The Netherlands adopts individual pension accounts like Chile's model

The Netherlands retires its collective model and copies individual accounts

The pay-as-you-go system has an expiration date in the Netherlands. At least, that is how the reform approved in January and effective since last July presents itself, shifting toward individual savings accounts for old age, the same design José Piñera implemented in Chile in 1981. It is important not to exaggerate: the Dutch system was never a state monopoly. The repealed model already relied on company plans funded by periodic contributions, with an estimated coverage of 80% of the workforce.

With this shift, all workers will be able to accumulate funds in individual accounts and choose different risk profiles, with a transitional period of five years that will lead to full implementation by 2028. The fine print, as almost always, is something else.

What exactly changes with the new Dutch pension system

The fundamental change is not moving from a public to a private system, but transforming collective company plans. Much of Dutch pensions depended on defined benefit schemes, meaning a promise of a specific income in exchange for contributions. The new framework converts them into defined contribution schemes: a fixed amount is contributed, and the payout depends on what that fund has yielded upon retirement. The promise disappears; the risk remains.

And that is the point most debated. A defined contribution system is, for the harshest critics, little more than a transfer of uncertainty onto the participant's shoulders: it acknowledges the inability to predict inflation and calculate returns over forty years. What the reform does not eliminate is the basic public pension, which continues to exist as the system's floor.

What does it cost to move from pay-as-you-go to capitalization?

This is the question that derails almost all debates. Current Dutch pensioners and those who have contributed for some time will continue to receive payments from the State, not from the new accounts, according to participants in the debate. No one will be left without income due to a change in model. This means that for a time, two systems will have to be funded simultaneously, and that is where any reform usually stalls.

The British case is cited as a reference. When the UK moved from a pay-as-you-go system to a mixed scheme in the seventies, it left a whole generation in a transitional regime that still struggles. Critics also highlight the less publicized aspect: during these years, the State retains contributions that will no longer go into any individual account and that the worker will never see under their name, according to those who criticize the pay-as-you-go model. The bulk of the transition is paid by, according to this argument, those who will not receive the new system.

The Dutch system already had three pillars and a pension of 1,200 euros

It is worth looking at the starting point, because it dismantles the narrative of golden pensions in the north. The Netherlands had a basic public pension for everyone from the age of 65, with an average amount, according to the data used in the debate, around 1,200 euros. It is neither a miracle nor insignificant: according to some, it is even below the average Spanish pension. On top of this floor were company plans, and above them, individual private savings.

This is the three-pillar scheme that works, with nuances, in much of northern Europe: Germany, Austria, Switzerland, or Sweden. The lesson is always the same: a pure state system rarely pays generous pensions, and supplementary capitalization is what sustains the pensioner's standard of living. Here, however, the second pillar remains almost decorative.

Is Chile the mirror to look into?

Here, versions clash head-on. Defenders of the Chilean model highlight the star figure: an average real return of 8% since 1981, four decades of contributions converted into wealth. Critics respond that this system is now being dismantled in haste and that its social impact was devastating, to the point of attributing part of the protests that shook the country to its design.

Both things can be true at once, and that is the uncomfortable part. Capitalization generates returns and also, critics admit, pockets of precariousness among those who contributed little or poorly. An individual account only protects in proportion to what is put inside. The debate, therefore, is not whether the mechanism works, but who is left behind.

Those who reach old age without having saved anything

This is the main argument for those who defend maintaining intergenerational solidarity. The pay-as-you-go system, they recall, was created precisely to protect those who had no children to support them in old age and were left unprotected. If everything moves to individual accounts and someone did not save, who prevents them from ending up selling what they have? Examples of countries without a safety net are used as warnings: scenes of elderly people on the streets that no one wants to see here.

The counterargument comes from the north: in countries with mixed systems and a sustained culture of saving, there are no homeless elderly. The difference, they argue, is not in distributing or capitalizing, but in fostering individual responsibility from the first paycheck. On paper, it sounds impeccable. It remains to be seen what happens with those who do not make it.

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The Netherlands may end up being the dress rehearsal for a transition that Central Europe watches sideways. If the filming until 2028 goes well, more countries will be encouraged to cut the cord of pay-as-you-go. If it goes badly, the Dutch shift will be archived as the warning no one wanted to hear in time.