The General Old Age Pensions Act (AOW) in the Netherlands, a cornerstone of the nation’s welfare state since 1957, is facing increasing pressure due to the aging population and economic shifts, requiring potential reforms. The current system, designed to provide a basic income for retirees, is now seen as disproportionately benefiting higher-income individuals while placing a heavy burden on lower-income workers.

Introduced by Minister Ko Suurhoff and Prime Minister Willem Drees, the AOW initially aimed to alleviate poverty among the elderly, providing a fixed benefit upon retirement at 65. While the initial benefits were modest, the AOW provided a safety net for 740,000 Dutch citizens. However, nearly sixty years later, the system is struggling, with concerns about the sustainability and fairness of the current structure. The core issue lies in the combination of a degressive premium system and the allocation of benefits to individuals who may not need them.

Workers contribute 17.9 percent of their income towards AOW premiums, but this contribution is capped at 5,664 euros. This means that high-income earners pay a significantly smaller percentage of their income compared to lower-income individuals. Simultaneously, a considerable portion of AOW benefits goes to affluent pensioners with substantial pensions, mortgage-free homes, and considerable savings. This situation contradicts the original intention of the AOW, which was to provide a basic provision rather than an insurance policy benefiting everyone regardless of their financial need.

Since 2000, the premium percentage has been capped at 17.9 percent. With the government covering the remaining amount from general funds. Consequently, the treasury contribution has risen to 28 billion euros, exceeding the 23 billion euros collected from premiums. One proposed solution involves abolishing the premium levy altogether and funding the AOW entirely from general funds through a tax increase. This would ensure that those with the greatest financial capacity, including wealthier AOW recipients, contribute more to the system.