Financial position

Checked on: 28 April 2022

Financial position

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:

Quarterly report

Every quarter you can read in this report how Philips Pensioenfonds is doing financially.

Quarterly report 2022 Q1 (in Dutch)

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 31 March 2022, Philips Pensioenfonds had a actual funding ratio of 127.3%. The indexation of 1 April 2022 has already been incorporated in this funding ratio, see also the explanation under 'Latest developments'.

 

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 31 March 2022, Philips Pensioenfonds had a policy funding ratio of 128.1%.

 

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 31 March 2022, Philips Pensioenfonds had a required funding ratio of 115.9%.

Amounts in millions of euros        
  End of Q1 2022 End of Q4 2021 End of Q3 2021 End of Q2 2021
Pension fund's assets (1) 22,042 23,853 23,129 23,130
Pension liabilities 17,322 18,034 18,116 18,237
Current funding ratio 127.3% 132.3% 127.7% 126.8%
Policy funding ratio 128.1% 128.8% 121.7% 117.4%
 

Latest developments

The actual funding ratio fell from 132.3% to 127.3% during Q1. On 1 April 2022, your pension was indexed and went up. The indexation was processed in the actual funding ratio in March, causing a drop by 7.8% points: indexation means higher pension obligations, i.e. the total amount that Philips Pensioenfonds needs to pay out in current and future pensions. At the same time, however, soaring interest rates during Q1 meant a drop in the pension obligations. On balance, therefore, despite the indexation and the negative returns on the investments, the drop in the funding ratio was limited to 5.0% points.

If we look at the market developments in the first quarter, it is noticeable that interest rates have risen sharply. As a result, the value of the fixed-income portfolio fell. The Russian invasion of Ukraine made equity investors cautious. Investing in equities was also less attractive due to the rise in interest rates. The equity portfolio therefore showed a negative return. As a result, the return on the portfolio of marketable securities was negative in the first quarter. Because the returns of both the fixed-income portfolio and the portfolio of equities were negative, the invested capital decreased in the first quarter.

The rise in interest rates also resulted in a decrease in pension liabilities. Due to the indexation as of 1 April 2022, the decrease in the pension liabilities was limited. The decrease in invested capital was greater than the decrease in pension liabilities. This resulted in a 5.0 percentage point decrease in the current funding ratio in the first 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.

Related information

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Indexation policy

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 Indexation policy