Pension benefits at risk due to extremely low interest rates

You may also be concerned about your pension, given the poor investment performance of most funds in recent times. And since the European Central Bank (ECB) has already lowered its key interest rate to zero percent since March 2016, the prospects will not improve for most pension funds.

Influence of credit crisis

As a result of the credit crisis, most pension funds have found themselves in dire straits and, as a result, the pension prospects for most Dutch people are considerably less favorable than before. Many funds have seen their coverage ratio fall to far below the minimum due to disappointing investment results, which in fact means that these funds will no longer be able to meet their obligations in the long term if they do not take strict measures. The bizarre thing, however, is that the measures that pension funds have to take to be able to meet their obligations again mean, among other things, that, in addition to increasing premiums, the level of pension benefits must also be addressed. Through freezing, reduction and higher pension contributions. This means that the necessary austerity measures to guarantee your pension will unfortunately be paid by you yourself.

Indexing frozen

To give an example: The current coverage ratio of many pension funds has fallen below the minimum level set by the government. But as long as the coverage ratio is not at least approximately 105%, indexation will generally not be allowed. Indexation means that the benefit is increased annually in connection with inflation. However, indexation is not possible for most funds in the first few years, which means that the purchasing power of those benefits decreases every year due to the freezing of benefits. It is little consolation that inflation is currently, and perhaps for the next few years, at a low level.

Measures you can take yourself

First of all, you should realize that a pension benefit is always only a supplement to your AOW and that that AOW is probably indexed annually. This therefore implies that your total income will not be frozen after your retirement, but only the pension fund part. But that does not alter the fact that it is wise to take a number of precautions.

  • Try not to start with debts and, if you own a home, try to have it mortgage-free when you retire, because that will save you a lot of interest. Since you may fall into a lower tax bracket if you stop working, you may also receive less tax back if you become eligible for retirement and the interest costs of the mortgage will therefore increase when you cannot use such an increase in tax at all.
  • If you no longer work, it may be possible to move and live more cheaply in another region of the country, for example from Randstad to Drenthe, to name a few.
  • You may already have a nice amount left over if you sell your relatively expensive (large) home and move to a cheaper home, so that you can occasionally supplement your benefits.
  • However, continuing to work may also be an option to maintain finances. When the demand for staff picks up again, it will not be difficult to find a job for 1 or 2 days, even if it is only a healthy activity as a postal worker. And if you are handy, you can earn some extra money as a handyman. Or try to buy things cheaper via Marktplaats than then sell them again. And there are still countless possibilities.
  • Emigrating is also an option. Your state pension and pension follow you wherever you move. At least within Europe, and most likely beyond. It’s a matter of informing. Dutch seniors have settled in many tropical countries, where they rent a house for little money and the cost of living is a fraction of what it is here. In India, for example, a meal in a restaurant costs €1, while you get a cup of coffee for €0.10. Moreover, most people speak some English and are friendly too. The medical facilities in India are of a high Western standard and you do not need a car because a taxi also costs very little. There are already many Dutch seniors at the counter in Indonesia. But a little closer in Portugal, the cost of living, although not as extremely cheap, is also cheaper. Of course, it will take some research regarding insurance, taxes, etc. before you leave and experience the Zwisterleven feeling.

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  • Retired people over 65 are once again in financial trouble
  • The number of incomes with a state pension gap is increasing explosively