Converting accrued pensions to the new pension scheme

The pensions of pension beneficiaries, active members and non-contributory policyholders that have already been accrued at the time of the transition to the new system will be converted to the new pension scheme. In pension jargon, we then speak of 'itransferring' ('invaren').

The decision of the pension fund board to transfer is binding for all participants of the fund. There is no individual right of objection. However, the Accountability Body must give advice on transferring.

The idea behind converting pensions is that the benefits of the new pension rules will also apply to accrued pensions. This means that pensions can be increased earlier. On the other hand, pensions can also be reduced if, for example, investments are doing poorly. By using a joint reserve, the so-called solidarity reserve, we can largely prevent the risk of pension reductions. Furthermore, it is more effective and (cost) efficient for the Pension Fund to implement a single scheme. The employers, together with the trade unions/employee representatives, have submitted a request to Philips Pensioenfonds to convert the accrued pensions. In terms of the law, introducing pensions is also the starting point. Deviations are only permitted if it can be demonstrated that introducing pensions would have disadvantages for certain groups of participants. Our Board and the Accountability Body have assessed whether the agreements made are balanced and have given a positive assessment. Both pension accruers and pension recipients are represented in both bodies. In addition, others also monitor the situation, such as key function holders and the supervisory authority DNB.

No. The decision applies to the pensions accrued in the current pension scheme of all participants and it is not possible to leave those pensions in the current scheme.

After entering, your personal pension capital consists of the value of your accrued pension up to 1 January 2027, plus part of the Fund's buffer on that date (if that buffer is large enough). No value is lost when converting pensions: legal rules have been drawn up to guarantee this. These state, among other things, that your personal pension capital consists of at least the value of your accrued pension, provided that the funding ratio at the time of conversion is higher than 102%.

We call the part of the funding ratio above 100% our ‘financial buffer’. We now maintain this to absorb setbacks and to enable indexation for the future. In the new pension system, the Fund no longer needs to maintain (large) reserves. When the Pension Fund converts the accrued pensions, part of the financial buffer is distributed over the personal pension capitals of our participants. The higher the buffer, the more money is available. The buffer of Philips Pensioenfonds was approximately 23% at the end of 2024.
Agreements have been made about the way in which the buffer is distributed. In all cases, the buffer benefits our participants – directly or indirectly:

• We use part of the buffer to set up a number of ‘reserves’, such as an operational reserve that is intended for possible unexpected costs, for example. 
• A portion is used to compensate pensioners who are disadvantaged by the abolition of the average system that applies in the current pension scheme.
• A portion is used to fill the solidarity reserve that is intended to protect (future) pension recipients against decreases in their pension in the event of disappointing (investment) results.
• The assets that remain after that are distributed to supplement the personal pension assets of all participants, on top of the value of the accrued pensions.
   

You can read more about the distribution key in the question: “What will be the process for converting pensions to personal pension capitals?”

The ‘allocation key’ or ‘conversion method’ reflects how the Pension Fund’s financial buffer will be shared among each member’s personal pension capital. 

In the existing pension system, Philips Pensioenfonds has a realistic ambition: the Pension Fund wants full pension accrual and full indexation for all its members. The realistic ambition was the basis for deciding how to give shape to the new pension plan under the new system and the transition to that new pension plan.

The Pension Fund’s realistic ambition was also the basis for the decisions on the most balanced way of achieving this. With this ambition in mind, it is appropriate and fair to take into account both past indexation arrears and future indexation when allocating the buffer that has been built up under the existing pension system. Ignoring past indexation arrears would impact on older members in particular, while not considering future indexation would disadvantage younger members more. 

For the allocation key in the transition plan of social partners of the employers, it is decided to adopt the ‘50/50’ method. With this method, indexation arrears carry as much weight as future indexation. To avoid confusion: 50/50 does not mean that the share of the Pension Fund’s assets that goes towards indexation arrears is the same as the share going to future indexation. So what does it mean? Each member’s personal pension capital will include an amount for financing a specific percentage (one that is the same for everyone) for the future indexation ambition, plus an amount for financing the same percentage of the indexation arrears (calculated in a uniform manner). 

Financing indexation arrears is relatively more costly for older members, who have accrued more pension than younger members. Younger members, however, need relatively more money to realise future indexation than older members do: the future indexation for younger members needs to be financed over a longer time. 

No, there are legal calculation rules for the distribution of the pension assets upon commencement. One of the conditions is that participants receive at least the value of the accrued pensions paid into their pension pot, provided that the funding ratio of the Fund is sufficient (more than 102%). An other question explains how the Fund's buffer is subsequently distributed upon entry.

If our financial health is good enough, you will receive more in your personal pension pot when converting than just the value of your pension at the time of conversion. The personal pension capital, including the share in the buffer, isawarded at the transition moment:

• For pension recipients, this means that the pension that has started can be increased immediately at the transition, if the funding ratio is high enough. A more detailed answer to the question of what advantages and risks there are for pension recipients can be found in the question: “Will older/retired members be disadvantaged by entitlement conversion?”
• Pension accruers and non-contributory policyholders will see the additional addition to the personal pension capital on the pension overview that we will send you after the transition to the new pension scheme and also in MijnPPF. At the time of retirement, it is calculated how much pension you can receive from your personal pension capital.
   

The new pension system must of course be compliant with the relevant laws and regulations. That includes European regulations - and in this case specifically the European Convention on Human Rights and Fundamental Freedoms (ECHR), which states that every person is entitled to the peaceful enjoyment of his or her possessions. At a minimum, this covers the pensions that employees and retired members have previously accrued. EU Member States have the authority to deprive persons of their possessions or to control property if this is required for reasons of public interest. The ECHR lists a series of criteria for determining whether the deprivation of possessions or control of property is legitimate. Ultimately, the European Court of Human Rights will have to decide whether those criteria are satisfied. In the memo that Social Affairs and Employment (that later became the Future Act of Pensions) Minister Wouter Koolmees presented to the Dutch House of Representatives on 22 June 2020, describing the main principles for the practical details of the National Pension Agreement, it is assumed that the likelihood that the European Court will rule, if asked, that these criteria are not met, is small: ’Potential risks of an unjustified infringement of the right to own property will be (...) very minor.’

The calculations from the transition plan look positive for all participants. If the funding ratio is 120% when we switch to the new pension plan, we expect the effects to be as shown below. The advantages mentioned in the first two points of the list below will be smaller, of course, if the funding ratio is lower than 120% when we make the switch, and greater if it is higher. If the funding ratio drops below 115%, this will also negatively affect the degree of protection that the solidarity reserve can offer.

• Immediately after we make the switch, every member will have a higher pension than under the existing pension plan. For our pension beneficiaries, it will be an increase of 5-8%. 
• All our members are also expected to have a higher pension than under the existing pension plan over the entire period that they draw their pension.
• The so-called solidarity reserve provides pensions that are already being drawn with a high degree of protection against cuts. Pensions that have previously gone up are also strongly protected against cuts. The protection means that it will be less likely than under the existing pension plan that we have to lower the pensions that are being drawn.
• Measured over the long term, the pensions are expected to go up by an average of 2% per year. This means that the pensions are expected to retain at least most of their purchasing power. 
   

This sounds very encouraging. Are there any risks?

Yes, of course this comes with some risks. Developments on the interest and stock markets are unpredictable, and investment yields could fall short of expectations. Inflation could be higher than we currently foresee, which would erode the pensions’ purchasing power over time. These risks already exist under the pension plan that we have now. Under the existing pension plan, the Pension Fund is required to maintain a buffer, which offers members protection in case the investment returns fall short. So how does this work under the new pension plan? 

Risks for pension beneficiaries
In the new pension plan, pension beneficiaries of Philips Pensioenfonds are protected against shortfalls in investment returns by the solidarity reserve. At the time of switching to the new pension plan, that reserve will be filled using the Pension Fund’s buffer. Later, it will be topped up by withholding small amounts from the positive investment yields of the pension beneficiaries and other members aged 55 and up. The solidarity reserve will be used to top up your pension if it would otherwise need to be lowered. However, this is possible only if the solidarity reserve contains enough assets.

Risks for active members and non-contributory policyholders
The solidarity reserve does not protect active members and non-contributory policyholders before they start drawing their pension. The new pension plan will not include a financial buffer, meaning that negative investment returns will have a direct negative impact on the personal pension capital of those members, and on their expected pension. At the same time, however, positive investment returns will cause a direct increase in their expected pension. Under the existing system, positive investment yields are generally only used to increase the buffer, and so improve the funding ratio. A member’s pension (actual or expected) only goes up if the Pension Fund can award indexation (including compensatory indexation) on the pensions. 

No. Only the available assets at the time of conversion can be divided. The affiliated companies are not obliged to make additional contributions.