Inflation and rising prices have had a lot of media coverage in recent weeks. With life getting more expensive, PDN’s Board is aware of how important it is that pensions – and pension accrual – remain in line with this development as much as possible. However, this increase of pensions – also called indexation – is only possible if the pension fund meets the legal requirements. So, how is PDN doing right now?
2021 was a good investment year, and PDN was pleased to improve its financial position as a result. The funding level was 115.2% at the end of 2021 (the highest funding level since 2007). At the end of 2020, the funding level was still 99.7%.
The increase in the funding level is due to several developments, two of which stand out. The return on investment was 8.2%, increasing the assets invested from EUR 7.7 billion to EUR 8.2 billion. Increased interest rates also caused the value of the fund’s liabilities to fall by EUR 0.6 billion to EUR 7.1 billion. There were certainly other effects that affected the funding level. More information on the increase in the funding level can be found on our website and later in PDN’s Annual Report that will be published in May 2022.
In addition to the current funding level, pension funds also have a ‘policy funding level’. This is the average funding level over the past twelve months. PDN’s policy funding level rose from 95.5% at the end of 2020 to 108.8% at the end of 2021. The policy funding level determines whether a pension fund is allowed to increase pensions.
Despite the favorable development of the funding level, on February 8, 2022 PDN’s Board had to decide not to increase pensions with effect from January 1, 2022. According to the applicable regulations, PDN may grant a partial increase only if the policy funding level is higher than 110%. As the policy funding level was 108.8% at the end of 2021, there is still no scope to increase pensions. We understand that this is not good news, especially for pensioners.
A motion related to this topic was recently passed in the Dutch Lower House and added to the draft legislation on the new pension system. This motion – the ‘Van Dijk motion’ – should make it possible for pension funds to increase pensions even at a lower policy funding level (from 105%). The Wet Toekomst Pensioenen (Future of Pensions Act) is expected to be debated and adopted in the course of 2022.
Once the new law is in place, including the details of the Van Dijk motion, PDN’s Board will again make a decision on increasing pensions. In this case, it expects that there will be a lower policy funding level of 105% as a minimum. Whether the fund will then fully or partially index is a consideration for the Board. It is the Board’s responsibility to strike a balance between the interests of all generations of members and PDN’s overall financial situation. In any case, this takes into account the indexation arrears of all members in general and those of pensioners in particular. However, future liabilities must also be considered, as well as a further interpretation of the Future of Pensions Act including the interpretation of the Van Dijk motion. For example, pension indexation must not lead to an uncertain financial situation in the future.
This new legislation is expected to apply at the earliest in the second half of 2022. We will regularly inform you of developments through this website, news reports, the PDN Magazine, and other media.