Journal Article

The Top Three Pension Systems: Denmark, Finland, and the Netherlands

Valkonen, Tarmo, Määttänen, Niku, Westerhout, Ed, Lassila, Jukka, Hougaard Jensen, Svend E.

2020

Overview

According to the 2018 Mercer Global Pension Index, the pension systems of Denmark, Finland, and the Netherlands are the best three in the world. They ensure a minimum old age income for all and provide relatively high replacement rates for a large majority of citizens. At the same time, their fiscal sustainability is relatively robust with respect to population aging. This article seeks to identify differences and similarities between these three pension systems, including the institutional framework within which they operate. The authors emphasize the collective and compulsory nature of the earnings-related pension schemes and the important role for social partners in decision making as their common elements of success. They also discuss the most important challenges these systems face, namely, how to maintain the legitimacy of their decision-making processes given declining unionization and how to avoid restricting individual choices too much. TOPICS: Retirement, social security, pension funds, wealth management Key Findings • The 2018 Mercer Global Pension Index ranked the pension systems of Denmark, Finland, and the Netherlands as the best three in the world. Their common strengths include minimum old-age income for all and relatively high replacement rates for most citizens, together with substantial funding and automatic links between the pension eligibility age and life expectancy, which improve their fiscal sustainability. • The important role of “social partners”—representatives of employers and employees—in the three pension systems have likely been critically important to get acceptance for policies preparing for future demographic burdens and to protect the pension systems from populist proposals. • The pension systems may be subject to some legitimacy issues. This is the case because 1) participation in the pension systems is mandatory for workers; 2) decision makers are often elected based on low voter turnouts among union members; and 3) unionization is declining in all three countries. Another challenge these pension systems face is how to provide sufficient flexibility regarding individual saving for old age within a compulsory system.

• Publisher: Pageant Media
• Subject: Adverse selection / Costs / Economic development / Funding / Pension plans