Full indexation of our pensions at 1 April 2025

The ambition of Philips Pensioenfonds is to raise pensions that are being drawn and non-contributory pensions annually by the same rate as price inflation. This is expressed in the movements in the derived consumer price index, as established by Statistics Netherlands (CBS). 

The ambition of Philips Pensioenfonds is to raise the pensions accrued by active members by the same rate as the year’s wage inflation, i.e. the movements in the collective salary scale adjustments at Philips (including for active members who work for Signify or Versuni).

According to the existing legal rules for indexation, a maximum partial increase of 52% of the ambition was possible. This amounts to an increase of 1.4% for retired members and non-contributory policyholders and 3.1% for active members. However, Philips Pensioenfonds has used 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.

With the present funding ratio, the law makes it impossible for Philips Pensioenfonds to grant compensatory indexation. The legal requirements are not affected by the more lenient indexation rules that Philips Pensioenfonds applies. Compensatory indexation is possible only if the policy funding ratio is higher than the threshold for future-proof indexing. Even then, it is limited to small steps: every year, Philips Pensioenfonds may grant compensatory indexation corresponding to one fifth of the percentage points by which the policy funding ratio exceeds the legal threshold. At 31 December 2024, that threshold was 136.8%. If the policy funding ratio is 141.8%, for example, the maximum compensatory indexation for that year is 1% (= 1/5 x 5%). If the total missed indexation is 13%, and assuming that the policy funding ratio remains at 141.8% for the entire period, it would take 13 years to make up the entire deficit. This means that any compensatory indexation depends on the Pension Fund’s policy funding ratio and on the legal threshold mentioned above. That legal threshold varies over time, in particular since it is also subject to changing interest rates.

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.

As established in our indexation ambition, we want to increase the pensions of pension beneficiaries and non-contributory policyholders by the same rate as price inflation (i.e. the derived consumer price index as published by CBS). For active members, the ambition is to raise their accrued pensions every year by the same rate as wage inflation, i.e. the collective salary scale adjustments under the collective labour agreement for Philips (which also extends to active members who work for Signify or Versuni). These indexation ambitions have been agreed during collective labour negotiations between the employers and the unions, and are set down in the pension plan rules, which we administer.  

Wage inflation and price inflation are almost never the same. Generally, wage inflation and price inflation are not so far apart, although the difference was even greater in 2022: the indexation based on price inflation was 7.4% then, and the indexation based on wage inflation was only 1.6%. The indexation at 1 April 2025 will bring the total indexation for all groups of members across multiple years to similar levels. For an accurate comparison between the indexation granted in the past, we need to consider the differences over multiple years. We always refer back to 2011, which was the first year when we were unable to grant full indexation. Not including the indexation at 1 April 2025, the difference in indexation was 2.9% in favour of the pension beneficiaries and non-contributory policyholders. In 2025, wage inflation (6.0%) is higher than price inflation (2.7%). Full indexation (6.0% and 2.7%, respectively) reduces the difference in indexation between the groups, putting it at 0.4% in favour of the active members.  

Full indexation of our pensions that matches the ambition for each group of members represents a key step forward in realising our goals before we switch to the new pension plan. Full indexation for all our members means that they will not suffer further indexation arrears. This also ends the situation where our pension beneficiaries and non-contributory policyholders were awarded more indexation, over multiple years, than our active members, despite the opposite being more likely given the indexation ambitions for the separate groups. See also ‘Why is the indexation for active members so much higher than for pension beneficiaries and non-contributory policyholders?’.

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.

In the December issue of our magazine Generaties, we outlined how much pension our members should expect under the new pension plan. These expectations are based on the assumption that Philips Pensioenfonds’s finances are healthy when we switch to the new pension plan. Full indexation of our pensions in 2025 increases the pension liabilities, and therefore lowers the funding ratio by 4.1%. Despite that drop, we expect our finances to remain healthy, in part given the future outlook. This means that the information in the article in Generaties still gives an accurate idea of what to expect under the new pension plan. However, the Pension Fund’s financial health when we switch to the new pension plan depends in part on future developments, and so it is always possible that the actual outcome does not meet our expectations.
 

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. 

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.