Will my pension be indexed this year?
Whether it is possible to increase your pension depends on the funding ratio. The funding ratio at the end of November is decisive for this:
- There is no indexation if the policy funding ratio is less than 110%.
- With a policy funding ratio between 110% and an upper limit to be determined, indexation is applied pro rata.
- With a policy funding level higher than the upper limit, full indexation is possible. The upper limit is set in such a way that the requirement of future-proof indexation is met.
At the end of each year, the board of the pension fund decides whether indexation is possible.
Do I need to be concerned that my pension will be reduced in due course?
Reduction of your pension is currently not an issue. Only if the policy funding ratio of a pension fund is below the required level for a long time can there be reductions.
In which situation should pensions be reduced by law?
Your pension can be reduced in the following two situations:
- The policy funding ratio is five years below the minimum required funding ratio (104.0%) and the current funding ratio at the is below 100%. Discount is then unconditional but may be spread (maximum 10 years).
- According to the recovery plan, the pension fund will not be able to achieve the required capital within 10 years. This can happen if the current funding ratio is below the critical funding ratio of 92%. This reduction can also be spread (maximum 10 years). The first reduction is unconditional, the others are conditional.
When should a pension fund have a Recovery Plan and what is a Recovery Plan?
If the policy funding ratio falls below the required funding ratio at the end of a quarter, it must submit a recovery plan to De Nederlandsche Bank (DNB) within three months. A recovery plan sets out how the pension fund expects to have sufficient financial reserves again in a period of 10 years. At the end of June 2020, the policy funding ratio was 113.1% below the required funding ratio of 114.7%. The fund submitted a recovery plan to DNB at the end of September 2020.
Why does the pension fund have to have financial buffers?
A pension fund has to have sufficient buffers to pay out the accrued pensions with a high probability. The amount of the required buffer depends on the investment mix. The required buffer of our pension fund is equal to 14.5% (end of December 2020). The required funding ratio is then 114.5%.
An insurer guarantees our pension; why is that not the case with our pension fund?
The pension fund invests in a range of investment forms, for example in risk-free bonds, in shares and in property. The Staples pension fund’s investments are lower risk investments compared to the average pension fund in the Netherlands. Despite this, investment risks are unavoidable, and that’s why the pension fund is unable to provide any guarantees. To be able to accommodate risks, every pension fund must have a buffer. For our pension fund the buffer is higher than the average in the Netherlands. The pensions are indeed guaranteed by an insurer because an insurer makes investments with the lowest possible risk. Consequently, a guarantee can be given but it also means there is no upward potential for providing future indexations.
Why is indexation important for my pension?
Indexation involves adjusting the pension to the development of inflation. By doing that the Board of Trustees aims to protect purchasing power. Pension indexation is therefore important for keeping pace with the increase in costs. If indexing was not undertaken and costs increase annually by 2%, then in 20 years’ time you would only be able to buy 2/3rds of the goods you can currently buy with your pension. It is only possible to index when the buffer is sufficiently large, and in addition to pension contributions the yield from investments is specifically required for that. Without investment risks the investment return expectation is too low and pensions cannot therefore be indexed or can only be indexed to a very limited extent. The Pension Fund exposes itself to investment risks with the aim of being able to index the pensions.
What is the pension fund’s expected indexation? And what is it with an insurer?
Pension Fund Staples is one of the few pension funds in the Netherlands that has increased pensions in recent years. There is a chance of (full) indexation in the next five years. Reducing pensions is not currently an issue. The chances of reductions for the next five years are small, but not excluded. If the pensions were to be transferred to an insurer at this time, the insurer will invest the assets of the pension fund risk-free and no additional payments can be made.
What if things go better or worse than expected?
On the website www.mijnpensioenoverzicht.nl and on your Uniform Pension Statement you will see an estimate of your pension if things go better or worse than expected in the future. You will see an estimate of your total pension, including the state pensioen and various scenario-based amounts. This also takes into account a possible rise in prices.
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