Pension funds in the Netherlands have started to publish their indexation decisions for 2023. Many funds utilise the temporary loosening of buffer requirements to hand out double-digit indexations despite having lost billions of euros on their investments in the first three quarters of this year.
On Thursday, €460bn civil service scheme ABP (12%) and electronics and technological industry fund PME (6.2%) were the latest funds to announce their indexations for 2023.
Dutch pension schemes reference their indexation decisions to different indices and periods. Therefore the inflation percentage funds are to compensate for the difference.
ABP, which had not increased pensions between 2009 and 2022, was the first scheme to announce full inflation compensation for all its members. The fund will increase pensions by the same number as inflation in September 2022, or 12%. The move comes despite the fund’s investments having decreased in value significantly this year.
Young vs old
The indexation means ABP will distribute an additional €1bn of its assets to pensioners next year. As a result, the fund’s funding ratio will drop from 125.5% on 31 October to 112.1%.
According to ABP president Harmen van Wijnen, the decision to fully compensate for inflation is “responsible and balanced” with the fund retaining a sufficient buffer to enable a smooth transition to the new pension system.
| Pension fund | Indexation |
|---|---|
| ABP | 12% |
| Bpf Bouw | 14.5% |
| PME | 6.2% |
| PFZW | 6% |
| PMT | 4% |
While the majority of ABP’s accountability body, an advisory team made up of members, agreed with Van Wijnen’s analysis, a group of younger workers did not. They believe the decision disadvantages younger members because the double-digit indexation eats away the buffer.
Without the relaxation of the indexation rules, ABP could have only increased pensions by 3.8%.
Pensioenfonds Loodsen, the fund for shipping pilots, increased pensions by only 11.3% even though it has a higher funding ratio than ABP as well as a higher inflation figure to compensate for. The fund wanted to retain a buffer of at least 115% to comfortably make the transition to the new pension system.
According to Rajesh Grobbe, director of Loodsen, the 11.3% indexation led to a “limited wealth transfer” from younger to older members.
Multi-sector scheme PNO Media also announced a double-digit indexation, increasing pensions by 13.5% next year.
Bpf Bouw, the pension fund for the construction industry, will increase pensions by 14.5% next year, the highest indexation so far this year. The fund is by far the richest of the five largest Dutch pension funds, sporting a funding ratio of 140%.
The other three large funds PMT, PME and PFZW have lower buffers than ABP and Bouw and will all index pensions by single-digit figures only (see table).
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