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Pension funds warn they may not index link payouts in 2025

October 17, 2024
Photo: DutchNews.nl

Dutch corporate pension funds are warning they may not be able to put up pensions in line with inflation next year because coverage ratios have been falling slightly in recent months.

The European Central Bank will decide again today if interest rates should be cut, and this will have a further impact on the funds’ financial position.

The big five funds all booked improved returns on their investments in the third quarter of the year, but coverage ratios – the amount needed to pay all current and future pensions – have gone down.

Civil service pension fund ABP, which is one of the biggest in the world, says the European Central Bank’s decision to cut interest rates twice already this year has had a “disadvantageous impact” on its pension payments.

Despite better returns in the third quarter, the fund’s financial situation has deteriorated slightly, the paper said. APB will also decide next month whether or not to index link pensions.

Engineering fund PMT says its current coverage ratio of 109% is “not sufficient” to put up pensions next year. The other engineering fund PME also has its doubts.

We believe preventing a reduction in pensions is more important for our members than an increase,” PME chairman Eric Uijen told the Financieele Dagblad. “Any pensions increase this year is likely to be small.”

Healthcare pension fund PFZW said in July it did not expect to put up pensions in 2025 but will take a final decision in mid-November.

The funds are currently working towards a new pension system, first mooted 16 years ago, which aims to make corporate pensions more sustainable. If the new system comes into full operation in 2027 as planned, workers with a company pension scheme will no longer know in advance how much pension they get.

Instead, pensions will vary in line with investment returns and life expectancy, meaning the economy will have more of an influence on payouts. The aim of the reform, the government says, is to spread the burden of paying for pensions more fairly across the generations.

Corporate pensions will no longer be based on average (wage-related) contributions but on everyone paying the same.

The Dutch pension system is currently based on three pillars – the state pension AOW, compulsory corporate pension schemes – either sector-wide or company-based – and individual or private pension schemes.

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