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Funding ratio

As long as the current system is in place, a pension fund’s financial position determines whether it is allowed to increase pension benefits or must reduce them. The funding ratio is used to calculate this.

Funding ratio

The funding ratio reflects a pension fund’s current financial position, expressing the ratio between available assets and liabilities. In other words: it shows whether the pension fund holds enough reserves to pay out pension benefits – to its current and future members. The funding ratio is expressed as a percentage.

Calculating the funding ratio

The funding ratio is calculated as follows: the value of a pension fund’s assets (the fund's investments in equity and bonds) is divided by the value of its liabilities (the current and future pension benefits to be paid out):

                          value of assets

 Funding ratio =  ──────────────────────────────  x 100%

                           value of liabilities

The current value of a pension fund's liabilities is calculated using the actuarial interest rate.

The funding ratio determines a pension fund's options

The funding ratio is subject to statutory rules. For example, pension funds are only allowed to apply partial or full index-linking if their funding ratio exceeds 110%.  Index-linking means that a pension fund increases pensions to reflect rising prices. If a pension fund's funding ratio is too low, it must take measures to improve its financial situation.

Funding ratio rules:

Funding ratio

Funding ratio



≥ 110%

Actions by the pension fund

Take measures

No index-linking

Apply partial or full index-linking

What if the funding ratio is too low?

A pension fund may decide to set higher contributions in order to improve its financial position. In extreme cases, a pension fund may have to decide to curtail pension benefits – not only for current pensioners, but also for members retiring in the future. This happens in the following two situations.

  • A pension fund fails to meet the minimum own funds requirement for five consecutive years. In most cases, the minimum own funds requirement equals a funding ratio of 104%.
  • The funding ratio drops below the critical lower limit. This limit is different for each pension fund. 

The funding ratio and the new pension system

In the summer of 2020, the government and the social partners agreed on a new pension system. By 1 January 2028 at the latest, employers, employees and pension providers must have adapted their pension schemes to the new system. During the transition to the new pension system, the rules on index-linking will be more lenient. For example, pension funds may apply index-linking at lower funding ratios. Under the new pension system, the funding ratio no longer determines whether benefits are increased or reduced, making it a lot less relevant. The funding ratio will then apply only to funds that do not transfer to the new system. 

Purpose: balanced distribution

The main purpose of these rules is to ensure that pension funds distribute their pension assets in a balanced way between current and future pensioners. In favourable times, they can all benefit from rising pension benefits. If a pension fund has deficits, they must also bear the consequences together. For example, pension benefits may have to be reduced. This is of course a drastic measure, but the alternative is that the pension fund would pay out too much benefits now, leaving too little for future pensioners.  

Pension funds: current situation

Pension funds' funding ratios have risen since the end of 2022. Before that time, they barely met the minimum requirements for years, which meant they could not or only marginally increase pension benefits.  The recent increases in funding ratios were driven by increased interest rates. Thanks to these higher rates, most pension funds are now able to pay out pension benefits and in many cases even increase them. 

Your pension fund's financial situation

Do you want to know how your pension fund is doing? Then check the statistics section on our website. It lists the funding ratio of all pension funds, as well as information on pension funds’ investments and returns.

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