The Board of Trustees does everything in its power to grant indexation to raise your future pension. However, as the events in recent years show, the pension fund is very much subject to external developments, and unfortunately we cannot give any guarantees. Nevertheless, the Board of Trustees seeks to offer you a pension that will retain its purchasing power over time – it is important to the Board to be able to index your pension. The ‘ambition’ is the target that the Board of Trustees sets for Philips Pensioenfonds pensions. Read on to find out what the ambition means in concrete terms for retired members and active members.
Ambition for retired members
The ambition of Philips Pensioenfonds is to increase your pension annually by the same rate as price inflation, expressed in the derived consumer price index established by Statistics Netherlands (CBS). Unlike the ‘standard’ consumer price index, the derived consumer price index does not reflect changes in the rates for product-linked taxes (such as VAT and duties on alcohol and tobacco), municipal taxes and subsidies – essentially, price increases resulting from government measures.
The Board of Trustees of Philips Pensioenfonds does not consider it to be the pension fund’s duty to compensate the effects of government measures. As a result, the rate by which your pension with Philips Pensioenfonds increases (based on the ambition) consistently deviates (though mostly only slightly) from the price increases according to the ‘standard’ consumer price index. Philips Pensioenfonds is not alone in this: the overwhelming majority of pension funds use the derived consumer price index.
Ambition for active members
The ambition of Philips Pensioenfonds is to raise your accrued pension rights every year by the same rate as wage inflation, expressed in the collective salary scale adjustments under Philips’s collective labour agreement (including for Signify employees). Whenever the Board of Trustees passes a decision to raise the accrued pension rights for members participating in the flex pension plan, that rise takes effect on the same date every year: 1 April.
Future extremely uncertain due to corona virus
Whether indexation is possible depends on the financial position of Philips Pensioenfonds, expressed in its policy funding ratio. We pursue an investment policy that is aimed at improving our policy funding ratio. However, the precise developments depend in part on other factors that are difficult to predict, for example changes in interest rates and prices on the stock markets.
As you are undoubtedly aware, the corona virus has caused share prices and interest rates to fall sharply. These developments have had a significant impact on our financial position since 1 January 2020. At the time of writing this letter (mid-March), our actual funding ratio has dropped to around 100%. That does not mean that the policy funding ratio is in any immediate danger, since it represents the average of the actual funding ratios over the past 12 months. However, in a year’s time the policy funding ratio will also be around 100% unless the situation improves.
With so many uncertain factors, it is impossible to predict whether the next 12 months will show any improvement. As such, we must seriously consider the possibility that our policy funding ratio will not be high enough during the years ahead, i.e. more than 110%, to grant you a partial indexation on your pension. It is also much more likely now that the policy funding ratio will drop below 100%. If it does, we will be forced to consider the possibility of lowering your pension.