PFZW will increase pensions by 6% as of 2023. The pension scheme for workers in the Dutch healthcare sector is the first fund to announce its indexation decision for next year, with more such announcements expected over the following weeks.
PFZW had already increased pensions last month by 2.7% to compensate for inflation in 2021 after new temporary legislation came into force, relaxing indexation requirements for funds that have pledged to move to the new defined contribution (DC) pension system by 2027.
Pension funds can now index pensions if their funding ratio over the last 12 months averages at least 105%, instead of 110%. This metric reached 109.6% at the end of September, and as such would normally not have been enough for any pension increase.
The temporary reprieve runs out by the end of this year, and has not yet been extended.
PFZW’s funding ratio of 115.7% at the end of September would have allowed the fund to provide an indexation of 10.7%. However, the fund’s board decided not to compensate its members fully for the 14.5% inflation over its reference period, which runs from September 2021 to September 2022.
Balanced approach
Commenting on the decision, the fund’s president, Joanne Kellermann, cited the need for a balanced approach. “We need to also take into account the uncertain economic prospects, but at least we can cushion part of the pain of rising prices now,” she said.
“Our previous indexation in October also impacted the financial health of the fund,” a PFZW spokesperson added. “The board finds it important that PFZW remains financially strong enough after the indexation to keep the chance to a minimum that pensions will have to be cut in the following years.”
PFZW also wants to move to the new DC pension system, currently foreseen for 2026, with a buffer, added Kellermann. But the fund does not yet know how large this buffer is supposed to be. “We haven’t taken a decision about this yet,” she said.
Indexation decisions from other major Dutch pension funds, including civil service scheme ABP which increased pension by 2.39% in July, are expected over the next few weeks.
Inflation overestimation
The Netherlands’ statistics agency CBS admitted last week that the method it uses to calculate inflation is likely an overestimation of the real level of inflation.
This is because in its methods, CBS assumes all Dutch households have energy contracts with market pricing. However, many households still have a long-term contract with fixed prices that are much lower than the current market prices.
Since energy prices have been the strongest driver of inflation this year, real inflation is probably up to 5.5% lower, according to CBS, which has promised to update its calculation method as of next year.
The overestimation of inflation figures does not immediately impact most pension funds, including PFZW, since they were not willing to provide full indexation anyway.
However, funds could use the revised method to explain why they are not compensating inflation in full, according to Marc Heemskerk, an actuary and consultant at Mercer.
“I just wrote an indexation advice for a Dutch pension fund, in which I specifically mention this point,” he said.
The latest digital edition of IPE’s magazine is now available
No comments yet