Kicking the can up the road… Pension wealth in the Netherlands
Since 2007, the increase of the wealth of Dutch pension funds has been much larger than the value of the entire government debt. The Dutch are however still cutting pensions as the ‘risk free rate’ used to discount future obligations is decreasing. Between 1992 and 2014, average return on investment was a whopping 7,9%. In the future, this will be quite a bit lower (Back of the envelope: lower inflation:-2%. Lower increase of population: -0,5% Lower economic growth: -0,5%). The ‘risk free rate’ (which is hardly risk free, as it changes all the time) is however supposed to be 1,9% – while the real rate of return in 2014 was 14,5%….The point is that many households or building corporations (who, in the Netherlands, own a lot of houses), are eager to re-finance their mortgage and loans with a 3% new loan (which is about 50% higher than the 1,9% rate). No, that’s not risk free either. But helping households to refinance might be a less risk strategy, in a macro-economic sense, than cutting pensions.