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 2021, Philips Pensioenfonds had a actual funding ratio of 126.8%.
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 2021, Philips Pensioenfonds had a policy funding ratio of 117.4%.
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 2021, Philips Pensioenfonds had a required funding ratio of 118.6%.
|Amounts in millions of euros|
|End of Q2 2021||End of Q1 2021||End of Q4 2020||End of Q3 2020|
|Pension fund's assets (1)||23,130||22,479||22,921||21,855|
|Current funding ratio||126.8%||123.0%||117.2%||109.3%|
|Policy funding ratio||117.4%||112.7%||109.8%||110.1%|
In the second quarter of 2021, the current funding ratio increased from 123.0% at the end of March to 126.8% at the end of June. The good returns on the equity portfolio in particular contributed to this return. The economy received a significant boost in the second quarter. Firstly, because governments took measures to stimulate the economy and secondly, because various corona measures were lifted.
Other riskier asset classes, such as real estate, emerging government bonds and high-yield corporate bonds, also benefited from these developments. Interest rate developments were limited in the second quarter. Both investments in government bonds and pension liabilities therefore remained fairly stable. On balance, these developments resulted in the current funding ratio rising 3.8 percentage points 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.
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?