Intergenerational Transfers in the New Dutch Pension Contract

This paper measures intergenerational transfers through the solidarity reserve of the newly proposed Dutch occupational pension contract. Our first conclusion is that the role of the solidarity reserve is higher than it may appear at a first glance. The fraction of pension savings that can go directly into the solidarity reserve is limited to 10%. However, we find that, in addition, around 30% of the pension savings of a young worker can subsequently be transferred to the solidarity reserve via a levy on future positive excess returns. Our second finding is that the solidarity reserve can introduce a substantial pay-as-you-go element within a funded pension scheme. This feature of the solidarity reserve can be overlooked easily and is not mentioned in the pension bill. Our policy recommendation to pension funds is to make explicit whether or not there is a pay-as-you-go element via the solidarity reserve, and if so to assess whether this is desirable.