Old-age poverty in Germany: What we can learn from the Netherlands

Pension systems in Europe
At least 1200 euros pension: why there is no old-age poverty in the Netherlands

Germans fear poverty in old age

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According to a study, many Germans fear poverty in old age. Very few believe that the statutory pension is sufficient in old age. In the Netherlands it looks different. What are our neighbors doing better?

Every second German is afraid of poverty in old age – this is the result of a study by Deutsche Bank. Accordingly, only one in six believes that the state pension is sufficient in old age. So you have to save privately if you don’t want to be poor in old age. Most of them know that too – and yet they don’t really get out of the kink.

Because the sums that are set aside are not enough. According to the study, Germans save around 50 euros a month, although they believe that it should actually be 200 euros. And: The investment should be safe. So the savers circumnavigate the stock markets and choose savings or overnight accounts with mini-interest. And so the money does not increase by itself. In the worst case, some retirees will be dependent on basic security or a basic pension despite private pension provision.

Pension systems in Europe: At least 1200 euros pension: Why there is no old-age poverty in the Netherlands

© statista

The pension dilemma in Germany

The topic of pensions is a decades-old dilemma in Germany: Due to demographic change, fewer and fewer young people will have to support more and more old people in the future. There are currently around 100 contributors for every 60 retirees. This value will be 1: 1 in ten years at the latest. The government knows the problem and is already pushing tax money into the pension fund – and not too tightly. Around a third of all income is required for retirement. An insane system, already today. Young people will work longer and have to pay more. Nevertheless, none of this will be enough.

A look at the Netherlands shows that pension systems can also work very well. There, pensioners receive a similar amount of pension as the last salary paid. There is also a minimum pension, which is 1200 euros per month. There are no lower pensions in the Netherlands. But our neighboring country not only relies on state pensions, but also on company pension schemes: “We still have the second pillar, the company retirement provision, from which many receive very high salaries. For many Dutch people, half of their income in old age comes from state pensions and the other half from company pension schemes, “says Theo Kocken, Dutch economist and entrepreneur at the moment.

This is how the pension works in the Netherlands

In principle, the pension in the Netherlands is similar to the German system: a mix of state, company and private pension schemes. However, there are very big differences in the design. In the Netherlands, for example, the pension is not linked to previous income. Even those who did not have a job requiring social security will receive a pension. The only requirement is that you have lived in the Netherlands between the ages of 15 and 65. Anyone who reaches this age of 50 is entitled to the basic pension. And that is 70 percent of the minimum wage for single people, couples receive 50 percent each. The Dutch minimum wage is currently a good 1200 euros.

With this amount, at least old-age poverty is off the table – but it is not really a good life either. This is where the company pension scheme comes into play. This form of pension is compulsory in the Netherlands, around 90 percent of all Dutch people pay into the company pension together with the company. Private old-age provision is hardly an issue in the Netherlands – those who can afford it still put money on the high edge. But low-wage earners in particular rely on the two strong pillars of the pension system.

How is the pension funded?

How can such a pension solution be financed? The contribution level for the state pension is 18 percent, which is similar to that in Germany: There is, however, a big difference: while in this country the employer and employee share this contribution, in the Netherlands this tax has to be borne by the employees alone. “The employer does not give anything to it. Therefore there is also a saying here, that is: ‘You work for the pension.'”, So Kocken at the “Zeit”.

The company pension scheme, on the other hand, is shared between the company and its employees. “With increasing income, so do the contributions. So if you have paid in for a long time – and a lot -, with the second pillar you often get an income in old age that was above the average net salary in the working phase. On average, the Dutch come in the second pillar to 40 years of contributions. So we have many well-secured pensioners in the Netherlands, “said Kocken at the” Zeit “.

High output load

Mathematically, the pension system of the neighboring state is already blooming: a low-wage earner comes to an OECD calculation with a net replacement rate of 105 percent, i.e. after paying taxes and social security contributions, he has more money from his pension than from his wages. This is also due to the fact that the tax burden in the Netherlands is full: From an annual income of over 66,000 euros, 52 percent income tax is due. In addition, there is the 18 percent for pension insurance. And other taxes such as health insurance contributions.

Old-age poverty does not seem to be the problem in the Netherlands – but only those who work continuously and as long as possible can get a good pension. Because without the company pension (i.e. for the unemployed) an important component of the system is missing. In addition, the payments to the state pension fund are not sufficient in the Netherlands either. The state has to spend tax money on the pensions. And so the young people in Germany and the Netherlands share a less positive perspective: work longer – and preferably without being unemployed for a long time. The retirement age for the neighbors is already 66 years and has been raised to 71 years.

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