Another Dutch Miracle? Explaining Dutch and German Pension Trajectories

Abstract

This paper compares old-age pension policy trajectories in the Netherlands and Germany. These two advanced welfare states have developed different financial arrangements despite similarities in policy legacies, political institutions and party systems. Both countries established and extended comprehensive pay-as-you-go financed public pension schemes in the 1950s and 1960s. However, the Netherlands achieved a fully fledged multi-tiered pension system with a strong funded component, while until recently the German system relied almost exclusively on pay-as-you-go financing. The Netherlands has, therefore, a financially more viable and sustainable set of pension arrangements than Germany, at least under the current and foreseeable economic and demographic conditions. The paper reconstructs the pension trajectories in the two countries in order to explore the role of path dependency, political choice and contingency in explaining this divergence. It is argued that divergence is essentially unrelated to different strategic choices or variations in institutional capacities for reform. Instead, divergence is the largely unintended consequence of a series of incremental decisions in combination with contingent events and developments.

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