Opportunities for improving pension wealth decumulation in the Netherlands

Abstract

This paper examines policies for the decumulation of pension wealth in the Netherlands. It suggests a design framework based on economic theory and international evidence. The central message is that a well-designed pension system has an important – although certainly not exclusive – role for annuities in the decumulation phase. Relative to the current situation in the Netherlands – and in sharp contrast to most other developed countries – this framework suggests that the welfare of citizens in the Netherlands might be improved by reducing the level of mandatory annuitization in order to address liquidity needs, precautionary motives, and bequests. Specifically, it suggests that instead of compulsory annuitization of all retirement wealth, individuals be required to annuitize a minimum amount in a reliably inflationindexed annuity, and that some additional amounts of annuitization be structured as automatic with an opt-out. It also suggests that a wider array of annuity structures would be beneficial.

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