Increases in transition period

The allocation key described in the transition plan does not literally cover everyone’s missed indexation. Instead, it is decided to grant each member a uniform increase, that could be considered to be compensation for indexation that they missed in the past.

To do this, a uniform indexation arrear will be used. That uniform indexation arrear is based on the maximum indexation arrears among pension beneficiaries as published in the Pension Fund’s 2023 annual report, which works out at 16.1% missed indexation. The principal reason why is decided on a uniform indexation arrear is that this approach is both simple and easy to explain.

In practice, many of our members have less of an indexation arrear than the arrears described in the Pension Fund’s annual report. Each member’s indexation arrear is determined by when their employment began, how much indexation they were awarded and how much pension they accrued during their years of employment and how their salary increased, and so the actual indexation arrears varies strongly from one member to the next. It would need to be calculated and explained at the level of each individual and would become very complicated. It is not aimed to give everyone a precise percentage of their arrears, but rather a total sum that covers both the fact that money is needed to retain the future purchasing power of accrued rights and the fact that there are indexation arrears.

No full indexation has been granted over the total period since 2011. The ambition of the Board of Trustees is to grant full indexation at the same rate as price inflation (for retired members) and at the same rate as wage inflation (for active members). A review of recent years shows that up to and including 2025 the total indexation that has been forgone compared with that ambition is:

• 16.1% for retired members and non-contributory policyholders
• 18.7% for current employees of Philips and Signify accruing pension rights under the flex pension (collective labour agreement and senior directors) plan
• 20.7% for current employees of Philips and Signify accruing pension rights under the flex pension (executives) plan.

When we talk about 'differences between participant groups', we mean 'differences in the extent to which we can realize the ambition for these groups'. An ambition has been formulated for the pensions of our participants; this is a pension based on full pension accrual and full indexation. This ambition applies to all participants. That is why we think it is important that if there are differences in the extent to which we can achieve that ambition, these differences are fair and explainable.

Every pension increase must be paid from the financial buffer. And that buffer is there for all participants together. The Board's annual assessment of pension increases therefore examines whether the decision is 'balanced'. If the differences between participant groups are fair and explainable even after the indexation decision, the 'balance test' will usually be met.

In view of the transition to the new system, the Board of Trustees wants to extra protect the financial buffer. Under the new pension system, pensions will follow the ups and downs of the economy more closely than they do now. A financial buffer will help our members to start with a higher pension, or it can be used to set up a ‘reserve’ in case of setbacks in the future. Whatever the case, ultimately the buffer will be spent, directly or indirectly, on our members, so it is in their interests that the buffer is as high as possible when the new system is introduced. In concrete terms, it can be used for the following purposes:

• Part of the buffer will be used to create the ‘reserves’ that are required by law, for example an operational reserve to pay for costs such as covering unforeseen expenses and compensating for errors.
• Part will be used to compensate active members who are disadvantaged when the averaging method used under the current pension plan is abolished.
• Part will be used to create the solidarity reserve to protect pension beneficiaries against pension reductions if the investment yields and other results fall short.
• What is left of the Pension Fund’s assets will then be divided among each member’s personal pension capital, using a specific allocation key.

The short answer is that a final decision on how to divide the buffer can only be made after numerous other matters have been decided. First, the employers and unions need to decide whether the new legal pension rules will also apply to pensions that have been accrued, i.e. whether those pensions will be converted to the new system. If so, that conversion will need to be studied to make sure that it is balanced properly. Important factors are not only how the buffer is divided, but other questions as well: whether any part of the buffer, and if so how much of it, will be put towards a reserve (the ‘solidarity’ or ‘risk-sharing’ reserve), for example, or to finance compensation (in full or in part) for members who will be disadvantaged by the transition to the new pension system. Before a final decision can be made on the issue of conversion, the Accountability Body must be asked for its advice.

With the transitional financial assessment framework, more lenient indexation rules became available for pension funds to use on 1 July 2023, which is when the Dutch Future of Pensions Act (Wet toekomst pensioenen) came into force. To apply those rules, pension funds need to substantiate why it is in the best interests of their members to apply the transitional financial assessment framework, and what the effects are. This includes calculating how the members are affected by the more lenient indexation rules, and what the consequences are for the pension fund’s financial position. It also requires substantiating how these effects are ‘balanced’. This is then recorded in a ‘bridging plan’, which is reviewed by the Dutch central bank (DNB).

Philips Pensioenfonds’s bridging plan came into place on 1 January 2024. Philips Pensioenfonds submitted its bridging plan to the Dutch central bank (DNB) in January 2024. The plan was approved in February, and now the more lenient indexation rules may be used for the decision about indexation at 1 April 2024 and the decision at 1 April 2025.

Philips Pensioenfonds submitted a bridging plan to De Nederlandsche Bank (DNB) for the first time at the beginning of 2024. This bridging plan was approved in February 2024. With the approval of the bridging plan, Philips Pensioenfonds had the opportunity to apply the more lenient indexation rules in 2024 and 2025. These more lenient indexation rules were used for the increase in pensions on 1 April 2024 and 1 April 2025. A pension fund must update the bridging plan annually in order to continue to use the more lenient indexation rules. Philips Pensioenfonds submitted the updated bridging plan 2025 (hereinafter referred to as the bridging plan 2025) to DNB for approval in June 2025. After approval, we can also apply the broader indexation rules to the indexation decision as of 1 April 2026. Whether we will actually do so is a consideration that still has to be made. Because also for the indexation as of 1 April 2026, we will still consider the question of whether indexation is responsible at that time and if so, how much.

The bridging plan will remain in place until we switch to the new pension plan in 2027. However, Philips Pensioenfonds has to update the plan each year. It might also need to adjust its policy if circumstances require. 

The rules for indexing pensions are more lenient as long as the Pension Fund submits an updated bridging plan annually (and this is approved by DNB). Under those more lenient rules, pension funds are permitted to index their pensions if their funding ratio is 105% or higher. This means that the financial reserve may not drop below 5% as a result of the indexation. Any assets above that minimum may be used to index the pensions, as long as the pension fund can demonstrate that it will still have enough resources to make a balanced switch to the new pension plan. An important factor here is that the Board of Trustees of Philips Pensioenfonds determines every year what a sensible rate of indexation is, even without these legal requirements. Every year, the Board weighs maximum indexation against the need to protect the buffer, making allowance for a minimum target funding ratio for entitlement conversion of 114%.

Whenever we make a decision, we always consider how it will affect each of our members, individually and as separate groups. Indexing the pensions before the switch means a higher pension right now for our pension beneficiaries. Members who are not drawing their pension yet will also see an increase. However, the more lenient indexation rules in particular benefit members aged 55 and up.

Increasing the pensions costs money, which Philips Pensioenfonds takes from the financial buffer. The Board wants all our members to get off to a strong start when we switch to the new pension plan in 2027. With this in mind, we also consider what impact our decision will have over the entire period until then. Indexing the pensions now means that we will have less money to share among our members when we switch to the new system. On balance, this is slightly less favourable for active members, and in particular the younger active members, who have accrued less pension than older members. Their indexation is awarded on a smaller amount. It would be fractionally better for them if we awarded slightly less indexation now, which would leave more money for their personal pension savings when we make the switch. Another consideration is that applying the transitional financial assessment framework increases the possibility that we might have to lower our pensions. If we award more indexation than would be possible under the normal indexation rules, the Pension Fund’s buffer is reduced by more than it would under those normal rules. Lowering the pensions would have immediate financial consequences for our pension beneficiaries. However, the finances of Philips Pensioenfonds are strong enough that it is very unlikely that we will need to lower the pensions, even using the transitional financial assessment framework. 

The bridging plan 2025 explains why Philips Pensioenfonds wishes to have the option of using the more lenient indexation rules, why this is a sensible decision given its finances. Philips Pensioenfonds’s bridging plan 2025 shows that the finances will still be sufficiently healthy when we switch to the new pension plan, even with the more lenient indexation rules. 

You can download an abbreviated version of the bridging plan 2025 here. The bridging plan 2025 explains why Philips Pensioenfonds wants to have the option of applying the more lenient indexation rules and why this is a sensible decision given the pension fund’s finances.

The bridging plan explains why Philips Pensioenfonds wishes to have the option of using the more lenient indexation rules, why this is a sensible decision given its finances, and what the effect will be for members in different age categories and different groups (active members, pension beneficiaries and non-contributory policyholders).

Philips Pensioenfonds’s bridging plan shows that the finances will still be sufficiently healthy when we switch to the new pension plan, even with the more lenient indexation rules. The bridging plan also provides confirmation that using the more lenient indexation rules will not create any major differences between separate groups of members, nor between younger and older members. In this respect, the bridging plan builds on the analyses that we carried out in 2021 and that led to the decision to apply the transitional financial assessment framework as soon as the law permitted.

You can download an abbreviated version of the bridging plan 2024 here. The bridging plan 2024 explains why Philips Pensioenfonds wants to have the option of applying the more lenient indexation rules, why this is a sensible decision given the pension fund’s finances, and how it will affect our members in the different age categories.

Under the government’s temporary new rules (the transitional financial assessment framework), Philips Pensioenfonds is allowed to be more lenient with its indexation until the new pension plan is adopted. This benefits older active members and pension beneficiaries in particular. At the same time, giving more indexation now means that the pension fund has fewer financial resources to raise the pensions further down the road. In addition, the more lenient rules for indexation are balanced by slightly stricter rules for cutting the pensions in financially leaner times. Younger members are concerned mostly with the long term, and so a higher rate of indexation now is less favourable for them in the long term. However, it is worth noting that Philips Pensioenfonds’s financial position is strong at present, and the likelihood that we will need to cut our pensions is small, even under the more lenient indexation rules.

It is uncertain what the effects will be, on balance, of a higher indexation rate and a stricter policy for cutting the pensions. Philips Pensioenfonds has mapped out the potential generational effects using the method prescribed by law, which shows that the differences between using the existing indexation rules and using the more lenient indexation rules, expressed a the net advantage (netto profijt), are minor for all our members (ranging from a positive value of 1.1% to a negative value of 0.4%). The effects of the more lenient indexation rules are limited to the three years ahead (until we switch to the new pension plan), which is a short period of time. They are also limited by the Board’s annual decision to consider what a maximum sensible rate of indexation is, bearing in mind the goal of protecting the financial buffer (alongside the goal of awarding as much indexation as possible). As such, it is the Board’s conclusion that using the more lenient indexation rules is balanced, in part because the annual indexation decision includes weighing the differences between different groups of members. It is also worth mentioning here that the Accountability Body and the Dutch central bank (DNB) have expressed positive opinions on this conclusion in the bridging plan.

To determine what effect using the more lenient indexation rules would have, we calculated the pension values for separate groups of members using the existing legal indexation rules and using the more lenient indexation rules under the transitional financial assessment framework for the period up to and including 2026 (on 1 January 2027 we expect to switch to the new pension plan). This approach reveals how using the transitional financial assessment framework will affect our members’ pensions. 

Explanation: net advantage, valuation of a pension plan
A pension’s value is expressed using the concept of ‘net advantage’ (netto profijt): a legally prescribed method for determining the value of a pension plan. The figures below show the difference between the pension values of separate groups of members with and without the more lenient indexation rules, expressed as ‘net advantage’. All the gains and losses that are identified for the various groups of members are expressed in terms of the net advantage. This is, therefore, not about raising or lowering the pensions.

The more lenient indexation rules are favourable for active members over the age of 55: they gain up to 1.1% by benefiting from the extra indexation in the short term. The younger group of active members suffer a minor loss of up to 0.4%, as they would benefit more from having a greater financial buffer and more indexation in the future, with more pension accrued.

To see a graph with the effects for every age category, see the bridging plan that is published on our website.

The more lenient indexation rules are favourable for all retired members, who see an immediate financial effect of the extra indexation. Maximum indexation in the short term means a gain for them of up to 1.1%.

To see a graph with the effects for every age category, see the bridging plan that is published on our website.

For non-contributory policyholders, the age when the more lenient indexation rules becomes favourable is slightly lower than for active members. If they are above the age of 45, they gain up to 1.1%. Younger policyholders will have barely any loss or gain.

To see a graph with the effects for every age category, see the bridging plan that is published on our website.