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Making up missed indexation: how does that work?

27 January 2022

Philips Pensioenfonds believes that the pensions that it offers should retain their purchasing power in the long term, so that they still buy as much in the future as they do now. That is our ambition. To realise that ambition, we need to adjust your pension to reflect wage increases (for active members) and increases in prices (for pension beneficiaries and non-contributory policyholders). From 2011 to 2021, however, Philips Pensioenfonds did not fully index its pensions. If you were a member of our pension fund during that time, this means that you missed out on indexation. In 2022, we can make up the difference a little, by granting compensatory indexation. To do this, we must comply with a number of legal rules that apply. Read on to find out how it works.

Making up missed indexation: how does that work?

When can the missed indexation be compensated?

Indexation that has been foregone cannot be 'compensated' until the policy funding ratio passes a threshold prescribed by law. That legal threshold evolves over time, since it is subject to movements in interest rates. Right now, the threshold for Philips Pensioenfonds is 124%. Another rule is that indexation can only be compensated in small steps: every year, Philips Pensioenfonds may grant you compensatory indexation corresponding to 1/5 of the percentage points by which the policy funding ratio exceeds the legal threshold. For example, if the policy funding ratio in a particular year is 129%, during the following year you may be granted a maximum of 1% (i.e. 129% less 124% = 1/5 x 5%) in compensatory indexation. At the end of 2021, the policy funding ratio was a little more than 124%. This means that we may grant you a small amount of compensatory indexation. In March you will receive personalised information about the indexation on your pension at 1 April 2022.
 

How much indexation did you forego between 2011 and 2021?

 

Pension beneficiaries and non-contributory policyholders

12.6%

Active members under the flex pension plan (collective labour agreement and senior directors)

19.2%

Active members under the flex pension plan (executives)

21.1%

How do we expect your pension to be indexed during the years ahead?

The goal that we have set ourselves is that all our members should have the best possible start to the new pension system (which could be as early as in 2024). This includes achieving a pension for all our members that is as close as possible to our ambition: a pension based on full pension accrual (for our active members) and full indexation. To accomplish this, near the end of 2021 the Board of Trustees passed a number of resolutions. Two of the most important resolutions are as follows:

  • We will make maximum use of the possibilities that the law offers that make indexation more likely and at a higher rate.
  • We will protect our financial buffer as best we can, for the benefit of our members’ personal pension reserves when we switch to the new system.

 

Jasper Kemme
Managing Director

More about these resolutions?

To find out more about our resolutions, see the news item that we published in late-2021.

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