These developments reflect the weaker financial position of the pension funds. Their average funding ratio fell from 107% to 98% in 2011, owing largely to a decline in long-term interest rates. As this pushes up the value of their liabilities, pension funds must put more money aside. Because of this drop in the funding ratio, many pension funds now run a funding shortfall, i.e. their funding ratio is lower than 105%, meaning that they no longer hold minimum regulatory own funds. With such a low funding ratio, pension funds are not legally permitted to apply indexation to the pension claims and benefits. Moreover, pension funds with low funding ratios often increase contributions in order to improve their financial situation.
Results of DNB survey on pension contributions and indexation in 2012
|Date||2 August 2012|
As most pension claims and pension benefits will not be increased in 2012, their level will fall behind wage and price developments, creating a loss of purchasing power. In addition, total pension contributions in 2012 will climb up from 16.9% to 17.4% of salary, according to a survey of 25 large pension funds conducted by De Nederlandsche Bank (DNB).
|Indexation and pension contributions in 2011 and 2012|
|Indexation for members||Indexation for pensioners||Contribution as a percentage of salary|
|Actual||Target||Actual||Target||Employer’s share||Employee’s share|
Pension contributions will increase in 2012. The average employee’s contribution will climb up from 6.0% to 6.2% of salary, while employer’s contributions will likewise rise, moving up from 10.9% to 11.3%. In the case of company pension funds, the increase in the employer’s contribution will be particularly sharp, expanding from 24.7% to 26.6% of salary. At company pension funds the rise in contributions is traditionally paid by employers, whereas at sector-wide pension funds the increase is generally shared between employers and employees.
Contributions may continue to rise this year. At a number of funds the evaluation of the recovery plan resulted in the announcement of a proposed reduction in claims and benefits and/or increase in the contribution. These measures were not incorporated in the survey as they had not been confirmed at the time the survey was conducted.