Indexation policy

Checked on: 24 March 2022

Making sure that your pension keeps its value

We seek to raise your pension annually

Philips Pensioenfonds wants to offer you a pension that retains its purchasing power in the long term, to make sure that it still buys you as much in the future as it does now. That is our ambition. To realise that ambition, we need to adjust your pension to reflect increases in prices (for retired members and non-contributory policyholders) and wage increases (for active members). This is called ‘indexation’.

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Overview indexations

24 March 2022

How much has your pension increased through indexation in recent years?

127.93 kB

Your pension will increase as per 1 April 2022

At the end of 2021, the policy funding ratio of Philips Pensioenfonds was 125.8%. With this funding ratio, we can fully increase your pension as of 1 April 2022 through indexation and, moreover, make up for a bit of the indexation that you have missed in recent years. This means the following:

  • Retired members and non-contributory policyholders
    For retired members and non-contributory policyholders, our indexation ambition is equal to the price inflation according to the derived consumer price index. In the past year, this index rose by 7.4%. The compensatory indexation is 0.38%. The increase in the pensions in payment and non-contributory pensions as of 1 April 2022 is therefore a total of 7.78%.
  • Active members
    For active members who accrue pension under the flex pension, our indexation ambition is to increase the accrued pension in line with wage inflation, which amounted to 1.6% last year. The compensatory is 0.38%. The increase in the accrued pensions as of 1 April 2022 is therefore a total of 1.98%.

Suggestion: go to MijnPPF for our letter with more information about the indexation decision 2022.
 

Go to News & Questions and answers

Indexation policy: a quick introduction

This information explains under what circumstances your pension can be raised.

Indexation ambition

Money loses some of its value every year as prices rise. This means that the same amount of money buys you less than it did a year before. This is called ‘inflation’. As prices increase, Philips Pensioenfonds seeks to raise its pensions accordingly. For active members, the ambition is to raise the accrued pension rights every year by the same rate as wage inflation, expressed as the movement in the collective salary scale adjustments at Philips. This extends to Signify employees as well. 

More about indexation ambition

Indexation table

The Philips Pensioenfonds indexation table shows when we can grant you indexation. That question depends on the policy funding ratio, which reflects the pension fund’s financial health. If indexation is granted, that same funding ratio shows whether your pension can increase by the same rate as wages or prices. 

More about indexation table

Indexation for active members

For Philips and Signify employees currently accruing pension rights, the pension fund seeks to raise the accrued rights annually. These annual increases are important to ensure that your pension retains its value when you start drawing it.

More about indexation for active members

Indexation for inactive members

If your employment ends or if you retire, Philips Pensioenfonds seeks to increase your pension annually to reflect price inflation, based on increases in the derived consumer price index published by Statistics Netherlands (CBS).

More about indexation for inactive members

Frequently asked questions

Do you want to know more?

  • The ambition of Philips Pensioenfonds is to raise current and non-contributory pensions annually by the same rate as price inflation, expressed in the movements in the derived consumer price index established by Statistics Netherlands (CBS). In 2020, that index rose by 1.2%.

    The ambition of Philips Pensioenfonds is to raise the accrued pension rights of employees still working for Philips and Signify annually by the same rate as wage inflation, expressed in the movements in the collective salary scale adjustments at Philips (also for those who work for Signify). Last year, this wage inflation was 3.4%. This rate is still subject to change.

    Whenever the Board of Trustees passes a decision to raise the accrued pension rights, for most members this takes effect on the same date every year: 1 April.

  • Every year, as prices increase, Philips Pensioenfonds seeks to raise its pensions accordingly. These increases are based on the ‘derived’ consumer price index published by Statistics Netherlands (CBS). That index does not make allowance for price increases that result from new product-specific tax rates. Philips Pensioenfonds is not alone in this: the derived price index is used by most pension funds.

  • No full indexation has been granted since 2011. The ambition of the Board of Trustees is to grant full indexation at the same rate as price inflation (for retired members) and at the same rate as wage inflation (for active members). A review of recent years shows that up to and including 2021 the total indexation that has been forgone compared with that ambition is:

    • 12.6% for retired members and non-contributory policyholders
    • 19.2% for current employees of Philips and Signify accruing pension rights under the flex pension (collective labour agreement and senior directors) plan
    • 21.1% for current employees of Philips and Signify accruing pension rights under the flex pension (executives) plan.
  • Yes, this is a possibility. Any decision to grant compensatory indexation is made by the Board of Trustees of Philips Pensioenfonds. If the policy funding ratio is higher than 123%, compensatory indexation may be granted. However, it may only be granted in small steps. Every year the pension fund may grant you additional indexation corresponding to 1/5 of the percentage points by which the policy funding ratio exceeds 123%. For example, if the policy funding ratio is 128%, you may be granted a maximum of 1% (= 1/5 x 5%) in compensatory indexation. If the total foregone indexation is 6.5%, and assuming that the policy funding ratio remains steady at 128%, it will take 6 1/2 years to make up the entire deficit. In other words, the policy funding ratio will need to be 128% for 6 1/2 years in order to compensate the entire deficit of 6.5%. Whether compensation for missed indexation is really possible with a policy funding ratio above 123% depends on a legally prescribed limit. This legal limit varies over time, in particular because interest rate developments also affect it.

  • In recent years your pension has not risen at the same rate as the prices. The indexation has fallen behind. This forgone indexation can be ‘compensated’ if the policy funding ratio rises above 123%. Indexation can only be compensated in small steps, however: every year the pension fund may grant you additional indexation corresponding to 1/5 of the percentage points by which the policy funding ratio exceeds 123%. For example, if the policy funding ratio in a particular year is 128%, you may be granted a maximum of 1% (= 1/5 x 5%) in compensatory indexation. Whether compensation for missed indexation is really possible with a policy funding ratio above 123% depends on a legally prescribed limit. This legal limit varies over time, in particular because interest rate developments also affect it.

  • The Philips Pensioenfonds flex pension plan is a collective defined contribution plan with an underlying career-average earnings ambition. That career-average earnings ambition means that the pension that you receive depends not only on your average earnings during your working life, but also the degree to which your accrued pension rights are adjusted during the accrual phase, which is how your pension will retain its value over time.

  • The ambition of Philips Pensioenfonds is to raise current pensions annually. However, indexation on current pensions is, and always has been, conditional. That means that the pension fund does not have an obligation to increase your pension: the Board of Trustees decides whether to raise the pensions, and if so by what percentage. This will include an examination of various factors, including whether the pension fund’s financial health is strong enough to allow it to raise the pensions and by how much, and what the likelihood is of future changes in its financial health. In all its personalised information about indexation, Philips Pensioenfonds includes texts mandated by law to explain that your pension is not automatically indexed.

  • 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 are precisely enough for it to pay its existing pension liabilities. Our website shows three funding ratios. Whether or not your pension can be indexed is determined by the ‘policy funding ratio’.

    - Actual funding ratio
    The actual funding ratio reflects how the pension fund’s assets stand in proportion to its pension liabilities (all pensions payable now and in the future).

    - 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.

    - Required funding ratio
    The required funding ratio is the policy funding ratio that the law says pension funds must have. 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. Exactly how high the required funding ratio is 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 is.

  • The indexation policy of Philips Pensioenfonds is based on the policy funding ratio. A pension fund is legally obliged to use the policy funding ratio as the basis for certain policy decisions, for example decisions about indexation. It is less dependent on daily rates, as it reflects the average of the actual funding ratios over the past twelve months. In the indexation table you can see what the consequences are for your pension if the policy funding ratio is at a certain level.

  • As established in our indexation ambition, we want to increase the pensions of pension beneficiaries and non-contributory policyholders by the same percentage as price inflation, expressed in the derived consumer price index. For active members, the ambition is to raise the accrued pensions every year by the same rate as wage inflation, expressed as the movement in the collective salary scale adjustments at Philips. This extends to Signify employees as well. This gives shape to the arrangements made during the collective negotiations between employers and trade unions, which also include the indexation ambition.

  • Like most other Dutch pension funds, Philips Pensioenfonds bases its ‘price inflation’ on the movements in the derived consumer price index as established by Statistics Netherlands. However, the period over which the movements are measured varies from one pension fund to the next, depending on the date on which the pension fund indexes its pensions (if possible). Additionally, Statistics Netherlands does not publish the finalised indexation rate for a particular month until several months later. If Philips Pensioenfonds can raise its pensions, it will grant the indexation on 1 April, which is why we prefer to use the period from January to January. Basing the indexation on that period means that the rate at Philips Pensioenfonds is higher than the indexation rates of many other pension funds that use a different period. The reason for the difference is that prices for energy and other costs went up significantly during the final months of 2021 in particular. Pension funds that base their indexation on another period, for example October 2020-October 2021, will not include the months when prices (for energy, for example) surged so rapidly until they establish next year’s indexation rate. As a result, our indexation rate will normally be somewhat lower next year than the indexation rate of those other pension funds.

  • It has long been the ambition of Philips Pensioenfonds to raise the pensions of pension beneficiaries and non-contributory policyholders by the same rate as price inflation, expressed in the derived consumer price index. One of the outcomes of the collective bargaining some years ago was that the employers and trade unions expressed a desire to Philips Pensioenfonds to use wage inflation as the basis for indexation for active members. The Board of Trustees agreed. The employers, the unions and the Board of Trustees made this decision in full awareness of the possibility of years or periods when price inflation is higher than wage inflation. Last year, however, the difference between wage inflation and price inflation was an unprecedented 5.8 percentage points. That is more than at any time during the past 20 years, when the greatest difference was 2.3 percentage points; price inflation was higher than wage inflation in that year too.
     

    The Board has discussed at length whether last year’s significant gap between wage inflation and price inflation should be a reason to deviate from the existing policy. By law, Philips Pensioenfonds is not permitted to raise the indexation rate for active members, since that would mean paying out more than the indexation ambition, which is not allowed. One of the concrete questions during the Board’s discussions was therefore whether to lower the indexation rate for pension beneficiaries and non-contributory policyholders.

    The Board's reasons for not deviating from the policy

    In the end, the Board of Trustees decided not to deviate from the indexation policy this year, and therefore to apply the price and wage inflation rates as dictated by that policy. That decision was based on the following reasons:

    • In the long term, the difference between the indexation rates granted to the two groups is not as great. Not including the indexation granted this year, the average indexation granted to active members over the past 10 years was 0.32% higher per year than the indexation granted to pension beneficiaries and non-contributory policyholders. If the indexation granted in 2022 is included, pension beneficiaries and non-contributory policyholders received an average of 0.26% per year more than active members over a 10-year period.
    • Given that pension beneficiaries live off their pensions, Philips Pensioenfonds did not want them to miss out on more indexation.
    • Last year, to increase the possibilities for full indexation during the years ahead, the Board decided to make maximum use of the new legal rules for indexation in the run-up to the new pension system. Against that backdrop, and considering that the financial position of Philips Pensioenfonds (with a policy funding ratio of 125.8% at the end of 2021) was strong enough to grant full indexation even without those new rules, it would not make sense not to grant full indexation this year.
       

    The Board has also decided to consider the difference in indexation rates for pension beneficiaries and non-contributory policyholders on the one hand and active members on the other when making its decisions in preparation for the new pension system.

  • Given the large gap between last year’s price inflation and wage inflation, the Board of Trustees has decided to review the indexation policy. One of the questions that will be asked is what we should do if this year’s price inflation and wage inflation are so different again. In that situation, applying the policy again in 2023 might lead to a significant difference between the indexation granted to the separate groups of members over an extended period of time. The question is whether that is acceptable, in part considering the new pension system that will be put in place during the next few years.

  • How much missed indexation we may grant is determined by legal rules. Indexation that has been foregone cannot be “compensated” until the policy funding ratio passes a threshold prescribed by law. That legal threshold varies over time, in particular since it is also subject to movements in interest rates. On 31 December 2021, the threshold for Philips Pensioenfonds was 123.9%. Another rule is that indexation can only be compensated in small steps: every year, Philips Pensioenfonds may grant an amount in compensatory indexation that corresponds to 1/5 of the percentage points by which the policy funding ratio exceeds the legal threshold. At the end of 2021, our policy funding ratio was 125.8%; this means that, if we grant everyone the same compensatory indexation as required by the policy, the maximum that we may grant in 2022 is 0.38% (125.8% less 123.9% = 1.9% x 1/5). Every member who missed out on more than 0.38% indexation (which is the overwhelming majority of our members) is entitled to compensatory indexation at the full rate of 0.38% of their accrued pension. Members who missed out on indexation, but less than 0.38% of their accrued pension, are awarded compensatory indexation at the full amount that they missed. Members who did not miss out on any indexation are not entitled to any compensatory indexation; this includes members who only recently became employees of one of the companies associated with the pension fund.

  • How much indexation a member actually forewent depends in part on the date on which their employment began, and in some cases when it ended and the member retired. This means that our members forewent very different amounts of indexation, and it would be complicated to make practical allowance for all those differences. It is also not common practice in the pension business to make this distinction, and in fact it is uncertain whether it is even allowed by law. Based on these considerations, Philips Pensioenfonds has adopted a policy where, if compensatory indexation is possible, everyone is awarded compensatory indexation at the same rate of their pension, subject to a maximum of the actual indexation arrears.

    • If you joined Philips Pensioenfonds after 1 February 2021 but before 1 April 2021
      In this situation you missed out on pension indexation on 1 April 2021. However, the indexation that you missed out on is less than 0.38% of your accrued pension. You will receive compensatory indexation at the same rate as the indexation that you actually missed; this is determined individually, and depends chiefly on your salary adjustment on 1 April 2021.
       
    • If your employment began on or after 1 April 2021
      In this situation you did not miss out on any indexation, and you will not be granted any compensatory indexation, since we increase our pensions once yearly, on 1 April.
  • As a result of the indexation on 1 April 2022, the actual funding ratio will drop by 7.7 percentage points. If we assume the current funding ratio at the end of February 2022, this means that it will fall from 131.3% to 123.6%. This means that the financial position of Philips Pensioenfonds remains healthy even after indexation. The drop will have barely any immediate impact on the policy funding ratio, which represents the average of the actual funding ratios over the past 12 months. Nevertheless, over the months ahead the policy funding ratio is expected to drop as a result of the indexation. The funding ratio at the end of March 2022, reflecting the indexation on 1 April, will be published on the website in mid-April.

  • If you are already drawing your share in your former partner’s retirement pension, or if your former partner no longer works for Philips or Signify, the information in the letter applies both to the pension that you are receiving and to your extraordinary survivor’s pension. If your policy includes an extraordinary survivor’s pension, but you have not started drawing your share in the retirement pension because your former partner is still working for Philips or Signify, the information in the letter applies only to your extraordinary survivor’s pension. The accrued retirement pension (and your share in it) will be indexed in accordance with the indexation policy for active members. This means that it will be increased by 1.6% on 1 April 2022, plus up to 0.38% in compensatory indexation (if you actually missed out on indexation). The table below shows how your pension will be indexed.

     

    Share in retirement pension

    Extraordinary survivor’s pension

    Your ex-partner works for Philips or Signify

    1.98%

    7.78%

    Your ex-partner no longer works for Philips or Signify, or has already retired

    7.78%

    7.78%

    Your ex-partner is no longer alive

    NA

    7.78%

     

     

  • We will pay you your April 2022 pension on the first working day in April. This means that your pension, including the 7.78% increase (7.4% regular indexation plus 0.38% compensatory indexation), will be transferred on Friday, 1 April 2022. You will receive your detailed pension statement shortly before that (either by post or in digital format via www.philipspensioenfonds.nl/mijnppf), showing the new gross value of your pension and the net amount that you will receive.

  • All beneficiaries of a retirement pension, a survivor’s pension, an orphan’s pension or a disability pension will receive their annual pension overview in late-April 2022. That annual pension overview shows the 7.78% increase (7.4% regular indexation plus 0.38% compensatory indexation).

  • Your accrued pension will be increased by 1.6% on 1 April 2022, plus up to 0.38% in compensatory indexation (if you actually missed out on indexation). This increase will appear in the Pension Planner from 5 April 2022 forward. Also updated every year on 1 April is your pension base: the portion of your salary on which you accrue your pension. The new information will appear in the Pension Planner in early May, which means that any pay rises that you received between 2 April 2021 and 1 April 2022 will be reflected in your pension base. This in turn affects how much your pension is expected to be according to the Pension Planner.

  • Every year until you retire, you receive a Uniform Pension Overview based on your pension situation at 1 January. Since your pension will be increased on 1 April 2022, that increase will only be reflected in your Uniform Pension Overview for 2023, which you will receive around mid-2023. Your new pension situation will appear in the more up-to-date Pension Planner in MijnPPF on 5 April 2022.

Related information

You might also be interested in the following information.

News overview

Visit our news page to find out the latest news, including information about increases in your pension through indexation.

Go to news overview
Financiele positie

Financial position

Whether your pension can be increased, and if so by how much, depends on the financial health of Philips Pensioenfonds. What is the pension fund’s current situation?

Go to financial position