The funding level is an important yardstick for judging the pension fund’s financial situation. It indicates to what extent the pension assets are high enough to meet all future pension obligations (including, in particular, the pension benefit payments).
Besides the funding level, a pension fund must calculate its ‘policy funding level,’ this being the average of the last twelve months of monthly funding levels. The policy funding level can be used to determine whether a pension fund needs to curtail accrued pensions and pensions that have commenced payment.
The policy funding level can also be used to determine whether a pension fund is in a deficit situation, in which case the pension fund would be required to submit a recovery plan to the Dutch central bank, DNB (De Nederlandsche Bank). The recovery plan outlines how a pension fund aims to achieve a higher funding level in the coming years. The policy funding level plays a decisive role in the fund's decision on whether to index.
Policy funding level at end of 2017: 107.8%
Fortunately, the policy funding level did not necessitate any curtailment in 2017, but unfortunately neither did it allow any indexation. Each year, PDN endeavors to raise the pensions of pensioners and the accrued pensions of former members to compensate for price developments, and to raise the accrued pensions of members to account for salary changes. The pensions and accrued pensions have not been increased in recent years.
The table below shows the shortfall in indexations granted. The gap that has gradually emerged has diminished the purchasing power of our pensions and the pension accrual. Because we are subject to specific legal requirements and required buffers in relation to this area, as things look now the chances of increasing the pensions in any of the coming years are remote. If PDN’s financial situation improves, we will once again be able to offer indexation, and the Board may decide to add additional indexation in compensation for indexation not granted in previous years. Despite the fact that the risk of having to curtail pensions was smaller in 2017, the risk of doing so cannot be ruled out.
Because as of January 1, 2017 PDN was in a situation of a reserve shortfall, the fund submitted an updated recovery plan to DNB before April 1, 2017. In the recovery plan, PDN demonstrated that there are sufficient recovery assets to grow within the recovery plan period of seven years up to the required funding level without curtailment or any other measures having to be taken. DNB approved the recovery plan. As a result of the reserve shortfall at the end of 2017, a newly revised recovery plan was submitted to DNB in 2018.