One of the factors used to determine the financial position of Philips Pensioenfonds is its funding ratio. If a pension fund has a funding ratio of 100%, this means that its assets exactly cover its existing pension liabilities. A series of financial rules laid down in the Financial Assessment Framework (Financieel Toetsingskader) have been used to define the following types of funding ratios:
Current funding ratio
The current funding ratio reflects the value of the pension fund’s assets as a proportion of the pension liabilities (all pensions payable now and in the future).
At 30 June 2023, Philips Pensioenfonds had an actual funding ratio of 126.5%.
Policy funding ratio
Another way of calculating the funding ratio that is less subject to daily fluctuations is the policy funding ratio. The policy funding ratio is calculated by taking the average of the actual funding ratios over the past twelve months. By law, pension funds are required to use their policy funding ratio for deciding on various matters, for example indexation. The policy funding ratio is also used for other purposes, including to establish whether the pension fund’s buffers are sufficient.
At 30 June 2023, Philips Pensioenfonds had a policy funding ratio of 128.3%.
Required funding ratio
The required funding ratio is the minimum policy funding ratio that pension funds are required to have according to the law. If a pension fund’s policy funding ratio is at the same level as the required funding ratio, this means that it has the financial buffer required by law. The purpose of this buffer is to compensate for fluctuations in the value of the pension fund’s investments and liabilities. The required funding ratio varies from one pension fund to the next, and is determined largely by the pension fund’s investment policy: the higher the risks in the investment policy, the higher the required funding ratio.
At 30 June 2023, Philips Pensioenfonds had a required funding ratio of 114.9%.
|Amounts in millions of euros|
|End of Q2 2023||End of Q1 2023||End of Q4 2022||End of Q3 2022|
|Pension fund's assets (1)||17,725||17,794||17,486||17,781|
|Current funding ratio||126.5%||125.7%||128.8%*||129.5%|
|Policy funding ratio||128.3%||128.6%||128.8%*||129.0%|
*The funding ratio as stated here differs from the funding ratio as published later in the 2022 annual report. This is due to a correction that has been made.
In the second quarter of 2023, the current funding ratio increased from 125.7% at the end of March 2023 to 126.5% at the end of June 2023.
Developments in pension assets
In the second quarter, the total investment return was positive. This was mainly due to the fact that stock markets experienced a strong quarter. As a result of the continued high inflation, central banks continue to raise policy rates. Although economic growth has slowed as a result, labour markets remain tight. Investors hope that inflation can eventually be brought under control without too much economic damage. This led to positive returns on the equity portfolio. While the real estate portfolio showed a negative return in the second quarter, the overall return on the corporate assets portfolio was positive. Due to the prospect of further interest rate hikes by central banks, long-term interest rates increased. As a result, the return on the LDI portfolio was negative. However, the positive return on the other fixed income portfolio was so high that the return on the entire fixed income portfolio was positive in the second quarter.
Developments in pension liabilities
The rise in long-term interest rates also had an impact on pension liabilities. Pension liabilities decreased. After all, a higher interest rate makes it easier to meet pension obligations now and in the future.
Positive investment return and decrease in pension liabilities
In the second quarter, there was therefore a positive total investment return. Nevertheless, total pension assets decreased slightly due to pension payments. However, this decrease was smaller than the decrease in pension liabilities. As a result, the current funding ratio increased in the second quarter.
(1) The pension assets represent the size of the Pension Fund's financial resources. There is a difference between the pension assets and the invested assets. This difference consists of a number of items (including taxes to be paid and social insurance contributions) that are or are not included in the pension assets on the one hand and the invested assets on the other. The funding ratio is based on the pension assets.
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We try to increase your pension every year. This is called 'indexation'. But indexation cannot be taken for granted. Do you want to know more about our indexation policy?Go to Graph