What is a sensible indexation rate for our pensions at 1 April 2024, to make sure that every one of our members can get off to a good start under the new pension plan that will come into effect in 2026? That is the question that the Board of Trustees recently answered. Of course we want to index our pensions by the full rate, if at all possible. However, we also need to maintain a proper buffer for when we switch to the new pension plan in 2026. For 2024, we have decided that we can index your pension by the full rate. This means that effective 1 April 2024 your pension will be raised in line with our ambition. By making use of more lenient legal rules for indexation, we can grant you this indexation.
Bridging plan 2024
In the bridging plan you can read why applying the more lenient indexation rules is a sensible decision given the pension fund’s finances, and how it will affect our members in the different age categories.
Go to bridging planThe pensions of our pension beneficiaries and non-contributory policyholders will be raised by 2.4% at 1 April 2024, compensating the full rate of last year’s price inflation. The accrued pensions of our existing active members will go up by 4.0%, which matches the rate of wage inflation. Each of our members has received personalised information about their pension increase at 1 April 2024. This news item explains how we came to our decision, to help you understand what factors we considered. It also contains a Q&A about indexation in general (for example, ‘Why can no compensatory indexation be granted?’) and about what we call the ‘Bridging Plan’ . The Bridging Plan is based on calculations of how the separate groups of members are affected by the more lenient indexation rules.
Indexatietoekenning
How much pension increase the Board can provide in any given year depends on several factors. Here you will find an overview of news items with decisions in recent years.
Overview of news items in recent yearsWhat do we hope to achieve by the time we switch to the new pension system?
In late 2021, we mapped out what we need for each of our members to get off to the best possible start under the new pension system: members who are still actively accruing their pension, pension beneficiaries and non-contributory policyholders. We defined two concrete goals for when we switch to the new pension system:
- A pension for all our members that is as close as possible to our ambition
We have defined an ambition for our members’ pensions: the pensions should be based on full pension accrual and full indexation. Our goal is to offer every member a pension that reflects this ambition as closely as possible when we switch to the new pension system. Any differences between members on this point should be minimal, justifiable and fair.
- Healthy finances with the highest possible funding ratio
The funding ratio is the measure of a pension fund’s financial health. If a pension fund has a funding ratio of 100%, this means that its assets are precisely enough for it to pay its existing pension liabilities. If the funding ratio is greater than 100%, the portion above that 100% is called a ‘reserve’ or ‘financial buffer’. At the end of 2023, Philips Pensioenfonds had a current funding ratio of 125.2%, meaning that our financial buffer then was 25.2%. In anticipation of switching to the new system, we want to give this buffer extra protection (see ‘Why is it important to protect the buffer?).
Why is it important to protect the buffer?
When we switch to the new pension system, the buffer will be divided, directly or indirectly, among our members. This means that it is in the interests of those members for the buffer to be as high as possible at the time of the switch. In concrete terms, the buffer could be used (among other purposes) for the following:
- To top up our members’ individual pension savings, so that they have a higher pension. When the pensions are higher, it is easier to absorb pension cuts than it is with lower pensions.
- Using part of the buffer to form a ‘reserve’. The point of that reserve is to make sure, wherever possible, that we do not need to cut pension benefits if future financial results fall short of expectations.
- To provide active members with at least partial compensation if they are disadvantaged by the switch to the new pension system. We still have to make a decision on this point.
What are we doing to make sure that we can realise these goals?
A pension for all our members that is as close as possible to our ambition
To realise the first goal, we decided back in 2021 that, as soon as the law permitted, we would apply the more lenient legal rules for indexation under the ‘transitional financial assessment framework’. The transitional financial assessment framework 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. Under this framework, pension funds have to calculate how these more lenient indexation rules affect their members. They must also explain how these effects are ‘balanced’. This is then recorded in a ‘Bridging Plan’.
We filed our 2024 Bridging Plan (see Q&A at the bottom of this page) on 1 January 2024. Now that DNB (the Dutch central bank) has approved our plan, we can apply the more lenient indexation rules, making it easier for us to index our pensions, and at a higher rate, than under the existing legal rules for indexation. This opens up the possibility to realise our first goal: that each of our members should have a pension that reflects our ambition as closely as possible when we switch to the new pension plan.
Healthy finances with the highest possible funding ratio
The other decision was that, every year until we switch to the new pension system, we will consider what a sensible rate is for raising (‘indexing’) our pensions while still protecting the financial buffer. This means that the indexation rate during the years ahead will depend not only on what the law permits and what the pension fund’s financial situation is when the pensions are indexed, but also on what we expect the financial situation to be when we switch to the new pension system, and what we want it to be.
Essentially, every year we will strike a balance between an indexation rate that comes as close as possible to our ambition and the need to protect the financial buffer. It is important to note that the pension fund’s ambition has not changed: we still want to grant all our members as much of our indexation ambition as possible. If the conclusion is that the pensions cannot be fully indexed, the indexation will fall further in arrears. This is one of the factors that we will bear in mind when we switch to the new pension system.
What indexation rate is legally allowed?
Pension funds that do not apply the more lenient indexation rules under the transitional financial assessment framework are not allowed to grant any indexation at all if their policy funding ratio is less than 110%. Full indexation is only permitted for these pension funds if it is certain that full indexation will also be possible in the future. For Philips Pensioenfonds, that would currently (the threshold changes from time to time) require a policy funding ratio of 138.8% (click here to find out more). If we did not apply the more lenient indexation rules under the transitional financial assessment framework, with our funding ratio at its present level, we would only be allowed to grant partial indexation: specifically, 59% of our ambition.
However, starting 1 January 2024 we have applied the more lenient indexation rules and full indexation is now possible in 2024.
Compensatory indexation impossible even under the more lenient indexation rules
The existing rules for compensatory indexation have not changed. Compensatory indexation is only possible if the policy funding ratio passes a legal minimum, which for Philips Pensioenfonds meant a policy funding ratio of approximately 138.8% at the end of December 2023. Instead, it was 127.1%. That is nowhere near the required minimum, and so the law does not permit us to grant compensatory indexation at this time.
How do we establish what a sensible rate is for indexing our pensions?
To establish what a sensible rate is for indexing our pensions – bearing in mind the two goals described above – we consider the following questions:
- What do we want our situation to be when we switch to the new pension system?
For each of our members to get off to a good start under the new pension system, our financial situation needs to be healthy. We have calculated what funding ratio we need to have when we switch to the new system in 2026. We call this the ‘minimum target funding ratio for entitlement conversion’.
- What is the maximum indexation rate during the years ahead, bearing in mind the minimum target funding ratio for entitlement conversion in 2026?
We calculate what the maximum indexation rate is that we can grant in a particular year so that we achieve the minimum target funding ratio for entitlement conversion in 2026. Our calculations are based on two assumptions:
- The method that we use to calculate the maximum indexation for a particular year is the same each year until we switch to the new system: we calculate how much indexation is possible (bearing in mind the minimum funding ratio that we want to achieve in 2026, as described at 1) if we grant the same indexation each year for the remaining period until we switch to the new pension system.
- We use a simplified method of calculating the indexation mentioned above, based only on how future indexation will impact the funding ratio; in this step we ignore all other factors that might cause the funding ratio to go down (or up). Those other factors are included in step 3, which comes next.
- Should the maximum as determined in the second question be adjusted upwards or downwards?
Question 2 dealt with the indexation rate for the years ahead. This calculation disregarded all facts and circumstances that might affect the funding ratio except indexation. Question 3 now looks at those effects: do any other facts or circumstances exist that might affect the decision about whether the maximum rate calculated for Question 2 should be raised or lowered. Such factors include:
- How healthy Philips Pensioenfonds’s finances are
- What rate of indexation is legally permitted
- The rates of wage and price inflation (which represent the indexation ambitions for active members versus pension beneficiaries/policyholders), and what the difference is between those rates
- Differences in indexation between groups of members in prior years
- The situation on the financial markets
- How many years remain until our members switch to the new pension system
- How other pension funds are handling indexation
What is the maximum sensible rate of indexation for 2024?
Our conclusion is that, just as last year, the maximum sensible rate of indexation at 1 April 2024 is 4.0%. This means that we can raise our pensions at that date by the same rate as our ambition. The pensions of pension beneficiaries and non-contributory policyholders will be indexed by the full rate of price inflation for the period from January 2023 to January 2024. Our active members’ pensions will be raised by the full rate of wage inflation over the period from 2 April 2023 up to and including 1 April 2024 (See explanation under heading ‘What does this mean for our active members?’).
This decision is based on the steps outlined above:
- What do we want our situation to be when we switch to the new pension system?
The minimum funding ratio that we want to have in 2026 is 114%, to give us a financial buffer of 14%. This minimum target funding ratio for entitlement conversion makes allowance for the possibility of forming a ‘solidarity reserve’ under the future pension plan, which might then draw its initial funding from the pension fund’s assets. At this time, we expect that the reserve will be in the 3-5% range. With that in mind, we allowed for 4%. This puts the minimum target funding ratio for entitlement conversion at 114%. Last year, we based our calculations on a minimum target funding ratio for entitlement conversion of 110%. However, the calculations then did not include the reserve described above: at the time, we were unable to estimate how large that reserve should be. Even so, as we explained then, we knew that the minimum target funding ratio for entitlement conversion might be raised if we decided to form a solidarity reserve that would be financed using Philips Pensioenfonds’s assets. Directly or indirectly, the buffer will be used for the benefit of our members when we switch to the new pension system (see boxed text 'Why is it important to protect the buffer?'). This means that it is in the interests of those members for the buffer to be as high as possible at the time of the switch.
- What is the maximum indexation rate during the years ahead, bearing in mind the minimum target funding ratio for entitlement conversion in 2026?
Based on the simplified calculation described above (under ‘How do we establish what a sensible rate is for indexing our pensions?’), the maximum indexation rate for our pensions each year is 3.1%.
- Should the maximum as determined in the second question be adjusted upwards or downwards?
We then considered which of the facts and circumstances described are relevant this year, and carefully weighed them. In the end, our conclusion was that we can identify reasons to set the maximum sensible rate for indexing our pensions at 4.0%, which is the same as in 2023. Some of the factors that we considered were the following:
- The maximum legal rate of indexation
As explained above, the existing legal rules would only allow us to grant partial indexation in 2024 (at 59% of our ambition). This would mean an increase of 1.42% for pension beneficiaries and non-contributory policyholders, and 2.36% for active members, which would give each group of our members an even greater indexation deficit. However, this year we are permitted, for the first time, to apply the more lenient indexation rules under the transitional financial assessment framework. Under those rules, we can index the pensions at the full rate. By setting our maximum at 4.0%, we can realise full indexation for each of the groups of our members and avoid a further indexation deficit for any of them.
- The rates for wage and price inflation, and the difference between those rates
The indexation ambition for our active members is the rate of wage inflation over the period from 2 April of the previous year up to and including 1 April of the current year. The ambition for pension beneficiaries and non-contributory policyholders is the rate of price inflation between January of the previous year and January of the current year. Price inflation and wage inflation are almost never the same. Over the past 10 years (including the increase granted in 2023), our pension beneficiaries and non-contributory policyholders received more indexation than our active members did: not including the indexation at 1 April 2024, the difference was 4.5%. In 2024, the rate of wage inflation (4.0%) is higher than the price inflation rate (2.4%). By setting the maximum at 4.0%, we can cut the difference in this accumulated indexation between the groups of members to 2.9%.
Another factor that played a role in calculating the maximum sensible indexation rate in 2024 was that any indexation of less than 4.0% for Philips employees in disciplines where salaries were raised by 7% (See explanation under heading ‘What does this mean for our active members?’) would result in an even greater difference between the actual movements in wages and the pension indexation.
- How similar pension funds are handling indexation
For this factor, we looked at the total indexation from 2022 to 2024. The indexation on the pensions of pension beneficiaries and non-contributory policyholders (more than 14%) matches the rates by which many other pension funds indexed their pensions during those years. For active members, the situation is different: the combined indexation on their pensions of a little over 4% for 2022 and 2023 was already significantly lower than at other pension funds. Even the full indexation rate of 4.0% at 1 April 2024 will not put the total pension indexation over the period from 2022 to 2024 level with other pension funds. If the maximum (and therefore the actual indexation rate) was less than 4.0%, our active members would have even less indexation over this period, and the pension increase at Philips Pensioenfonds would have lagged even further behind the increases at many other pension funds over the period in question.
- The maximum legal rate of indexation
What does this mean for our active members?
Accrued pensions to be raised by 4.00% on 1 April 2024
We will raise your pension by the full rate of wage inflation over the past year. By making use of the more lenient legal rules for indexation, we can grant you this full indexation. We also expect that we will be able to index your pension by at least part of the wage inflation rate during the years ahead.
Additional notes on wage inflation:
For active members, Philips Pensioenfonds bases its indexation decisions on the collective salary scale adjustment at Philips (also known as wage inflation). This also applies to employees of Signify and Versuni. What is different for 2024 is that separate disciplines at Philips were awarded different salary scale adjustments (rates of 4% and 7% were agreed). The 4% collective salary scale adjustment will be used as the basis for the decision about indexation at April 2024 for all our active members, including anyone in a discipline where the salary scales have been raised by 7%. The reason for this is that using a higher rate than 4% as the basis for our indexation decision for all active members is legally not allowed.
Pension accrual in 2024 at 1.85%
An accrual rate of 1.85% in 2024 matches the level of our ambition. The arrangements that are currently in place between Philips and the unions about pensions will expire at the end of this year. New arrangements will be made about pension accrual from 1 January 2025 until we switch to a new pension plan in 2026. The accrual rate for 2025 will therefore depend in part on what management and labour agree this year.
What does this mean for retired members and non-contributory policyholders?
Pensions that are being drawn or are non-contributory will go up by 2.4% on 1 April 2024
We will raise your pension by the full rate of price inflation over the past year. By making use of more lenient legal rules for indexation, we can grant you this full indexation. We also expect that we will be able to index your pension by at least part of the price inflation rate during the years ahead.
Questions Bridging plan
In the bridging plan you can read why applying the more lenient indexation rules is a sensible decision given the pension fund’s finances, and how it will affect our members in the different age categories.
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.
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.
The bridging plan will remain in place until we switch to the new pension plan in 2026. 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. 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 consider how it affects all our members. Increasing the pensions in the meantime means that pension beneficiaries have more pension immediately. The pensions of members who are not yet drawing their pensions will also go up, although it is particularly members aged 55 and up who benefit from the more lenient indexation rules.
However, indexing the pensions costs money, which is taken out of Philips Pensioenfonds’s financial buffer. The Board wants each member to get off to a strong start under the new pension plan in 2026, which is why we also consider the effects of the decision during the period leading up to that moment. If we increase our pensions now, that means that we will have less money to share out when we switch to the new system. On balance, the effect is slightly less favourable for our members who are still accruing their pension (and in particular the younger members): their indexation is calculated on a smaller value of accrued pension than older members. They would benefit more from slightly less indexation now, which would mean a little more money in their personal pension savings when we make the switch. At the same time, using the transitional financial assessment framework also means a greater risk of having to cut our pensions. This will have an immediate financial effect for our pension beneficiaries. However, it is worth noting that the likelihood that Philips Pensioenfonds will be forced to make cuts is very small, even using the transitional financial assessment framework. We are in a strong position at this time, as a result of our relatively cautious investment policy in the run-up to the new pension plan, and because our annual indexation decision considers what a maximum sensible rate of indexation is.
If any material differences between members emerge when we make the switch, we will make allowance for those differences when we convert the accrued pensions to the new pension plan.
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 until the end of 2026 (when 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.
You can download an abbreviated version of the bridging plan here. The bridging plan 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.
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.
Questions Indexation decision
Want to read more?
Unfortunately, the first paragraph of the email notification sent to active members contained an error. It says 'This means that effective 1 April 2024 your pension will be raised by the same rate as price inflation over the past year' while it should have said 'This means that effective 1 April 2024 your pension will be raised by the same rate as wage inflation over the past year.' The indexation percentages stated in the message are correct. You will also find the correct information in the letter that you can download in MijnPPF.
According to the existing legal rules for indexation, a maximum partial increase of 59% of the ambition was possible. This amounts to an increase of 1.42% for retired members and non-contributory policyholders and 2.36% for active members. However, from 1 January 2024, Philips Pensioenfonds will use the more lenient indexation rules that are available through the application of the transition FTK. This allows earlier and more indexation to be provided than under the existing statutory indexation rules. On this basis, the Board has been able to decide to fully increase all pensions.
Given the current funding ratio of Philips Pensioenfonds, it is not legally permitted to provide compensatory indexation. The more lenient indexation rules that Philips Pensioenfonds uses do not affect this. Only when the policy funding ratio is within the limit for future-proof indexing compensatory indexation can be given. This is only allowed in small steps. Each year the Pension Fund may provide a compensatory indexation of one-fifth of the number of percentage points that the policy funding ratio is above that legal limit. This limit is equal to 138.8% as of December 31, 2023. An example: if the policy funding ratio is 143.8%, a compensatory indexation of a maximum of 1% (= 1/5 x 5%) may be given in that year. So if the total missed indexation is 6.5%, then with a continuous policy funding ratio of 143.8% it will take 6.5 years before the entire missed indexation is made up. In other words: a policy funding ratio of 143.8% is needed for 6.5 years to fully catch up on the 6.5% deficit. Whether compensatory indexation is possible therefore depends on the Fund's policy funding ratio and the legally prescribed limit. This legal limit varies over time, mainly because interest rate developments also influence it.
Our indexation ambition, as agreed by the unions at Philips and laid down in our pension regulations, is to be able to compensate for price inflation over the period January-January, based on the derived consumer price index (more information can be found on the CBS website).
The percentage of 3.8% published on the CBS website for the year 2023 is a kind of average inflation over the year 2023. In other words, the average of the indices for the months of January to December of the year 2023 compared to the average of the indices for the months of January to December of the year 2022. This leads to a percentage of 3.8%. Moreover, this percentage is based on the so-called non-derived price index, as indicated above we use the derived index. The 'average' development of the derived price index in 2023 was 3.0%.
Explanation of the derived consumer price index
Unlike the 'normal' consumer price index, the derived consumer price index does not include changes in the rates of product-related taxes (e.g. VAT and excise duty on alcohol and tobacco), municipal taxes and subsidies. This amounts to price changes that are the result of government measures.
No full indexation has been granted 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 2024 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.
In June 2023, Statistics Netherlands introduced a new method for measuring price inflation. What is new about this methodology is that it takes into account energy rates that households actually pay for gas and electricity based on existing contract data with various energy suppliers. In the old methodology it was assumed that all households were subject to new energy contracts/prices.
As a result of the introduction of the new method, price inflation over the period January 2023 - January 2024 is 1 percentage point higher than if the new method had already been introduced in 2021. If we had taken this adjustment into account, the indexation ambition would have been 1.4% instead of 2.4%. At the same time, the indexation ambition for 2022 and 2023 would have been 1 percentage point higher. Cumulatively, the adjustment of the measurement method has no impact on price inflation, it only concerns a shift over time.
For the indexation decision of April 1, 2024, it was decided to base the figures from Statistics Netherlands. So no correction has been made for the change in the CBS measurement method. This means that the indexation for retired members and non-contributory policyholders is 1% higher than if the inflation figure were adjusted.
For active members, Philips Pensioenfonds bases its indexation decisions on the collective salary scale adjustment at Philips (also known as wage inflation). This also applies to employees of Signify and Versuni. What is different for 2024 is that separate disciplines at Philips were awarded different salary scale adjustments (rates of 4% and 7% were agreed). The 4% collective salary scale adjustment will be used as the basis for the decision about indexation at April 2024 for all our active members, including anyone in a discipline where the salary scales have been raised by 7%. The reason for this is that using a higher rate than 4% as the basis for our indexation decision for all active members is legally not allowed.
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 limited, 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 limited, 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:
- To top up our members’ individual pension savings, so that they have a higher pension. When the pensions are higher, it is easier to absorb pension cuts than it is with lower pensions.
- Using part of the buffer to form a ‘reserve’. The point of that reserve is to make sure, wherever possible, that we do not need to cut pension benefits if future financial results fall short of expectations.
- To provide active members with at least partial compensation if they are disadvantaged by the switch to the new pension system. We still have to make a decision on this point.
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.
If Philips Pensioenfonds raises its pensions, this is done on 1 April of each year. The reason why Philips Pensioenfonds uses this date of 1 April is that this corresponds to the employment regulations that are in place at Philips. For example, pay rises take effect on 1 April, and the basic data for pension accrual are also established on 1 April every year. The regular indexation is timed for 1 April to match this.
The increase for pension beneficiaries and non-contributory policyholders is based on the derived price index rate from January to January, which is finalised in early March. The increase for active members is based on the collective salary scale adjustments at Philips during the period from 2 April of the previous year to 1 April of the current year. Every year in March, we announce by what rate the pensions will go up on 1 April, and you receive a personalised letter from us explaining our indexation decision.
Related information
You might also be interested in the following information.
Read more?
In our magazine Generations, two board members told in December 2022 how the Board determines how much indexation is justified.
Go to magazine Generaties
News item
In December we published a news item about the annual consideration that the Board makes about how much indexation is justified.
Go to news item