Workers with no occupational pension also save little privately

A large group of Dutch people consistently do not accrue pension entitlements

In 2020, approximately 1.7 million Dutch people with income from work did not participate in an occupational pension scheme. These schemes supplement the state pension and ensure that working people do not experience a large drop in income after retirement. Roughly half of the group without occupational pension accrual were self-employed in 2020; the other half were employees. This amounts to about 13% of employees and 94% of self-employed (see Figure 1). These percentages remained stable between 2016 and 2020. 

Figure 1 - Percentage of employees and self-employed with and without occupational pension accrual in 2020

Note: Results based on calculations by DNB using non-public microdata from Statistics Netherlands.

Employees who do not accrue an occupational pension are often under the age of 40, female, and  have a migration background. Employees without a fixed employment contract and employees in small companies are less likely to accrue an occupational pension. These characteristics barely changed over the period 2016-2020.

Self-employed persons almost exclusively accrue an occupational pension in sectors for which a compulsory arrangement applies. In all other sectors, they hardly do so. In most sectors, only between 2% and 4% of self-employed persons build up an occupational pension. Self-employed people with a higher income are more likely to participate in these schemes.

A prolonged period of non-accrual leads to inequality

Most self-employed persons who do not accrue pension entitlements in a given year do not accrue a pension in later years either.  An analysis of the period 2016-2020 shows that of the self-employed persons who did not accrue a pension in the first year, 92% were still self-employed with no pension accrual five years later. The group of employees who do not accrue pension is also very consistent.

The fact that groups of workers do not compensate for lagging accrual in other years leads to a very unequal distribution of pension entitlements. Figure 2 shows that those contributing in 2020 had a significantly higher future discounted value of entitlements than the groups that did not contribute in that year. The median (50th percentile, p50 in the figure below) worker with occupational pension in 2020 had a discounted value of pension entitlements that is worth around €100,000, while the median worker without occupational pension had only accumulated a quarter of that amount.

Figure 2 - future discounted value of pension entitlements for 10th, 25th, 50th, 75th and 90th percentile, by 1) type of employment and 2) occupational pension status 

Note: Results based on calculations by DNB using non-public microdata from Statistics Netherlands.

Lagging pension accrual is not compensated for with other assets

Lagging pension accrual would be less of a problem if it were compensated for with other assets. This is seldom the case.

Very few assets are built up through other forms of savings, such as life insurance. These other forms of savings are voluntary and subject to the same favourable tax treatment as occupational pension savings, but only compensate to a very limited extent for the absence of an occupational pension. Approximately 8%of employees contributed to voluntary pension savings schemes in 2020. Self-employed people build up a voluntary pension slightly more often than employees (11%). More self-employed people participate in voluntary schemes than in occupational schemes. It is to be expected that workers without an occupational pension will be more likely to participate in voluntary pension schemes. This is not the case, however. Self-employed persons without occupational pension accrual participate as often in the voluntary schemes as self-employed persons with occupational pension accrual. This case is similar for employees: those without occupational pension are also less likely to build up a pension voluntarily.

Total assets also hardly compensate for lagging occupational pension accrual (see Figure 3). This figure, showing net assets, includes home equity, business equity and financial assets, including savings. The median employee with an occupational pension in 2020 had approximately €40,000 more net assets (€132,802 vs €90,455) than the median employee with no occupational pension, possibly because employees with occupational pensions have a somewhat higher income.  Employees without occupational pensions therefore also build up fewer other assets. The median self-employed person without an occupational pension had substantially more total assets (€196,622) in 2020 compared to both self-employed persons with accrual (€166,432) and employees. The larger amount in home equity of self-employed persons is an important factor here. These assets are less liquid, however, and cannot in all cases be regarded as a substitute for retirement income. 

Figure 3 - net total assets by type of employment in 2020

Note: Results based on calculations by DNB using non-public microdata from Statistics Netherlands.

Weighing up the advantages and disadvantages of intervention

In summary, the overall picture is that a substantial proportion of Dutch employees and self-employed people do not contribute to occupational pensions for multiple  years in a row. They do not compensate for this with other forms of retirement saving. Consequently, there is a risk that this group of employed and self-employed people will face a sharp drop in income upon retirement and experience financial difficulties as a result.

It is up to politicians to decide whether other forms of retirement saving should be encouraged more. Some of the measures that can be considered, such as communication targeted to groups that accrue little pension, will meet with little resistance but may also have a limited effect. More intrusive measures are also conceivable, such as requiring groups with lagging pension accrual to start saving for retirement, or enforcing existing obligations more strictly.

On the one hand, working people should be encouraged to accrue sufficient pensions. On the other, many self-employed people value the freedom to decide for themselves which part of their income they save, and how. These interests must be balanced carefully.