Dutch and Danish experience

Consistent state support, public education, long-standing savings traditions and employer involvement are the reasons why Denmark and the Netherlands enjoy more well-being in old age than the rest of the world. (It is now important for Latvia to learn from successful pension systems in Western countries.)

As in Latvia, in the Netherlands and Denmark, pension systems consist of three levels, the first of which is the state-guaranteed pension. Its amount does not depend on the paid social insurance contributions, as in Latvia, but on the time the person has lived or worked in one of the countries. Each year worked or lived allows a person to accumulate 2% of the state pension. At the same time, the living conditions of the population are taken into account in the Netherlands, for example, a single retired Dutchman can receive a pension of up to 70% of the minimum monthly wage, which amounts to around € 1,300. In turn, spouses or persons with a spouse can receive up to 50% of the minimum monthly salary. On the other hand, Danish residents who have lived in the country for at least 40 years receive a fixed pension. In 2019, they were 838 euros per month – almost a fifth of the average salary in Denmark. If you live in the country for less than 40 years, the amount of the pension will be proportionally smaller, so the poorest pensioners will receive an additional state pension of up to 900 euros.

The majority of Danish and Dutch pensions are not state pensions, but second-level savings, which are paid voluntarily by both citizens and employers. By agreement with the employer on the transfer of additional savings to the second pillar of the pension from the salary, in the Netherlands contributions to pension funds at this level are made by up to 90% of the Dutch population. In Denmark, on the other hand, 94% of workers make voluntary contributions. During the year in Denmark, citizens and employers pay an average of 12% of their salary at the second level. Meanwhile, in Latvia, residents make contributions to the second tier pension funds automatically from the gross salary as a part of social contributions, which is currently 6%.

The third level of pensions in the Netherlands and Denmark operates similarly to Latvia – it is independent and private, granting countries tax relief on contributions made. As most Danes and Dutch [darba ņēmēju] pay large sums already in the second pillar of pensions, then the third pillar of pensions in these countries is mostly chosen by the self-employed.

Even the richest countries in the world cannot afford to pay an old-age pension that meets the needs of their people, because the aging of the population is a major problem. In the Netherlands, the first and second pension levels provide 71% of a person’s living income, while in Denmark they provide 74%. In Latvia, the first and second pension levels in general could provide a maximum of 40% of working life income, therefore voluntary savings in the third pension level have a different meaning and without them it is practically impossible to ensure the usual quality of life in old age.

Source: Diena.lv by www.diena.lv.

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