marital status. The objection towards solidarity and the prohibition of unequal rights let to the right to convert partner’s pension to old age pension.
3.3.2 Main conclusions
The main questions in the article of Berdowski (2008) were how did the pension plans react to the change (efficiency of the law) and which effects were seen. About efficiency the
investigation saw that almost all pension funds and around 90 percent of the insurers
complied with the law. About 14 percent of all participants who could convert5, did actually
convert their partner’s pension to old age pension (more women than men). A conclusion the investigators made was that due to the fact 14 percent of the people changed partner’s pension to old age pension, there is still a need for partner’s pension.
3.3.3 Sub-questions
The investigation also had some interesting sub-questions (and sub-answers) for this thesis.
How many pension plans don’t have funded partner’s pension, but partner’s pension on risk base? How many pension plans don’t have any partner’s pension?
The investigation of SZW shows that in 2007 from the responded pension funds 62 percent had funded partner’s pension and 19 percent had partner’s pension on risk base. Only 1 percent had no partner’s pension at all. There was a fast decline seen between 2006 and 2007 for the funded partner’s pension. At the same time there was a rise of partner’s pension on risk base. A tentative conclusion is that this trend of increasing partner’s pension on risk base will continue for the years after 2007.
For insurers (2005) there was 19 percent of the pension plans partner’s pension on risk base. Surprisingly 11 percent of the pension plan didn’t have any partner’s pension at all (this corresponds to 33 percent of the participants at the insurers!)
How many participants did use the possibility to convert (when available)?
They asked the pension funds to gave the number from 2003 until 2006. In 2003 11 percent (20 percent for woman) en in 2006 15 percent (26 percent for women) of the participants, who could convert, did convert. Of all participants the percentage becomes 9 percent. For the insurers there was no reliable data available. Only 1 percent of the pension plans was known. For insurers in 2003 only 2 percent of the participants, who could convert, did convert. In 2006 the percentage was 4 percent. But because only 1 percent of the pension plans was known for insurers these data aren’t reliable.
The conclusion about the conversion is made in the next table.
Need Level of the benefit
Conversion Need is existing, because only 14
percent of the participants
converted their partner’s pension to old age pension.
No information
Table 3.3: Conclusions of the aspect conversion about the need for partner’s pension and the level of the benefit of partner’s pension
3.4 Soft aspects
The Netherlands is known as a welfare state. This was also found at Wikipedia with as sources Andeweg (2002) and Delsen (2001). A welfare state is a social system where the state is primary responsible for the wellbeing of its citizens.
The connection between the welfare state and pension is made in an article of Collee (2008). In this article participants were questioned about their knowledge of partner’s pension and their choices about partner’s pension.
Important conclusion in this study why people don’t know what their partner’s pension is, that people assume partner’s pension is taken care of. The reason why people make this
assumption is that they always have paid premium for partner’s pension and that they don’t have any choice in their pension plan.
Another important conclusion is that people don’t think it is their own responsibility to take care for a good partner’s pension.
So according this article of Collee because the Netherlands is a welfare state citizens expect that they and their partners will be taken care of. Just abolish partner’s pension will cause that people are not aware of the risk they have.
Some caution is necessary, because by providing and taking care of partner’s pension people will never learn to take care of partner’s pension on their own. It is a cycle.
3.5 Summary and conclusion of evaluation aspects
In this paragraph aspects are looked at to evaluate the basic need for partner’s pension to conclude which of the three situations is plausible:
-‐ There is still a need for partner’s pension, but the level of the partner’s pension can be
adjusted;
-‐ There is still a need for partner’s pension and the level of the partner’s pension is fine;
In the next table the aspects and the conclusion about the need and the level of the benefit is shown. The table 3.4 merges tables 3.1 to 3.3.
Need Level of the benefit
Nuptiality rate Need slightly declines due to slightly
less married people
No information
Participation rate Need declines due to increase of the
working population
Level of the benefit declines due to increase of working hours
Mortality rate Need declines, but probably due to
registered partnership not in data of CBS
No information
Total income Total income give not much
information
Total income give not much information
Purchasing power No information Purchasing power is too
erratic to conclude something about the coverage
Conversion Need is existing, because only 14
percent of the participants converted their partner’s pension to old age pension.
No information
Soft aspects People expect that government will
take care of them
No information
Table 3.4: Conclusions of the all aspects about the need for partner’s pension and the level of the benefit of partner’s pension
Table 3.5 simplifies table 3.4 by replacing the text by plusses or minuses.
Need Level of the benefit
Nuptiality rate +/- Participation rate - -/- Mortality rate - Total income Purchasing power ? Conversion +/+ Soft aspects +
Table 3.5: Conclusions about Need and Coverage after the demographic aspects. Empty is no information. +/+ is increase, + is slight increase, +/- is the same, - is slight decline and -/- is decline
The need for partner’s pension in the table shows some erratic conclusion. According to the participation rate and the mortality rate the need must decline, but the conversion and the soft aspects conclude that there is still a need. These last aspects show a stronger conclusion than the first aspects so there is still a need for partner’s pension.
The conclusion about the level of the benefit of partner’s pension is difficult due to a lack of available information. Only the increase of the participation rate concludes that the level can decline.
Overall conclusion is that there is still a need and the level of the benefit of partner’s pension can change. Because the pension sector is under pressure (see chapter one, one of the motivations) the level of the benefit of partner’s pension can perhaps decline to reduce the total costs of the pension sector.
In the next chapter recommendations are made to change the level of the benefit of partner’s pension and the effects of these changes are shown.
Chapter 4 - Recommendations and evaluation
The previous chapter concluded there is still a need and the level of the benefit of partner’s pension can change. In this chapter recommendations are made to alter partner’s pension and effects of these alternations are shown. The level of the benefits is different for each recommendation.
In paragraph 4.1 the different recommendations are presented. Also the evaluation criteria, the simulation method and the assumptions are described. In paragraph 4.2 the
recommendations on average people (representative participants) are looked at and
evaluated with the mentioned criteria. In paragraph 4.3 the effects of the recommendations on some sample pension funds will be shown. In the last paragraph conclusions about the different recommendations are made.
One final remark is, because partner’s pension of the first pillar is small and also more difficult to alter due to all political influences, only the second pillar is looked at.
4.1 Recommendations
In this paragraph the created recommendations are explained. Then the evaluation criteria are listed to know on what the recommendations are evaluated.
Accordingly the method of evaluating, the simulation is described. In the last subparagraph the assumptions used in the simulations will be told.
Only the most important elements are mentioned in this paragraph. In Appendix 2 the complete picture of the recommendation and the assumptions of the simulations are given.
4.1.1 Description of the recommendations
The recommendations are income dependent partner’s pension and income and age dependent partner’s pension.
Recommendation 1 is the income dependent partner’s pension. The level of the benefit of partner’s pension is dependent on the income of the participant (see Appendix 2 for the percentages and boundaries). In the previous chapter there was some doubt about the level of the benefit of partner’s pension. Individuals with lower incomes are more dependent on the partner’s pension from the second pillar. Individuals with higher incomes will arrange extra partner’s pension in the third pillar. The risk of this recommendation is that the partner’s pension of individuals with higher incomes is not sufficient.
