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Optimizing the life cycle path of pension premium payments and the pension ambition in the Netherlands

Author

Listed:
  • Harry ter Rele

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Carolijn de Kok
  • Nicoleta Ciurila

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Peter Zwaneveld

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Pension premium rates and pension benefits are independent of age or family situation in the second pillar of the Dutch pension system. In a life cycle model calibrated on Dutch data we investigate the optimal arrangement of pension premiums and benefits taking into consideration two factors: the fact that incomes generally rise with age and the presence of children in the early years of the household. Our analysis points out that due to these factors lifetime welfare can be raised by a delay of pension premium payments towards later working ages. A lower pension ambition further enhances lifetime welfare. Taking these factors into consideration when designing the pension system increases lifetime welfare by an amount that equals a 3.4 percent increase in lifetime consumption if no borrowing constraints are imposed and 2.8 percent if, more realistically, we impose these constraints. Family size (i.e. number of children) has a large impact on optimal pension premiums and optimal pension ambition. Policy conclusions from our results should carefully weigh the calculated welfare gain against possible negative and positive effects of non-modelled aspects.

Suggested Citation

  • Harry ter Rele & Carolijn de Kok & Nicoleta Ciurila & Peter Zwaneveld, 2021. "Optimizing the life cycle path of pension premium payments and the pension ambition in the Netherlands," CPB Discussion Paper 421, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:421
    DOI: 10.34932/84hj-7f75
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    References listed on IDEAS

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    1. Optimizing the life cycle path of pension premium payments and the pension ambition in the Netherlands
      by Christian Zimmermann in NEP-DGE blog on 2021-10-05 13:49:27

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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