Pension funds in the Netherlands have started granting their participants index-linked benefit increases in the wake of improving coverage ratios.

Schemes’ funding increased by at least 8 percentage points to 108% on average last year.

So far, 11 of the more than 50 sector schemes have announced inflation compensation. A year ago, consultants and the regulator were warning that a number of schemes could be forced to cut benefits.

The inflation-linked increases, however, are modest – ranging from 0.15% to 0.59% – as the funding of most schemes has only just exceeded the level of 110%, above which pension funds are allowed to start granting additional pension rights.

Full indexation can be given if funding is at least 125%.

Between October 2016 and October 2017 – the normal inflation measurement period for many sector pension funds – price inflation was 1.34%, based on the consumer prices index provided by Statistics Netherlands (CBS).

The €55bn scheme for the building sector (BpfBouw) and the €882m pension fund for the river shipping trade (Rijn- en Binnenvaart) granted an indexation bonus of 0.59%, based on both having coverage ratios of 113.8% at October-end.

By contrast, the €2.4bn pension fund for the confectionary industry (Zoetwaren) granted an indexation of 0.06%, based on a funding level of 110.6%.

Leonne Jansen, the pension fund’s chair, said that the small increase was meant as a sign to participants that the scheme’s financial situation was improving, and added that pensions provider TKP did not charge additional costs for the indexation.

She pointed out that the rules did not allow for adding the 0.06% to, for example, an inflation compensation next year.

Last year, just four industry-wide pension funds were able to compensate their participants for inflation, with 0.3% the highest indexation payment.

At the time, the €12.2bn scheme for housing corporations (SPW) granted 0.02%.

Most company pension funds – which are generally in a better financial shape than sector schemes – have yet to announce their plans for inflation compensation, as many take their funding at year-end as criterion.

However, 18 of the 25 largest pension funds had a coverage of more than 110% in October.

So far, at least seven company schemes have announced indexation payments, with three of them – Pensioenfonds ING, Unilever’s general pension fund (APF) and Delta Lloyd Pensioenfonds – indicating that they would grant a full indexation of 1.34%.

Provisum, the Dutch pension fund of clothing chain C&A, said it would increase pensions of all participants and pensioners by 1.33%. Its funding stood at 127% at November-end.

Unlike sector schemes, which grant all participants and pensioners the same rights increase, many company pension funds apply the salary index for workers and the consumer index for deferred participants and pensioners.

As a consequence, the active participants of the pension fund of steelworks Hoogovens stood to receive a higher indexation than its pensioners, whereas inflation compensation was the other way round at airline KLM’s pension fund for ground staff.

Wichert Hoekert, senior consultant for retirement solutions at Willis Towers Watson, said the different indexation policy was in part thanks to many sector schemes – including the €403bn civil service pension fund ABP – switching to the consumer prices index in 2016 as a way to limit returns-based contributions.

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