The funds see no room for indexation, ie increasing pensions at the same rate as inflation. Most pension funds have stopped doing this for years because they simply don’t have enough money in the cash register.
What about the coverage ratios?
In the case of pensions, it is always about the funding ratio, which indicates whether a fund has enough cash in hand to be able to pay all pensions in the future. A funding ratio of 100 percent means that for every euro that has to be paid out, there is also one euro in cash.
Funds may only start indexing if the funding ratio is above 110 percent. If the funding ratio falls below 104.2 percent, the pensions must be reduced.
Due to the corona crisis and in the run-up to the new pension system, this limit has been lowered to 90 percent for this year by outgoing minister Wouter Koolmees. Before 2022, pension funds may also make use of this flexibility.
Increase in funding ratio compared to the second quarter:
- ABP: up 3.8 percent to 98.8 percent
- PFZW: up 1.3 percent to 96.5 percent
- PMT: Up 2.7 percent to 98.3 percent
- PME: Up 2.9 percent to 100.6 percent
The funds are therefore well above the 90 percent limit, but there will only be clarity in January. Then it becomes clear how the funds stood at the end of 2021 and that determines whether a pension fund can index or cut.
“The improvement in our financial position is continuing. This means that pension reductions are unlikely next year,” says Corien Wortmann-Kool. She is chair of the ABP, the fund for civil servants and teachers. “Unfortunately, this also applies to an increase in pension,” she adds.
Her colleague Joanne Kellerman of PFZW, the pension fund for the healthcare sector, agrees. Thanks to the increased share prices, the chance of a pension cut in 2022 is small. “At the same time, a pension increase is unfortunately not yet in sight,” she says.
No view of increase
The hope among pensioners that pensions can be increased now that the funds are in a better position, is dashed by Jos Brocken of PMT, the fund for the metal and technology sector. “Despite the increase, unfortunately, there is still no idea for our participants,” said the fund’s chairman.
He calls on the cabinet to introduce the new pension system sooner than currently planned. In the new system, funds will be able to increase pensions sooner if their investments are doing well.