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Pension funds allowed to index above inflation

Dutch pension funds have been given the go-ahead to increase pensions by more than the inflation rate, as per a new interpretation of the law. This allowance particularly benefits funds that could not provide full indexation last year, owing to a significant peak in inflation, which reached around 17%. 

Ger Jaarsma, the president of the Dutch pension federation, highlighted that the relaxed indexation rules, a part of the law facilitating the transition to a new defined contribution (DC) system by 2028, enable this provision. These rules permit pension funds to consider non-awarded indexation from the previous year, especially beneficial for funds like PFZW (the healthcare scheme) and Bpf Bouw (the fund for the construction sector), which use September or October as their indexation benchmark. 

Last year, these funds faced a staggering 17% inflation rate, which dramatically contrasted with the current scenario, where prices have either remained stable or slightly decreased. Under a strict consideration of year-on-year inflation, these funds wouldn’t be able to increase pensions, despite having adequate funding ratios. 

For instance, PFZW increased pensions by only 6% while facing 17.2% inflation last year. The fund’s board plans to consider the disparity between inflation and the indexation provided when deciding on the matter in November. 

Among the five largest funds, only the civil service scheme ABP provided full indexation last year. 

Marc Heemskerk, a pension consultant at Mercer, affirmed Jaarsma’s perspective that the unutilized indexation space from the previous year can now be employed. However, he cautioned that while this provision exists, some pension funds, considering the transition to the new system, may opt to maintain a larger financial buffer than strictly necessary in preparation for the shift to a new DC-based pension system. 

 Read more: https://www.ipe.com/news/dutch-pension-funds-allowed-to-index-pensions-above-inflation/10069723.article 

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