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Trust and Distrust in Pension Providers in Times of Decline and Reform: Analysis of Survey Data 2004–2021

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Trust in pension providers by participants is essential because pension providers try to fulfill their pension promises in a fundamentally uncertain world. Reforms and crises are therefore the ultimate testing ground for pension trust. In this paper we estimate with repeated cross-sectional survey data how trust and distrust in Dutch pension funds and the government have evolved over the period 2004–2021 and what the impact of financial stability on trust in these two institutions has been. Financial stability of pension funds, measured by their funding ratio, is shown to affect trust positively, but it does not decrease distrust significantly. Based on the estimation results, achieving a situation where the majority of the adult population trusts pension funds is likely to be attained at funding ratios of 115 or higher. Financial stability of government (measured by government debt/GDP ratio) does not affect either trust or distrust levels. Underlying drivers of distrust and trust such as personal characteristics are also notable: self-employed are more prone to distrust pension funds than employees. Women are more than men likely to take a neutral position.
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De Economist (2022) 170:401–433
https://doi.org/10.1007/s10645-022-09411-x
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ORIGINAL PAPER
Trust andDistrust inPension Providers inTimes ofDecline
andReform: Analysis ofSurvey Data 2004–2021
HendrikP.vanDalen1,2 · KèneHenkens1,3,4
Accepted: 25 July 2022 / Published online: 26 September 2022
© The Author(s) 2022
Abstract
Trust in pension providers by participants is essential because pension providers try
to fulfill their pension promises in a fundamentally uncertain world. Reforms and
crises are therefore the ultimate testing ground for pension trust. In this paper we
estimate with repeated cross-sectional survey data how trust and distrust in Dutch
pension funds and the government have evolved over the period 2004–2021 and
what the impact of financial stability on trust in these two institutions has been.
Financial stability of pension funds, measured by their funding ratio, is shown to
affect trust positively, but it does not decrease distrust significantly. Based on the
estimation results, achieving a situation where the majority of the adult population
trusts pension funds is likely to be attained at funding ratios of 115 or higher. Finan-
cial stability of government (measured by government debt/GDP ratio) does not
affect either trust or distrust levels. Underlying drivers of distrust and trust such as
personal characteristics are also notable: self-employed are more prone to distrust
pension funds than employees. Women are more than men likely to take a neutral
position.
Keywords Pensions· Trust· Funding ratio· Pension funds· Government
JEL Classification D14· G2· G4· H55
* Hendrik P. van Dalen
dalen@nidi.nl
1 Netherlands Interdisciplinary Demographic Institute (NIDI-KNAW)/University ofGroningen,
P.O. Box11650, 2502ARTheHague, TheNetherlands
2 Tilburg School ofEconomics andManagement (TISEM), Tilburg University, P.O. Box90153,
5000LETilburg, TheNetherlands
3 University Medical Center Groningen (UMCG), University ofGroningen, P.O. Box72,
9700ABGroningen, TheNetherlands
4 Department ofSociology, University ofAmsterdam, Nieuwe Achtergracht 166,
1018WVAmsterdam, TheNetherlands
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H.P.van Dalen, K.Henkens
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1 Introduction
Trust in pension providers lies at the heart of offering a pension insurance contract (Barr
& Diamond, 2006). The future is uncertain and as a consequence of this property pen-
sions offered by pension funds or the government are by their very nature incomplete
contracts as not every possible contingency can be covered. The governance structure
behind pension contracts is therefore essential in making pension plans credible and
hence trustworthy (Admati, 2021; Besley & Prat, 2005). The fact that within the OECD
(2017) most governments are considering or implementing pension reforms is a reflec-
tion of the so-called incompleteness of pension contracts. Pension programs may have
turned out to be financially unsustainable in light of population ageing or not in tune
with the requirements of the labour market where lifetime jobs have become rare and
contractual flexibility a force to be reckoned with. Certainly pension providers offering
defined benefit contracts are more likely to experience reforms as these promises are
particularly vulnerable to increasing life expectancies or low interest rates (Bovenberg
& Gradus, 2015). The pension system of the Netherlands may be a case in point. Even
though the system is ranked among the best in the world among pension experts (see
the annual Mercer Global Pension Index), according to the Dutch government the old
system is “teetering”. And as they stress in their justification of pension reform plans:
“Without innovation, the chances are high that trust in our pension system will erode
even further” (p. 4, Ministry of Social Affairs & Employment, 2020).
The consequences of pension policy decisions in terms of trust of participants or the
citizens at large are easily posed but rarely made concrete. In this paper we examine,
first of all, the development of trust in pension providers over the past 2decades for the
case of the Netherlands and, secondly, raise the question whether changes in trust are
linked to the financial sustainability of these pension providers.
Understanding the development of trust and distrust in pension providers is of
utmost importance for two reasons. First of all, because shocks in pension poli-
cies are likely to be accompanied by losses of trust whenever vested interests of
specific groups are at stake, but the real issue is whether trust can recover once
the dust of a shock has settled, or whether trust has been replaced by distrust.
Once the latter becomes a reality, pension providers may become more risk averse
or more averse to take necessary corrective reforms. A second reason why the
development of trust across time is an important topic is because changes in trust
levels may affect individual decisions in savings, investment and work across the
lifetime. So far, these dynamic issues of trust have not been well covered in the
pension literature for plausible reasons. The current scholarly literature on pen-
sion trust is small but gaining depth over time and relies mostly on cross-sectional
studies. The examination of trust in pension providers (Van Dalen & Henkens,
2018; Van der Cruijsen etal., 2021a; Vickerstaff etal., 2012) relies on a diverse
body of literature on trust in organizations and institutions which in turn draws
on insights of disciplines like economics, marketing, psychology, management
and political science. The core of the matter in measuring and explaining trust
revolves around the assumption that trust is both a trait of the trustee (namely a
pension provider)—perceived trustworthiness—as well as the person or trustor
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Trust andDistrust inPension Providers inTimes ofDecline…
who has to trust others—the propensity to trust [cf. Mayer etal. (1995)]. The per-
ceived trustworthiness of financial institutions is shown to consist of a multitude
of characteristics, although in most studies the elements of ability, benevolence
and integrity are central to understanding trust (Pirson & Malhotra, 2011; Van
Raaij, 2016; Vickerstaff etal., 2012). Van Dalen and Henkens (2018) show that
the perceived integrity, competence, stability, and benevolence of pension pro-
viders matter in assessing the trustworthiness of pension providers. Much less
is known about changes in trust over time and the objective factors affecting the
pension industry that influence these changes.
The difficulty in assessing and comparing developments across time is that
such an exercise is not only affected by the events of the day—such as crises
or policy reforms—but also the composition and characteristics of birth cohorts
that make up a population. Changes in trust might be related to the entry and
exit of generations/cohorts entering the work force. These generations may be
characterized by a different composition of the workforce (e.g., the percentage
of self-employed) and different levels of education. And the cohorts, themselves
may also contain a different spirit or attitude towards pensions as generations may
have encountered different capital market experiences or economic crises (Mal-
mendier & Nagel, 2011; Sunde & Dohmen, 2016) and hence be affected in their
outlook or behaviour with respect to trusting financial institutions.
A key element in perceiving pension providers as trustworthy is the perceived
financial stability (Van Dalen & Henkens, 2018). However, the trust literature
rarely employs real-time indicators of pension providers like asset positions of
pension funds or government debt levels in case of government in its role as pen-
sion provider. Of course, the lack of research on such issues is in part affected by
the lack of longitudinal data to track changes in trust in pension funds as a group,
or lack of data on individual pension funds in a cross-sectional setting.
A final point that is not yet covered in the current literature on pension trust is
the distinction between trust and distrust. Despite the fact that trust surveys are
based on items that could offer a more fine-grained analysis, the research itself
generally focuses on trust as if it is a binary choice—you either trust someone
or some institution or not. However, this base category—not expressing trust—
could be a mixture of being neutral or distrustful. We deviate from this standard
practice in this paper by examining whether there are asymmetric reactions across
time between those who trust and who distrust pension providers to developments
in financial stability. An important reason for looking into this issue is based
on insights in other disciplines where trust and distrust leads to more depth in
understanding reactions of people to actions of organizations (Kramer, 1999; Van
de Walle & Six, 2014). And in our study of pension trust this distinction might
enlarge our insight into the building and regaining of trust. A common saying that
captures the concerns of organizations is that “trust takes years to build, seconds
to break and forever to repair” and the asymmetry that is part of radical changes
in trust can only be examined by looking closely how people who have lost trust
and those who still have trust differ in their response to, e.g., the financial stabil-
ity of pension providers.
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H.P.van Dalen, K.Henkens
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In this paper we will explain differences in trust and distrust in Dutch pension
providers across time using data gathered at eight measurement points covering
the period 2004–2021 by using repeated cross-sectional survey data. The central
research questions in this paper are: (1) whether there are substantial differences
across time in trust and distrust and (2) does the financial stability of pension funds
and government—as approximated by their funding ratio and government debt
position—play a role and if so to what extent? The data to be used to answer these
questions relies on data collected in a uniform manner by one research institution
(Centerdata, Tilburg University). The trust of citizens in pension providers is meas-
ured and analysed for two pension providers: the government as provider of a public
pension and privately organized pension funds which offer a supplementary pension
on top of the public pension.
The outline of the paper is as follows. In the next section we will give a short
literature overview of the relationship between pension trust and financial stability
and subsequently offer some context in Sect.3 on the Dutch situation on both these
aspects. Section 4 will cover issues concerning the operationalization of concepts
used and the details of the data used and the methodology used to answer the two
research questions. Section5 reports on the estimation results and Sect.6 concludes
with a discussion of the results obtained.
2 Theories ofTrust andDistrust
The importance of trust in economic life resounds in a statement by Arrow (1972):
“Virtually every commercial transaction has within itself an element of trust, cer-
tainly any transaction conducted over a period of time.” A common definition of
trust is that an individual or an institution—the trustee—will perform actions that
are beneficial (or at least not detrimental) to the party—the trustor—that enters into
a contract. This contract can be a formal contract but often the contract is an infor-
mal one, i.e., behavioural rules that are embodied in social norms and practices. In
the case of pension contracts, the element of time is an important element as pen-
sion finance covers a lifetime and, depending on the type of contract, this may also
involve substantial risk pooling within and between generations. Trust in the finan-
cial institutions that organize and finance pension programs on behalf of citizens is
therefore essential, but lapses in trust are also understandable given the nature of an
uncertain world and the number of stakeholders involved.
In economics much weight is attached to analysing trust by focusing on direct
interactions and subsequently distilling ‘revealed’ levels of trust based on laboratory
experiments.1 Increasingly, attitudinal measures of trust are considered informative
because these measures offer more opportunities to include real life elements that
come into play in economic transactions [cf. Sapienza etal. (2013)]. Certainly, in
1 In economic theory trust is always involved in economic interactions and is often captured in game
theoretic terms like so-called trust games; games in which actions of trustors reveal their trust by invest-
ment decisions, which can be reciprocated or abused by the trustee [see Berg etal. (1995)]. See Johnson
and Mislin (2011) for a meta-analysis of the various experimental outcomes.
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Trust andDistrust inPension Providers inTimes ofDecline…
the case of pension institutions laboratory experimental outcomes have limited eco-
logical validity because in many countries where mandatory enrolment in pension
programs exists direct interactions—that figure so prominently in lab experiments—
between trustors (participants in pension programs) and the trustee (the pension pro-
viders) are rare.
To gain insights in the development of trust in pension institutions domain spe-
cific measures of trust in institutions are important. In this paper we focus our atten-
tion on so-called broad-scope trust which is the trust in a group of financial institu-
tions, such as pension funds. However, we also focus on the government as pension
provider and one can say that this paper also focuses on narrow-scope trust because
there is only one provider when it comes to public pensions, viz. the government.
The key hypothesis in this study is that financial stability is a direct driver of trust
and distrust in pension funds and the governments as pension provider.
The reason why (financial) stability is deemed such an important element in
increasing the trustworthiness of financial institutions is that organizations that are
solvent can make good on their promises and offer a stable pension benefit or sta-
ble pension premiums in the case of pension funds. As shown in Van Dalen and
Henkens (2018), stability as perceived by the general population is one of the most
important predictors of trust in pension funds. This conclusion is based on a cross-
sectional study which raises questions about causality and other biases such a com-
mon method bias. For a more solid test of the relationship between financial stability
and trust we need to incorporate actual financial indicators that are specific to the
various pension providers in the analyses.
The reason for looking at both trust and distrust of pension providers is linked to
developments within the trust literature in organization science (Kramer, 1999), psy-
chology (Schul etal., 2008) and political science (Bertsou, 2019; Van de Walle &
Six, 2014). This literature indicates that a distinction between trust and distrust may
be important as both groups may consist of distinctly different types of people and
these differences may translate in divergent reactions. E.g., Schul etal. (2004, 2008)
show by means of experiments that individuals use different strategies depending on
whether the environment is characterized by trust of distrust (as manipulated by the
setup of the experiment). When individuals sense they should be on guard they are
likely to avoid routine strategies, routines that have proven to be optimal and regu-
larly used in normal environments. When an environment is in state of flux it might
be beneficial to be distrustful as the routines and decisions you would have made in
normal times are no longer optimal. However, sticking to being distrustful in normal
times may also have the side-effect of using routines that are not adapted to such
times. The political science literature shows a growing distrust towards political and
public institutions (Cook & Gronke, 2005; Van de Walle & Six, 2014), which in
turn seems to reveal deep-seated discontent and eroding support for the government.
However, one should be careful not to take a one-sided view of the concept of dis-
trust as it does not necessarily have a negative connotation as one can distil from the
work of classical liberal writers [see Hardin (2002) for an overview]. Distrust can
be an essential building block of the checks and balances in democracies as vigilant
citizens might offer a stimulus for trustees to perform well and perhaps also offer
insights or information that would not come to light by those who completely trust
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H.P.van Dalen, K.Henkens
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a government. Fein (1996) also points out the other possibility that information that
makes people suspicious might lead to a state of attributional conservatism, in other
words, thresholds for accepting behavioural information is elevated. Once distrust
is based on deep-seated discontent and interaction and information is cut-off, the
virtues of distrust disappear and distrust become a threat to the existence of an insti-
tution in a manner akin to the analysis of exit, voice and loyalty within organizations
and states of Hirschman (1970). The positive side of distrust can been found in the
option of voice: airing complaints and trying to get heard in the hope that things
will improve while remaining loyal. In the case mandatory pension systems like the
Dutch system, the option of voice is particulary important because the exit option—
or to vote with one’s feet—has been ruled out by definition. The negative sides of
distrust becomes visible when loyalty and hope for improvement are lost and voice
is no longer seen as an effective option. At that point the option of exit becomes real,
but it is difficult to predict how this willl materialize in a setting where participa-
tion is mandatory. Given that private pensions in most societies are intertwined with
decisions made and regulated by governments it is not only important to focus on
pension funds but also the government, and see how distrust and trust in both these
institutions fare over time.
3 Context: Pensions intheNetherlands
In order to understand the issue of trust in the Dutch context it is necessary to keep
in mind the key players that figure prominently in the Netherlands in the provision
of pensions, and the timeline of the most prominent developments that have taken
place in the recent decades that may have entered the minds of citizens.
3.1 Benefits andPremiums
In the Netherlands, most employees save and accumulate pension rights within a
three-pillar system: (1) a basic public pension plan (the so-called ‘AOW’) provided
by the government; (2) a mandatory supplementary pension plan sponsored to large
extent by employers and provided and managed by pension funds; and (3) individ-
ual voluntary pension savings. Up and till this day the public pension—financed
on a pay-as-you-go basis—in combination with the supplementary pension provi-
sions are for most Dutch citizens the basic elements of what citizens consider “their
pension”. It should, however, be mentioned that currently developments are taking
place which may give a different outlook for the future workers. Increasingly self-
employed may be tempted or forced to accumulate pension savings (Hershey etal.,
2017) and high-income employees may also be forced to supplement their pension
savings by voluntary savings as a cap is placed on the level of income covered by
second pillar pension provisions. The government is pulling back as a (fiscal) spon-
sor for these arrangements. It restricts the coverage of gross incomes up to 112,189
euros (for the year 2021, per annum), but pressures are mounting to lower this cap
substantially.
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Trust andDistrust inPension Providers inTimes ofDecline…
Both the public and supplementary pension have been defined in terms of ben-
efits, with premiums and taxes endogenously derived, whereas by 1 January 2023 a
new pension system based on Defined Contribution (DC) plans pension system will
replace the current defined benefit (DB) system, which is expected to give rise to
more variable pension benefit outcomes than is currently the case. However, the new
system also provides for some intergenerational risk sharing making this system de
facto a collectively defined contribution (CDC) system.
3.2 Governance
The governance of Dutch pensions is perhaps more complex than what is found
abroad. The supplementary pension plans are agreed upon at a collective level in
sectors of industry or within large companies between the so-called social part-
ners: the employers or their representative organisation and the trade unions which
represent the employees. Whenever an employer offers a supplementary pension
scheme, participation by employees in that particular pension provider is manda-
tory. Although most Dutch employees accumulate their pension rights with pension
funds, a small and increasing number of employees are covered by insurance com-
panies offering DC pensions. Pension funds are non-profit organisations, where key
policy decisions are made by the so-called social partners: the employer(s) or their
representatives and the trade unions which represent the employees. Employees and
pensioners of a pension fund can also be represented in the participants’ council,
which gives solicited and unsolicited advice to the board of directors. However, in
actual practice, most funds have outsourced their administration and/or asset man-
agement to for-profit pension organisations. To regulate the pension sector there are
two organizations active to supervise pension funds and insurers: the central bank
De Nederlandsche Bank (DNB) and the Dutch Authority for the Financial Mar-
kets (AFM). Under the Pensions Act and the Financial Supervision Act, the DNB
closely monitors the financial and management operations of the pension providers.
The task of the AFM is more limited but may gain more prominence in the new
pension system. By law, pension providers are obliged to provide certain informa-
tion to their stakeholders. The AFM checks that pension providers are meeting these
requirements.
3.3 Expectations
In the Netherlands, approximately two thirds of the pension premium is paid or
sponsored by the employer and the remaining third by the employee. By and large,
most Dutch employees have until now a defined benefit pension plan. In the past,
these benefits were promised in terms of a certain percentage (usually 70–75%) of
an employee’s final gross pay based on 40years of contributions. Over time, this
ambition has been toned down to guaranteeing the benefit to a percentage of the
average pay over the employee’s career. And during the last 10, 15years, pension
funds have come to realise that the promises they made in the past are now unten-
able and the indexation of pension rights and benefits has not been applied for the
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H.P.van Dalen, K.Henkens
1 3
majority of pensioners. The funding ratio—the ratio of assets divided by the liabili-
ties/promises—of pension funds captures the financial health of pension funds. It is
however particularly vulnerable to developments in investments and interest rates.
The increase in life expectancy, the various crises on the stock market, and the his-
torically low interest rates, have made it difficult to match assets with future liabili-
ties. The funding ratio is more or less designed to capture short or medium term
capital market developments. However, when developments appear or turn out to
be long-term, like zero or even negative interest rates, pension funds may find it dif-
ficult to take corrective action and only a lenient pension regulator can soften these
worries. The development over time of the funding ratio of Dutch pension funds—
total assets divided by the total liability provisions made for (future) pensioners—is
presented in Fig.1.
This figure clearly shows the impact of a number of crises on the financial sus-
tainability of pension funds. The twenty-first century has been a volatile period for
pension funds, which is a result of both the credit crisis and the subsequent crash
on the stock market as well as the fall of interest rates to historically low levels.
To interpret Fig.1, one should keep in mind that a funding ratio of 100% implies
that pension funds have no resources to index the pension rights of participants for
inflation. Under the current rules of the pension law with a funding ratio of approxi-
mately 104 or lower pension funds should take corrective action in accordance with
the Dutch pension regulator to bring the funding ratio to a safer level (in most cases
between 104 and 110). And pension funds are allowed to index for inflation once the
funding ratio has reached the level of 110 or higher. An earlier study in 2008 among
trustees of Dutch pension funds Van Dalen et al. (2012) show that conservatism
80
90
100
110
120
130
140
150
160
170
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Funding rao (x100)
Fig. 1 Average funding ratio of Dutch pension funds, 1987–2020. Note: The funding ratio is defined as
the total assets divided by the total liability provisions made for (future) pensioners (‘voorziening pensi-
oenvoorziening’) discounted by the risk-free market interest rate. Source: CBS Statline and DNB Pension
statistics
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Trust andDistrust inPension Providers inTimes ofDecline…
among board members may be at play in granting extra indexation of pension ben-
efits. Their study shows that there are strong asymmetries in making decisions on
indexation (and other key instruments). Even at a funding ratio of 130, which trus-
tees at that time considered optimal, no or limited indexation was their preferred
choice. Based on the strict regulation of the pension regulator DNB, one could say
that the funding ratio is more or less internalized by the Dutch pension industry. A
major reason why the pension regulator puts so much emphasis on strictly keeping
an eye on the funding ratio is tied to the dominance of defined benefit pensions in
the Dutch case which were seen for guarantees cast in stone. In order to keep those
promises alive pension funds have to accumulate more buffers than those pension
providers, like insurance companies, who offer defined contribution contracts. This
aspect is perhaps illustrative of a country whose pension history is firmly based in
defined benefit contracts which in turn lead to all kinds of dilemmas that are related
how one views or perceives the pension contract, either as a complete or incomplete
(or implicit) contract [cf. Clark and Monk (2008)].
Pension funds are required to maintain buffers that are capable of absorbing
financial shocks. For example, if share prices fall sharply, such a buffer may prevent
a pension fund from facing a funding deficit. The level of that buffer is expressed
as the "required funding ratio". Pension funds are financially healthy if they meet
the required funding ratio. The level of the required funding ratio is not the same
for all pension funds. Those that take greater risks when making their investments
have a higher required funding ratio, as they need a higher buffer to absorb finan-
cial setbacks. The level of the required funding ratio therefore reflects the risk level
that a pension fund faces. In other words, this could mean that a pension fund may
be perfectly healthy if its funding ratio is 110% or higher, whereas another is only
financially sound at 120%.
The other central actor that we examine in this paper concerns the government
as a key pension provider, which is relevant to understand trust certainly in the era
which we are going to examine. The pension system was, ever since the start of the
twenty-first century. under scrutiny, leading to a closing down of early retirement
arrangements in 2005, but in the aftermath of the credit crisis of 2008, the Dutch
government wanted to take concrete steps to think about reforming the pension sys-
tem and in 2011 the government together with social partners agreed on increasing
the statutory retirement age to 66 by 2020 and to 67 by 2025. One year later the
plans were revised and the pension law was amended whereby the retirement age
of 66 would now be achieved by the year 2019 and the age of 67 by the year 2023.
However, in June 2015 the retirement age was increased even further. The govern-
ment was encountering fiscal pressures, starting in 2012, from the Structural Growth
Pact of the EMU as government debt level exceeded the threshold level of 60% and
the long-run budgetary position did not look promising. Earlier research on accept-
ance of Dutch statutory retirement age reform by Parlevliet (2017) showed that up
to 2012 the Dutch public supported a higher retirement age, but in 2013 this support
plummeted. Increasing the public pension age was key is solving this pressure, and
by the year 2022 the pension age would be linked to the average life expectancy at
410
H.P.van Dalen, K.Henkens
1 3
age 65. This abrupt change was met with a strong reaction by the unions. Especially
older workers were caught by surprise (Van Solinge & Henkens, 2017), but the rapid
increase in retirement ages also led to considerable concerns among employers (Van
Dalen etal., 2019).
As one can see in Fig.2, the financial crisis led to an abrupt jump in the govern-
ment debt ratio as well has years of relatively high budget deficits. By mid-year 2016
a series of budget surpluses were to be followed again by a steep rise of the govern-
ment debt and a series of budget deficits to finance the consequences of the Covid
crisis. In June 2019 the government and social partners finally agreed upon the tran-
sition to a new pension system. The new pension rules are expected to come into
force no later than on 1 January 2023. Before 1 January 2027 at the latest, employ-
ers, employees and pension providers must have brought their pension schemes
with pension build-up in line with the new system. Between 2023 and 2027, the
employers’ organizations and trade unions and pension providers can make agree-
ments about the new pension schemes and about the question on how to make the
transition from the current Defined Benefit system to the new Defined Contribution
system.
-10
-8
-6
-4
-2
0
2
4
0
10
20
30
40
50
60
70
80
1999 Q4
2000 Q3
2001 Q2
2002 Q1
2002 Q4
2003 Q3
2004 Q2
2005 Q1
2005 Q4
2006 Q3
2007 Q2
2008 Q1
2008 Q4
2009 Q3
2010 Q2
2011 Q1
2011 Q4
2012 Q3
2013 Q2
2014 Q1
2014 Q4
2015 Q3
2016 Q2
2017 Q1
2017 Q4
2018 Q3
2019 Q2
2020 Q1
2020 Q4
government deficit (%gdp)
government debt (%gdp)
Deficit Government debt
Fig. 2 Government debt and budget deficits and surpluses in the Netherlands (% GDP), 1999 Q4-2021
Q2. Source: CBS Statline
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Trust andDistrust inPension Providers inTimes ofDecline…
4 Data andMethodology
4.1 Data
We used data collected by surveys that were designed to measure trust in pension
fund providers at eight points in time, to wit the years 2004, 2006, 2009, 2011,
2014, 2015, 2020 and 2021. Response rates of the various survey years vary from
65 to 81 percent (see “Appendix”). The fieldwork was carried out by the Centerdata
of Tilburg University, initially through the Center-panel (2004–2015) and the for last
2years through the LISS panel. Both are (primarily) internet panels. The number or
respondents used by Center-panel surveys varies between approximately 1900–2100
respondents, whereas the LISS panel has in principle approximately 7500 individ-
uals who can participate, although most sample sizes were tailor-made to specific
projects as for the current project for the waves 2020 (1625) and 2021 (2876). All
individuals in these panels were selected on the basis ofa true probability sample
of households drawn by Centerdata fromthe population register by Statistics Neth-
erlands. The total sample in this study covers 16,352 respondents. The attrition rates
in the panels are quite high so that these this dataset is not suitable for analyses of
changes in trust over time at the individual level. In this article the data are analysed
as a repeated cross-sectional survey dataset.
4.2 Dependent Variables
Our central measures of trust concern the question whether respondents trust the
two most dominant institutions in the Dutch pension system (1) pension funds as
the (most dominant) organizations providing a supplementary pension; and (2) the
government as the provider of a public pension (AOW). The questions that opera-
tionalize and capture trust in these institutions—pension funds and government—
is the question: “To what extent do you trust the following institutions in offering
a comfortable pension?”, with answer categories: (1) no trust; (2) little trust; (3)
neutral; (4) some trust; and (5) a lot of trust. Distrust is defined as the state where
respondents express little or no trust (1–2), and trust is the state where they express
some or a lot of trust (4–5).2 Obviously these are broad-scope trust measures of pen-
sion funds and not trust measures of the specific pension funds of participants (Van
der Cruijsen etal., 2021a). Because the general population is asked to respond to
these questions, for some the trust question about pension funds will be somewhat
abstract as they have no employment history and have thereby not accumulated sup-
plementary pension rights., whereas the government as pension provider will by its
very nature as provider of a public pension be more concrete as everyone is covered
by a public pension.
2 For a full overview of the distribution of answers across the various sample for these five categories,
see “Appendix” Table6.
412
H.P.van Dalen, K.Henkens
1 3
To explain the development of trust over time we made use of the following set
of variables: (1) year of birth, converted into specific birth cohorts3; (2) gender; (3)
partner status (with partner or not); (4) highest attained educational level; (5) pri-
mary position on the labor market (employee, self-employed, disabled, unemployed,
retired, and a residual group with other positions outside the official labor market
(like student, those taking care of the household, volunteer, non-paid labor within
the household or family business unpaid work with a social security benefit). The
funding ratio in the quarter preceding the survey data collection period was used to
capture the financial health of the pension funds. Where quarterly data were unavail-
able (at the start of the observation period), yearly data preceding the data collection
period were used (see Table9 in the “Appendix”). Table1 provides an overview of
the descriptive statistics of the variables used. This table shows that in the full sam-
ple, the level of trust in pension funds (47%) is higher than the trust in the govern-
ment as pension provider (38%). Distrust is lower for pension funds (22%) than for
the government as pension provider (30%).
4.3 Method
To be able to analyse trust and distrust as a discontinuous outcome variable we use
multinomial logistic analyses in which the category ‘trust’ and the category ‘dis-
trust’ are compared to the category of respondents who took a ‘neutral’ position.4
In analysing repeated cross-sectional survey data one should, first of all, be careful
to not interpret the estimation results as giving insight into how specific individuals
change their level of trust or distrust over the sample period 2004–2021. The present
data structure gives primarily an insight into how the opinion of an aggregate popu-
lation or group changes and how trust or distrust is affected by the financial stability
of pension providers.
For analysing repeated cross-sectional surveys, we assume that an observation yi
(i = 1, I)—the trust level in pension providers—for the respondent who is of age j,
for the survey year of t obtained from the repeated cross-sectional survey, is speci-
fied using the following model:
with j = 1,2, J; t = 1, 2, …. T; n = 1,2, …. N; and where
𝛼
is the constant term, Xi
is the row vector representing all the relevant explanatory variables associated with
observation i and
𝜷
is the transpose of the row vector, Aj the effect of the jth year-
old person; Pt, the effect of the survey year t; Cn the effect of the n-th birth cohort;
and
𝜀i
the disturbance term with mean zero and variance
𝜎
2. In the present case there
(1)
yi
=𝛼+𝜷
X
i
+A
j
+P
t
+C
n
+𝜀
i
4 To test the proportional odds assumption underlying an ordered logistic analysis we have used the
Brant-test (Brant 1990) which shows that this form of analysis violates the parallel regression assump-
tion. The multinomial logit is in that respect a more appropriate form of regression analysis.
3 The number of observations per cohort across the various samples is presented in Table 7 in the
Appendix”, as well as the levels of trust across cohorts for the various sample years.
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Trust andDistrust inPension Providers inTimes ofDecline…
Table 1 Descriptive statistics Frequencies (%)
Trust in pension funds as pension provider
Distrust 22.3
Neutral 31.0
Trust 46.7
Trust in government as pension provider
Distrust 29.8
Neutral 32.1
Trust 38.1
Year
2004 12.6
2006 11.1
2009 12.4
2011 13.0
2014 13.1
2015 11.6
2020 9.6
2021 16.7
Age (in years) Mean = 52.8years
(s.d. = 16.3)
Birth yeara
1920–1929 1.9
1930–1939 9.6
1940–1949 19.6
1950–1959 22.3
1960–1969 17.3
1970–1979 16.5
1980–1989 8.8
1990–1999 4.0
Labour force position
Employee 46.5
Self employed 4.5
Pensioners 25.1
Unemployed 2.4
Disabled 4.3
Other 17.2
Level of educationb
Elementary 5.2
Lower vocational 24.4
Intermediate vocational 20.4
Intermediate general 11.2
Higher vocational 25.9
University 12.8
Gender
414
H.P.van Dalen, K.Henkens
1 3
are only three outcomes (distrust, neutral and trust) which are explained in a first
step by gender, highest level of education, labour market position, partner status.
Using age-period-cohort (APC) analysis with repeated cross-sectional data
involves some methodological challenges, as noted by a diverse set of authors, start-
ing with Heckman and Robb (1985) and more recently by the work of Fosse etal.
(Fosse & Winship, 2019; Fosse etal., 2020) and Bell and Jones (2014). The main
issue revolves around the identification problem. This arises because there is an
exact linear dependence between age, period and cohort (Period = Age + Cohort).
Every solution to this problem gives the reader a second-best or third-best view of
what is happening to some outcome variable in terms of these APC variables. Only
by imposing strong assumptions can one solve this technical conundrum. As Bell
(2020) notes in in a review article about the array of ‘solutions’ to the APC prob-
lem: “None of these methods solve the identification problem—rather they acknowl-
edge that methods are limited by assumptions.” Heckman and Robb (1985) propose
in dealing with this problem to assume specific measured variables that proxy the
underlying unobserved variables. They assume the age or period or cohort effect is
proportional to some other substantive variable.
In the present paper we restrict in our analysis the age parameters to zero and
focus on the cohort effects in the realization that the estimates can reflect both age
and cohort effects. And because we are mainly interested in discovering the issue of
whether trust is related to the financial health of pension funds or the government,
we will replace the year effects by proxy variables: average funding ratio in the case
of pension funds and the government debt/GDP ratio in the case of the government.
For both our models of trust/distrust in pension funds and that in government two
versions are estimated. The first version includes the survey year as a predictor vari-
able as well as a set of control variables that includes birth cohorts, the labor force
position, the level of education, gender and partner status [cf. Parlevliet (2017)]. To
correct for within respondent effects (i.e., the presence of respondents being in more
a See Table 7 for how the cohorts are distributed across the several
survey years
b Educational categories are based on highest attained educational
level: elementary = primary school; lower vocational = vmbo; inter-
mediate general = havo, vwo; intermediate vocational = mbo; higher
vocational = hbo; university
Table 1 (continued) Frequencies (%)
Male (reference) 51.9
Female 48.1
Partner status
No partner (reference) 24.9
Partner 75.1
N = 16,352
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than one wave5) we will use the clustering option to generate robust standard errors.
In the second version we replace the year dummy variables by an indicator of finan-
cial stability: the funding ratio for the case of pension funds and government debt
for trust in the government. In this second version we use robust standard errors
allowing not only for within respondent correlation in the analyses but also for intra-
year correlation by means of two-way clustering, to take care of the multilevel struc-
ture of the data.
5 Results
The results of the multinomial logit analyses of trust and distrust in pension funds
and the government are presented in Table2 by means of average marginal effects,
in other words the marginal effect of changing the values of covariates on the prob-
ability of observing a specific outcome (being distrustful, neutral or trustful). For
instance, those having a university education decreases the average probability
of being distrustful and neutral towards pension funds by 0.09, resp. 0.15 and it
increases the average probability of having trust in pension funds by 0.24 (summing
up by definition to zero), compared to the reference category of those with only ele-
mentary education.
The first three columns contain the results for the case of pension funds and the
fourth to sixth columns contain results the corresponding models for the case of the
government in its role as provider of the public pension. The coefficients in both
models show that trust and distrust in pension funds as well the government differ
over time. To get a more refined insight of this development the predicted margins
for trust levels across years (controlling for all individual level variables included
in the model) have been presented in two figures. Figure3 displays the percentage
of trust in pension funds and the government for subsequent survey years between
2004 and 2021. Figure4 displays the distrust levels in pension funds and the govern-
ment across the same sample period.
As one can see in these figures, at the start of the twenty-first century citizens had
considerable trust in pension funds and were considerably distrustful about the gov-
ernment as pension provider. With the emergence of the credit crisis in 2008, this
level of distrust about the government became less prominent and trust in pension
funds steeply declined and distrust increased considerably, but in the years after the
crisis people regained some trust in pension providers, although the distrust did not
decline. It is, however, noteworthy to see that in times of crisis the trust in these two
institutions can switch rank: whereas pension funds experienced a steep decline in
trust, the government gained some trust. In 2009 both the government and pension
funds were considered to be equally trustworthy in the eyes of citizens. This is a
unique moment in time because in normal, non-crisis times the government has a
significant lower level of trust compared to pension funds. This ‘crisis effect’ on
the level of trust in government could be due to the fact that the Dutch government
5 Of the total sample 38 percent of the respondents appears more than one time in the dataset.
416
H.P.van Dalen, K.Henkens
1 3
Table 2 Explaining trust and distrust in pension providers by Dutch citizens in the years 2004–2021, average marginal effectsa
Trust in pension funds Trust in government
Distrust Neutral Trust Distrust Neutral Trust
Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE
Year (ref = 2004)
2006 −0.03** 0.01 0.00 0.01 0.04 0.01 −0.03* 0.01 0.02 0.01 0.01 0.01
2009 0.07*** 0.01 0.06*** 0.01 −0.13*** 0.02 −0,07*** 0.01 0.02 0.01 0.05* 0.02
2011 0.06*** 0.01 0.03* 0.01 −0.09*** 0.01 −0.05*** 0.01 −0.01 0.01 0.06*** 0.01
2014 0.09*** 0.01 −0.03* 0.01 −0.06*** 0.02 0.01 0.01 −0.05*** 0.01 0.04** 0.01
2015 0.12*** 0.01 0.01 0.01 −0.13*** 0.02 0.10*** 0.02 −0.02 0.01 −0.07*** 0.01
2020 0.12*** 0.01 −0.01 0.01 −0.10*** 0.02 0.07*** 0.02 −0.06*** 0.02 −0.01 0.02
2021 0.06*** 0.01 0.03* 0.02 −0.09*** 0.01 −0.02 0.01 −0.01 0.02 0.03* 0.01
Birth cohort (ref = 1920–1929)
1930–1939 0.05 0.02 0.06* 0.03 −0.11** 0.04 0.08** 0.03 0.07* 0.03 −0.16*** 0.04
1940–1949 0.08** 0.02 0.03 0.03 −0.12** 0.04 0.14*** 0.03 0.07* 0.03 −0.21*** 0.04
1950–1959 0.09*** 0.02 0.04 0.03 −0.13*** 0.04 0.16*** 0.03 0.07* 0.03 −0.23*** 0.04
1960–1969 0.14*** 0.02 0.10** 0.03 −0.24*** 0.04 0.14*** 0.03 0.10** 0.03 −0.24*** 0.04
1970–1979 0.17*** 0.02 0.10** 0.03 −0.28*** 0.04 0.14*** 0.03 0.09** 0.03 −0.23*** 0.04
1980–1989 0.18*** 0.02 0.14*** 0.03 −0.32*** 0.04 0.14*** 0.03 0.12*** 0.03 −0.26*** 0.04
1990–1999 0.14*** 0.02 0.22*** 0.04 −0.36*** 0.04 0.12** 0.03 0.17*** 0.04 −0.29*** 0.04
Labour force (ref = employee)
Self employed 0.12*** 0.02 −0.00 0.02 −0.11*** 0.02 0.05* 0.02 0.02 0.02 −0.07*** 0.02
Pensioners −0.04** 0.01 −0.02 0.02 0.06*** 0.02 0.02 0.02 −0.01 0.01 −0.01 0.02
Unemployed 0.04 0.02 0.02 0.02 −0.06* 0.03 0.06* 0.02 0.03 0.02 −0.08** 0.02
Disabled workers 0.06** 0.02 0.05* 0.02 −0.11*** 0.02 0.09*** 0.02 −0.03 0.02 −0.06* 0.02
Other 0.01 0.01 0.03* 0.01 −0.04** 0.01 0.01 0.01 0.01 0.01 −0.02 0.01
Education (ref = elementary)
417
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Trust andDistrust inPension Providers inTimes ofDecline…
N = 16,352. Estimated with multinomial logit with neutral category as the reference category.; ***p < 0.001; **p < .01; *p < 0.05. Dy/dx = average marginal effects of
covariates (x) on outcomes of distrust, neutral, and trust (y)
a Standard errors controlled for cluster effects at respondent level. Due to rounding errors the marginal effects across outcomes may not some up to zero
Table 2 (continued)
Trust in pension funds Trust in government
Distrust Neutral Trust Distrust Neutral Trust
Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE
Lower vocational 0.02 0.02 −0.07** 0.02 0.05* 0.02 −0.02 0.02 −0.02 0.02 0.04 0.02
Intermediate vocational −0.02 0.02 −0.08*** 0.02 0.10*** 0.02 −0.05* 0.02 −0.02 0.02 0.07*** 0.02
Intermediate general −0.03 0.02 −0.12*** 0.02 0.15*** 0.02 −0.10*** 0.02 −0.05* 0.02 0.15*** 0.02
Higher vocational −0.06*** 0.02 −0.12*** 0.02 0.18*** 0.02 −0.12*** 0.02 −0.05* 0.02 0.17*** 0.02
University −0.09*** 0.02 −0.15*** 0.02 0.23*** 0.02 −0.17*** 0.02 −0.10*** 0.02 0.26*** 0.02
Gender (ref = male)
Female 0.01 0.01 0.06*** 0.01 −0.07*** 0.01 −0.02 0.01 0.06*** 0.01 −0.04*** 0.01
Partner (ref = none)
Partner 0.01 0.01 −0.00 0.01 −0.01 0.01 0.04*** 0.01 −0.02* 0.01 −0.02* 0.01
Pseudo R20.05 0.03
418
H.P.van Dalen, K.Henkens
1 3
in 2009 came to the rescue of banks that were ‘too-big to fail’ (like ING and ABN
AMRO) and indirectly prevented a further crash for pension funds.
The sudden drop in trust in both pension funds and the government between 2014
and 2015 can be ascribed to the fact that the Dutch government agreed to speed up
the rate at which statutory retirement ages were set to increase, thereby lowering the
long-term government expenditures on public pensions.6 Because supplementary
pensions and the public pension are intertwined, and the blame for increasing the
public pension age seems to have been shifted to the government and to a far lesser
extent to the pension funds. Figures3 and 4 show a widening of the gap in trust and
distrust between these two pension providers. After 2015 we see a slight recovery
in trust in the government which might be related to the adjusted pension reform
concluded in 2020 in which the government reduced the pace of the increase of the
public pension age in response to political pressure from various sides.
Next to the year dummies in Table2, several individual level factors proved to
be relevant to understand how trust in pension providers is differently perceived by
citizens. The results in the first column shows that distrust in pension funds is more
likely and trust more unlikely among younger birth cohorts, self-employed and those
20
25
30
35
40
45
50
55
60
65
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
% trust
trust pension fundstrust government
Fig. 3 Trust in pension funds and government across time. Note: Trust levels are predicted margins based
on models presented in Table2. Bars denote 95% confidence intervals
6 The pension law (‘Wet verhoging AOW- en pensioenrichtleeftijd’) was approved by the First Chamber
of Parliament on June 4, 2015 and the survey was held in July 2015. The surprise and dismay among
workers (especially older workers close to retirement) was in that respect an element that may explain
the sharp fall in trust as measured between June 2014 and July 2015. The initially announced stepwise
increase in the public pension age was apparently not that disturbing, but the fact that government broke
an earlier promise/plan may have led to this drop in trust (cf. De Beer etal., 2017).
419
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Trust andDistrust inPension Providers inTimes ofDecline…
who are disabled. The result that young birth cohorts are being more distrustful than
older cohorts may be related to the fact that their involvement and interest in pen-
sions is often low (see Hershey etal., 2017 and Van Raaij etal., 2011), but it can
also be a reflection of the fact that the demographic pressure of old aged relative
to the working age population has become higher over time. Certainly for the case
of public pension which are financed on a pay-as-you-go basis this grey pressure
ratio may be a reason for becoming more distrustful to pension promises. The result
that self-employed are particularly distrustful is a novel element which might be a
result of the fact that self-employed are often excluded from participating in pen-
sion funds once they change their status from employee to self-employed. And in
case they want to accumulate pension reserves they are confronted with the fact that
the pension premium is far higher than the privileged position of employee (in the
Netherlands on average the employer pays two thirds of the total premium and the
employee one third). But it may also signal a characteristic of the self-employed
who are sometimes forced into this position because of reorganizations within firms
or downsizing (Hershey etal., 2017) or because some self-employed are not truly
entrepreneurs: according to Kwon and Sohn (2021) self-employed and entrepreneurs
tend to work in different trust settings, with the self-employed in settings that are
highly monitored and they meet what Rousseau etal. (1998) calls ‘calculus-based
trust’; a form of trust based on rational choice, focused on the short run (contrary to
relational trust, with repeated interaction).
The results in the third column of Table2 show that these structural indicators are
more important in understanding the differences in trust in pension among different
members in society. Younger birth cohorts are compared to older birth cohorts less
0
5
10
15
20
25
30
35
40
45
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
% distrust
distrust pension fundsdistrust government
Fig. 4 Distrust in pension funds and government across time. Note: Trust levels are predicted margins
based on models presented in Table2. Bars denote 95% confidence intervals
420
H.P.van Dalen, K.Henkens
1 3
likely to be in the trust category.7 Furthermore, disabled workers and self-employed
are less likely to display trust in pension funds. The educational gradient is strong,
with in particular higher educational levels being much more likely to have trust
in pension funds. Table2 also reveals that women are more likely to belong to the
neutral category; they are less likely to trust pension funds. This gender difference
may be partially a reflection of different interests in or knowledge of pension issues
among men and women in the Netherlands (Van Raaij etal., 2011). For a long time,
the labor market histories of women differed considerably and perhaps they still do
as part-time work is still a prominent characteristic of Dutch labor force participa-
tion of women.8
The results of trust and distrust in pension provision by the government are pre-
sented in the fourth to sixth column of Table2. These results show that distrust is
more likely among disabled workers and less likely among the higher educated.
Also, with respect to the pension provision of the government, self-employed are
less likely to express trust and women, just as in the case of pension funds, are more
likely to take a neutral position.
In Table3 the results are presented of the models in which the year dummies (of
Table2) are replaced by indicators of financial stability as a proxy for underlying
unobserved variables. For the multinomial logit model on trust/distrust in pension
providers we included the average funding ratio of Dutch pension funds as a group
as predictor. And in the corresponding model for the case of (public) pension provi-
sion by the government we included government debt (as a percentage of GDP) as a
predictor variable.
The results show that the average marginal effect of a high funding ratio is associ-
ated with more people having trust in pension funds and at the same time less peo-
ple who are distrustful or neutral.9,10 The average marginal effect of the level of the
funding ratio on being distrustful (and neutral) are not statistically significant, which
suggests that one can predict what happens with trust as the funding ratio changes
but where this increase or decrease exactly comes from—distrust or neutral—is not
clear. Of course, respondents may show different reactions because they are not all
firmly tied to a pension fund compared to the employees who are by default tied
to a pension fund. To check whether respondents with different labor market posi-
tions react differently with respect to the funding ratio we also have run interactions
8 Unfortunately we could not check this further for women working full-time, because we have no infor-
mation on the number of hours of the employees in question.
9 As a robustness check for the funding ratio effect, we also estimated a version that includes age as a
continuous variable, which yielded the following set of marginal effects of the funding ratio: distrust
−0.22 (s.e. 0.14); neutral −0.19 (s.e. 0.10) and trust 0.41 (s.e. 0.09). Hence the funding ratio coefficient
hardly changes, the age coefficient is insignificant for all outcomes (p < 0.05) and the cohort effects are
also not affected in a significant manner.
10 Interaction terms between the variables for age cohort and financial indicators government/pension
funds as well as the interactions for age cohort and year are jointly statistically insignificant.
7 These cohort effects are difficult to truly pinpoint to belonging to a cohort as noted in the methodology
section on the APC identification problem. This can also be seen as an age effect as similar models using
age group dummies instead of cohort dummies shows. The older respondents are, the more they trust
pension providers.
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Trust andDistrust inPension Providers inTimes ofDecline…
Table 3 Explaining trust and distrust in pension providers by Dutch citizens in the years 2004–2021 with proxy variables for financial stability, average marginal effectsa
Trust in pension funds Trust in government
Distrust Neutral Trust Distrust Neutral Trust
Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE
Funding ratio (× 10–2)− 0.27 0.16 − 0.17 0.12 0.44*** 0.06
Government debt ratio (% gdp) (× 10–2 0.24 0.26 − 0.15 0.13 − 0.08 0.26
Birth cohort (ref = 1920–1929)
1930–1939 0.05* 0.02 0.07 0.05 − 0.12* 0.05 0.08* 0.03 0.08 0.04 − 0.16** 0.06
1940–1949 0.10*** 0.02 0.04 0.04 − 0.14** 0.04 0.15*** 0.03 0.07* 0.03 − 0.22*** 0.04
1950–1959 0.12*** 0.02 0.04 0.03 − 0.16*** 0.04 0.18*** 0.03 0.06* 0.04 − 0.24*** 0.05
1960–1969 0.17*** 0.03 0.10** 0.04 − 0.27*** 0.04 0.16*** 0.04 0.09* 0.04 − 0.25*** 0.04
1970–1979 0.20*** 0.03 0.10** 0.03 − 0.30*** 0.03 0.15*** 0.03 0.08* 0.04 − 0.23*** 0.04
1980–1989 0.22*** 0.03 0.13*** 0.03 − 0.35*** 0.03 0.17** 0.05 0.10* 0.04 − 0.27*** 0.05
1990–1999 0.18*** 0.03 0.21*** 0.04 − 0.39*** 0.05 0.14*** 0.04 0.14** 0.05 − 0.29*** 0.05
Labour force (ref = employee)
Self employed 0.12*** 0.02 − 0.00 0.02 − 0.12*** 0.02 0.05*** 0.01 0.02 0.02 − 0.07** 0.02
Pensioners − 0.01 0.02 − 0.02 0.01 0.04 0.03 0.04 0.03 − 0.02 0.02 − 0.02 0.02
Unemployed 0.05* 0.02 0.01 0.02 − 0.07** 0.02 0.07** 0.02 0.02 0.01 − 0.09*** 0.03
Disabled workers 0.07*** 0.02 0.05** 0.02 − 0.12*** 0.01 0.09** 0.03 − 0.03 0.02 − 0.06* 0.03
Other 0.01 0.02 0.03** 0.01 − 0.04* 0.01 0.01 0.02 0.01 0.02 − 0.02 0.021
Education (ref = elementary)
Lower vocational 0.03 0.02 − 0.07*** 0.02 0.04* 0.02 − 0.01 0.02 − 0.02 0.02 0.04* 0.02
Intermediate vocational − 0.01 0.02 − 0.09*** 0.02 0.09*** 0.03 − 0.04** 0.01 − 0.03 0.01 0.07*** 0.01
Intermediate general − 0.03 0.02 − 0.12*** 0.02 0.14*** 0.02 − 0.10*** 0.02 − 0.05* 0.02 0.15*** 0.02
Higher vocational − 0.05* 0.03 − 0.12*** 0.02 0.18*** 0.03 − 0.12*** 0.02 − 0.05** 0.02 0.17*** 0.02
University − 0.08** 0.02 − 0.15*** 0.02 0.23*** 0.02 − 0.17*** 0.02 − 0.10*** 0.03 0.27*** 0.03
Gender (ref = male)
422
H.P.van Dalen, K.Henkens
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N = 16,352. Estimated with multinomial logit with neutral category as the reference category; ***p < 0.001; **p < .01; *p < 0.05. Dy/dx = average marginal effects of
covariates (x) on outcomes of distrust, neutral, and trust (y)
a Standard errors controlled for cluster effects within years and at respondent level, by means of two-way clustering. Due to rounding errors the marginal effects across out-
comes may not some up to zero
Table 3 (continued)
Trust in pension funds Trust in government
Distrust Neutral Trust Distrust Neutral Trust
Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE Dy/dx SE
Female 0.01 0.01 0.06*** 0.01 − 0.08*** 0.01 − 0.01 0.01 0.06*** 0.01 − 0.04*** 0.01
Partner (ref = none)
Partner 0.01 0.01 − 0.00 0.01 − 0.01 0.01 0.04** 0.01 − 0.02 0.01 − 0.02 0.01
Pseudo R20.04 0.02
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between the funding ratio and the six labor market statuses. The outcome of this
analysis is that only pensioners show a slightly higher response to variability in
funding ratios (at p = 0.02). The other labor market positions do not show differ-
ences in reaction compared to those of employees. This higher sensitivity to funding
ratios of pensioners makes seems plausible because pensioners are often more inter-
ested in what happens with their pension income and they are, contrary to those of
working age, in a position to see on their banking account what their pension benefit
really amounts to.
The fact that the funding ratio matters is not to be interpreted as an indication the
Dutch understand and know the ins and outs of the funding ratio, but more that it has
signal function and that there may be thresholds which have financial consequences
for their pension rights. To test for an alternative indicator that captures this signal-
ing aspect, we used two alternative proxies: (1) the percentage of all pension funds
in the Netherlands in the danger zone (funding ratio < 104) as registered by DNB
with a funding ratio lower than 104; and (2) for the specific years the funding ratios
are divided into three classes to reflect some kind of non-linearity in regulatory poli-
cies: (1) lower than 104; (2) 104–110; and (3) more than 110. These tests lead one
to conclude that the higher the percentage of funds in the danger zone the less likely
respondents will express trust (at p < 0.01) and the more likely one distrust pension
funds in general (see Table4 with only the new proxy variable). The second proxy
variable shows that when the funding ratio clearly is in the healthy zone (> 110) one
can see that trust increases mainly coming from a decrease of those respondents
who were neutral.
When we turn to the effect of government debt levels on trust/distrust in govern-
ment, the results show that a higher or lower government/debt ratio is not associated
with having distrust or trust in the government as a pension provider. Of course,
government debt is—compared to the funding ratio of pension funds—an imperfect
measure as the accumulated government debt is the result of various government
Table 4 Explaining trust and distrust in pension funds by Dutch citizens in the years 2004–2021 with
alternative proxy variables, average marginal effects
***p < 0.001; **p < .01; *p < 0.05
a Percentage of all pension funds in the Netherlands with a funding ratio of 104 or lower (source DNB).
Same model as Table3 with replacement of funding ratio by % funds in danger zone and same set of
covariates
Trust in pension funds
Distrust Neutral Trust
Dy/dx SE Dy/dx SE Dy/dx SE
Variant 1
% Pension funds in danger zonea0.11** 0.04 0.04 0.03 − 0.15*** 0.04
Variant 2
Funding ratio < 104 = ref
104–110 0.01 0.03 − 0.04** 0.01 0.03 0.03
 > 110 − 0.03 0.04 − 0.06*** 0.01 0.09** 0.03
424
H.P.van Dalen, K.Henkens
1 3
outlays not just the public pension expenditures. We also experimented by using
government budget deficits (as a percentage of GDP) as an alternative predictor but
this also did not affect the level of trust and distrust in the government as a pension
provider.
To capture the size of the effects of the estimated response of trust to changes
in the average funding ratio of pension funds in more detail we present Fig.5: the
predicted margins of trust and distrust (based on the model in Table3) related by the
funding ratio of pension funds (ranging from 95 to 130).
The figure shows that the level of trust is clearly associated with the average fund-
ing ratio of pension funds. With a funding ratio of 95, the percentage of respondents
showing trust in pension funds is predicted to be 41%. With a funding ratio of 130,
the percentage of respondents showing trust is predicted to be 57%. Achieving a situ-
ation where the majority of the adult population trusts pension funds is, based on the
estimation results, attained at funding ratios of around 115 or higher.
The story is however slightly different for the case of distrust. Although we see a
decrease in the percentage of distrust across the various funding ratios—from 26%
in case of a low funding ratio of 95 to 16% in case of a high funding ratio of 130,
these differences are smaller than in the case of trust and not statistically significant
(see first column of Table3). These findings suggest that some asymmetry in the
relationship between the funding ratio and trust and distrust exists; a high funding
ratio is associated with a high trust level, but a high funding ratio is not clearly asso-
ciated with a low level of distrust as displayed in the figure by the wider confidence
intervals for the low ender and the higher end of the depicted funding ratios.
0
10
20
30
40
50
60
70
95 100105 110115 120125 130
Percentage trust/distrust
Funding rao pension funds
trustdistrust
Fig. 5 Levels of trust and distrust in pension funds for various funding ratios. Note: Trust levels are pre-
dicted margins based on models presented in Table3. Interval bars denote 95% confidence intervals
425
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Trust andDistrust inPension Providers inTimes ofDecline…
6 Pension Policy Implications
What are the lessons to be learned from comparing the trust people have in pension
funds and the government? And what might be the implications for pension policy?
6.1 Funding Ratios ofPension Funds Matter forTrust
We will start with the broad-based message that an indicator of financial health of
pension funds—the funding ratio—matters in the eyes of the general population. Of
course, it does not automatically make a pension fund trustworthy in the eyes of all,
as some remain distrustful in good times and some trustful even in hard times. But
regaining trust by improving the financial soundness of pension funds lies within the
possibilities of pension funds.
6.2 Government Finance doesn’t Matter forTrust inthePublic Pension Provider
We also considered the issue of trust in the most basic provider of a pension, viz. the
government. For the period under review estimates show that the indicator of financial
soundness of the government—public debt as a percentage of GDP—was not associ-
ated with the level of trust or distrust that the population has in the government as pen-
sion provider. An alternative indicator—the fiscal deficit (% GDP)—also did not show
a clear association. To some extent this is surprising compared to the indicator of pen-
sion funds, because both the funding ratio and the public debt level can have conse-
quences once they exceed a threshold level. Our interpretation why we see this different
reaction across pension providers may be because the funding ratio of pension funds
below a certain threshold has direct consequences for the group of pension participants,
whereas a public debt level exceeding the threshold of 60% of GDP has consequences
that are dispersed across the population. Of course, once the consequences of exceeding
this threshold are focused on the pension domain—as was the case in 2015 in speeding
up the increase of the public pension age—trust is deeply affected. This goes to show
that financial indicators may not tell the entire story and this is also the reason why dur-
ing the COVID-19 crisis the soaring public debt level did not directly impact trust in
the government as the Structural Growth Pact rules were not perceived as applicable to
the exceptional circumstances of this crisis.
6.3 Different Propensities toTrust Pension Institutions Among thePopulation
Pensioners generally have a higher level of trust than employees, self-employed are
less trusting than employees, and the lower educated are also less trusting than the
higher educated. And although one cannot pinpoint this exactly, there are signs that
older generations are more trusting than younger generations. This difference could
be a reflection of the transition that has been made in the Dutch pension system, but
it could also be that for employees they still have to wait and see what becomes of
426
H.P.van Dalen, K.Henkens
1 3
their pension savings, whereas pensioners see what those savings actually amount to
as they receive their pension benefits. These differences in propensities to trust make
it difficult to communicate pension measures in particular for the government, but
also for pension funds.
6.4 Future Implications forPolicy Reform
The transition to a new pension system in the Netherlands, a reform involving a shift
from DB contracts to a DC contract with some form of intergenerational risk shar-
ing or an (improved) DC contract (see Metselaar etal. (2022)) raises two issues that
are related to trust:
1. Searching for new indicators of sound pension finance
Given that pension promises in the new situation are no longer explicitly guaran-
teed, the use of the funding ratio will fade away. Still our analyses show how people
more or less have internalized the funding ratio as a measure of financial health of
pension funds. The open question is which indicator or set of indicators or labels
will become the new touchstone for judging whether a pension package is good and
which is under par? It would seem that this could potentially alter the pension fund
landscape radically as this will push an urge to competition among pension funds.
2. Trust and distrust matter for making individual choices
The new pension system will offer more options for choice. Participants will have
more freedom to choose with respect to timing of pensions, an option to take-up
a lump sum (at most 10%) of accumulated pension wealth and depending on the
type of DC contract to accept more variability in pension income. While choice in
the eyes of a marketing expert may be seen an unequivocally good, there are rea-
sons to be prudent in offering choice as trust or distrust of participants may generate
side-effect not envisioned by introducing them. For instance, Van der Cruijsen and
Jonker (2019) show how workers and pensioners who do not trust their pension fund
are more likely to prefer a lump sum over annuity-based arrangements. And to cite
another example pointed out by Van Dalen et al. (2022), the new pension system
will make pension benefits more uncertain. They show a clear association between
the dislike of participants for uncertain outcomes and their intended take-up rate
of the lump-sum option. And as a final implication, in the upcoming reform more
options are provided for self-employed to participate on a voluntary basis in the pen-
sion fund of their particular sector of work. The lower level of trust of self-employed
may be a sign that their interest in participating in pension funds will be modest.
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Trust andDistrust inPension Providers inTimes ofDecline…
7 Conclusion andDiscussion
Trust and distrust in pension providers in the Netherlands at the start of the twenty-first
century has been shown to be volatile. Before the Great Recession the level of trust
was high and the level of distrust low. Once the consequences of the crisis became
clear for pension funds trust dropped considerably and distrust increased. Financial
stability of pension funds as measured by the funding ratio -played a role in under-
standing the development of trust and distrust. For the case of government, financial
stability—in terms of government debt/GDP ratio—does not appear to be linked to
trust of the population. Our estimates suggest that the level of the funding ratio affects
those who distrust and those who trust asymmetrically. This is an important conclu-
sion as it suggests that once trust is lost and people become distrustful it will probably
become harder to persuade them by simply increasing the funding ratio. This fits in
with the results of a recent study by Van Dalen and Henkens (2021) showing that an
estimated 15% of the Dutch population expresses low levels of trust in all political and
societal institutions and this is strongly associated with a low level of broad-scope trust
in pension funds. For the day-to-day practice of pension funds, this could mean that
as distrust grows it might become increasingly difficult to win the hearts and minds of
those who express low levels of trust in societal institutions in general.
7.1 Limitations
Of course, the stated findings in this paper are bound by some of the limitations of
the dataset (and the time period) used. First, the number of repeated cross-sectional
surveys is limited to eight years covering a time span of 18 years and extending
this study by an extra number of years would have generated perhaps more robust
insights. Second, the associations between funding ratios and level of trust do not
permit us to make claims about which transmission mechanisms are at play in gener-
ating trust at the micro-level. However, some other research gives a clue that the pen-
sion participants are likely to appreciate the consequences of having a high or a low
funding ratio. For individual pension fund data we have shown earlier (Van Dalen &
Henkens, 2015) that downgrading pension rights—a policy decision that has to be
taken once the funding ratio becomes too low—clearly increases distrust and low-
ers trust in a specific pension fund. Van Zaal (2017) shows in a more refined manner
for pension fund participants how indexation and downgrading of pension rights can
respectively increase and decrease trust compared to those participants who do not
experience a change in pension rights. However, one should be aware that besides the
financial consequences there can be various reasons why citizens trust financial insti-
tutions (Van Dalen & Henkens, 2018; Van Esterik-Plasmeijer & Van Raaij, 2017) and
future research has to await how this can be refined in the case of pension providers.
And third, one should remember that this paper focusses on broad-scope trust in pen-
sion funds. This is in general lower than the trust employees and former employees
have in their own pension fund (cf. Van der Cruijsen etal. (2021b)).
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H.P.van Dalen, K.Henkens
1 3
7.2 Discussion
The relevance of the current empirical study in understanding the development of
trust is of some concern as policy makers are tempted to think that increasing the
funding ratios of pension funds will completely regain the trust that was present
during the golden ages of pension funds, when funding ratios of 120 or higher
were quite common (and at one time reaching even the level of 158). The Dutch
pension reform that is proposed to take place in the coming years will put the
trust in the pension system and its providers to the test.
One of the lessons one can derive from is that trust in pension funds is based on out-
comes that are associated with outcomes on financial markets, outcomes that are con-
densed in indicators like the funding ratio. The trouble with this reliance is that, although
to some a considerable degree financial risks are manageable for funds, there are also
outcomes associated with crises that are not manageable. This is connected with the
failure of financial organizations to recognize what John Maynard Keynes (1937) called
“irreducible uncertainty”: uncertainty that cannot be reduced to statistical probabilities.
Or put differently, there will always be “unknown unknowns.” Insurance companies and
pension funds make decisions as if they do know the relevant risks, but this convention
will only hold in normal times. As soon as a society is in a state of flux—when a war
erupts, a state or a city is flooded, or a pandemic spread—anything can happen, and
the rules and conventions are no longer of use. In extraordinary times, one can expect
extraordinary policies, like Quantitative Easing as practiced by the ECB or the Fed, giv-
ing rise to zero or negative interest rates. In the Dutch context this puts funding ratios of
pension funds under pressure hence creates the circumstances for a steady fall in trust.
Another lesson we may learn from the past decades is that trust is likely to fall when
radical changes occur in a pension system. Especially for a system that has basically has
remained the same for 50years this reform has come as a shock and an upcoming fun-
damental reform still has to be carried out in the upcoming five years. Many fear that
they will lose some pension rights and such a loss of pension rights will undoubtedly
lead to a loss of trust. However, it may matter whether such a loss is caused by outside
or natural forces, like population ageing or capital markets developments, or by inside or
interpersonal forces, like pension reforms or regulatory policies. It is what Fehr (2009)
calls betrayal aversion, which has far deeper and enduring consequences than the ‘natu-
ral’ causes. It is beyond the bounds of this paper to establish this phenomenon, but it is
certainly a risk of a radical pension reform that has to be taken account of in the prepara-
tion of such a reform.
Appendix
See Tables5, 6, 7, 8 and 9 .
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Trust andDistrust inPension Providers inTimes ofDecline…
Table 5 Sampling properties Sample Timing fieldwork N Response rate
2004 (CentERpanel) November 2070 65%
2006 (CentERpanel) October 1823 69%
2009 (CentERpanel) January 2039 73%
2011 (CentERpanel) March 2129 79%
2014 (CentERpanel) June 2145 71%
2015 (CentERpanel) July 1934 71%
2020 (LISS panel) February 1625 81%
2021 (LISS panel) February–March 2876 81%
Table 6 Frequencies of trust levels in pension funds and the government (as pension providers), 2004–
2021
Periods
2004 2006 2009 2011 2014 2015 2020 2021 Total average
Pension providers
Trust in pension funds
No trust 2.9 3.7 5.3 3.4 4.2 5.8 5.4 4.6 4.4
Little trust 13.2 9.2 18.0 18.0 21.6 22.2 23.5 18.2 17.9
Neutral 29.1 29.3 35.1 31.8 26.4 30.2 29.8 34.4 31.0
Some trust 40.4 40.5 32.5 36.7 36.7 33.4 33.1 32.6 35.7
Lot of trust 14.4 17.3 9.1 10.1 11.0 8.5 8.1 10.2 11.1
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Trust in government
No trust 6.9 8.2 5.1 5.8 6.0 12.6 9.4 7.4 7.5
Little trust 23.0 18.8 18.4 19.6 24.6 28.0 27.3 20.2 22.3
Neutral 33.0 34.6 34.7 32.0 28.0 30.9 28.6 34.0 32.1
Some trust 30.1 30.3 34.4 34.8 34.5 24.9 30.0 32.4 31.6
Lot of trust 7.0 8.1 7.4 7.9 6.9 3.6 4.7 6.0 6.5
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
430
H.P.van Dalen, K.Henkens
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Table 7 Two-way cross-classified data structure in pension trust data—number of observations in each
cohort-by-period cell
Birth cohorts Periods
2004 2006 2009 2011 2014 2015 2020 2021 Total
1920–1929 92 66 55 44 24 17 6 10 314
1930–1939 285 252 254 253 190 185 62 92 1573
1940–1949 374 310 425 478 405 454 274 483 3203
1950–1959 468 420 443 517 398 466 332 605 3649
1960–1969 397 305 332 380 318 289 300 501 2822
1970–1979 310 335 362 320 493 301 204 375 2700
1980–1989 133 119 108 91 268 156 209 348 1432
1990–1999 0 6 48 40 48 33 176 308 659
Total 2059 1813 2027 2123 2144 1901 1563 2722 16,352
Table 8 Trust (% some/a lot of trust) in pension funds and government by birth cohorts, across sample
years
Cells with less than 50 observations are not reported. Weighted by age, gender and education
Birth cohorts 2004 2006 2009 2011 2014 2015 2020 2021
Trust in government
1920–1929 50% 68% 59%
1930–1939 49% 46% 51% 47% 34% 21% 43% 37%
1940–1949 37% 43% 41% 40% 37% 26% 26% 35%
1950–1959 30% 32% 40% 40% 38% 26% 32% 39%
1960–1969 33% 35% 33% 43% 40% 27% 34% 38%
1970–1979 34% 38% 43% 46% 40% 29% 38% 36%
1980–1989 31% 21% 31% 38% 37% 33% 34% 37%
1990–1999 40% 37%
Trust in pension funds
1920–1929 67% 60% 65%
1930–1939 71% 72% 50% 54% 50% 44% 51% 46%
1940–1949 60% 68% 46% 50% 60% 47% 39% 49%
1950–1959 52% 55% 43% 44% 52% 44% 55% 54%
1960–1969 45% 51% 33% 39% 39% 31% 40% 39%
1970–1979 44% 46% 31% 43% 35% 31% 34% 34%
1980–1989 40% 34% 32% 30% 32% 35% 34% 32%
1990–1999 32% 27%
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Acknowledgements Constructive comments made by two anonymous referees are gratefully acknowl-
edged. In this paper we make use of data of the LISS (Longitudinal Internet studies for the Social Sci-
ences) panel administered by Centerdata (Tilburg University, The Netherlands).
Funding The paper was written with financial support from theme grant of Network for Studies on Pen-
sions, Aging and Retirement (Netspar) (Theme Grand), “Causes and consequences of trust in pension
institutions”.
Declarations
Conflict of interest The authors declare no competing interests.
Open Access This article is licensed under a Creative Commons Attribution 4.0 International License,
which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as
you give appropriate credit to the original author(s) and the source, provide a link to the Creative Com-
mons licence, and indicate if changes were made. The images or other third party material in this article
are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the
material. If material is not included in the article’s Creative Commons licence and your intended use is
not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission
directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen
ses/ by/4. 0/.
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