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.
PDN also faced a funding shortfall in 2021. Despite this, the fund did not have to reduce the pension entitlements for current employees or the pension payments for pensioners in 2021. At the end of 2021, the funding level was 115.5%, which was 15.8% lower than the funding level at the beginning of the year (99.7%). 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. At the end of 2021 the policy funding level was 108.9%, which is 13.4% higher than at the beginning of the year (95.5%).
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.
Fortunately, the policy funding level did not necessitate any curtailment in 2021, 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 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 continues to improve, 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. As a result of the recovery plan, PDN did not have to reduce its pension payments in 2021. It will not have to do this in 2022 either. More information about indexation is available on PDN’s website.