Dutch State Pension Age Should Be Linked to Education Level Say KPMG

It is unjust that the differences between the higher and lower educated in the Netherlands are not taken into account when determining the state pension age, according to accountancy bureau KPMG.

Lower educated people often start working at the age of 16, while higher educated employees only start working around the age of 25. Furthermore, those who are lower educated have a lower life expectancy, which means they on average receive a state pension for four years less than the highest educated.

“The result is that the lower educated in relation to their lifecycle receive the state pension much later than the higher educated,” KPMG Advisory actuary and partner Egbert Kromme, said. “On an annual basis the lower educated miss out on around €0.5bn to €1bn in state pension payments and thus ‘subsidise’ the higher educated.”

KPMG believes this inequality can be solved by linking the state pension age to education level.

Image: Dutch Royal Actuarial Society

Data by the Dutch Royal Actuarial Society shows that in 2018 the average life expectancy of a 66-year-old is 87 years. Kromme said: “That means that the people who reach state pension age in 2018 have on average reached 76 per cent of their life expectancy. The difference in life expectancy between the lower and higher educated is large, however, and has a high correlation with the income and welfare level.”

KPMG has developed a new model that determines the influence of education and income on people’s life expectancy. Kromme explained: “It turns out 66-year-olds without a secondary education in 2018 have
an average life expectancy of 84 years. They only receive a state pension after having reached 79 per cent of their life expectancy. The 66-year-olds in 2018 with a university degree have an average life expectancy of 88 years. So they receive a state pension once they’ve reached 75 per cent of their life expectancy.”

Kromme therefore calls for all Dutch people reaching state pension age once they have reached a similar percentage of their life expectancy.

“This can be done budget neutrally at 76 per cent, taking into account the different classes of education level as identified by the Central Bureau of Statistics. This means that someone with the lowest education level in 2018 has a state pension age of 64 years and 3 months rather than 66 years. For the highest educated this is 67 years and 3 months. In between those there are two education levels for which the state pension age in 2018 is 65 years and 3 months and 66 years and 3 months.

“It’ll be evident that this education level-based state pension age will need to increase in line with the future increases in life expectancy. In practice this means that the education level-based state pension age is also expected to have to rise by three months every two or three years.”

ABC Note: 

The Dutch AOW pension (paid under the National Old Age Pensions Act, AOW) is a basic state pension. As a rule, everyone who has reached the AOW pension age and lives or has lived in the Netherlands is entitled to an AOW pension. We will pay your AOW pension with effect from the day you reach the AOW pension age that applies for you. It makes no difference in which country you live at that time.

When will you get your AOW pension?

Most people will be insured under the AOW scheme automatically.

The AOW scheme is an insurance scheme which covers everyone who lives or works in the Netherlands, regardless of nationality. For every year that you are insured, you build up rights to 2% of the full AOW pension. If you have been insured for the full 50 years preceding your pension age, you will get a full AOW pension. For example: if your AOW pension age is 65 and one month, your AOW pension will be based on your insurance record between the ages of 15 and one month and 65 and one month. If your AOW pension age is 66, your AOW pension will be based on your insurance record between the ages of 16 and 66.