One of the factors used to determine the financial position of Philips Pensioenfonds is its funding ratio. If a pension fund has a funding ratio of 100%, this means that its assets are precisely enough for it to pay its existing pension liabilities. Our website shows three funding ratios. Whether or not your pension can be indexed is determined by the ‘policy funding ratio’.
- Actual funding ratio
The actual funding ratio reflects how the pension fund’s assets stand in proportion to its pension liabilities (all pensions payable now and in the future).
- Policy funding ratio
Another way of calculating the funding ratio that is less subject to daily fluctuations is the policy funding ratio. The policy funding ratio is calculated by taking the average of the actual funding ratios over the past twelve months. By law, pension funds are required to use their policy funding ratio for deciding on various matters, for example indexation. The policy funding ratio is also used for other purposes, including to establish whether the pension fund’s buffers are sufficient.
- Required funding ratio
The required funding ratio is the policy funding ratio that the law says pension funds must have. If a pension fund’s policy funding ratio is at the same level as the required funding ratio, this means that it has the financial buffer required by law. The purpose of this buffer is to compensate for fluctuations in the value of the pension fund’s investments and liabilities. Exactly how high the required funding ratio is varies from one pension fund to the next, and is determined largely by the pension fund’s investment policy: the higher the risks in the investment policy, the higher the required funding ratio is.