The funding level is an important yardstick for judging the pension fund’s financial situation. It indicates to what extent the pension assets are high enough to meet all future pension obligations (including, in particular, the pension benefit payments).

We're happy to explain how the funding level in 2019 is calculated.

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Besides the funding level, a pension fund must calculate the “policy funding level,” being the average of the last twelve months of monthly funding levels. The policy funding level can be used to determine whether a pension fund needs to curtail accrued pensions and pensions that have commenced payment. 

The policy funding level can also be used to determine whether a pension fund is in a deficit situation, in which case the pension fund would be required to submit a recovery plan to the Dutch central bank, DNB (De Nederlandsche Bank). The recovery plan outlines how a pension fund aims to achieve a higher funding level in the coming years. The policy funding level plays a decisive role in the fund's decision on whether to index.

2019 was a challenging year for SPF. Interest rates fell to levels not thought possible a few years ago, and this also negatively affected SPF's financial position. The funding level ended in August below 100%. This was partly why the policy funding level fell below 110% at year-end, the limit below which SPF is not allowed to grant indexation.

Fortunately, the policy funding level did not necessitate any curtailment in 2019, but unfortunately neither did it allow any indexation. SPF tries to increase pensioners’ and deferred members’ pensions annually in order to bring these in line with price increases. We also aim to increase active members’ pensions to bring these in line with wage increases. We refer to this increase as “indexation". However, we can only index if our financial situation is strong enough.

Unfortunately, it is only to a very limited extent that the fund has been able to achieve its ambition of providing indexed pensions. The gap that has gradually emerged has diminished the purchasing power of our pensions and the pension accrual. If the financial situation at SPF improves, indexation will be possible again. Although there was no need for a curtailment in 2019, the chance remains that pensions will have to be cut in the following years. More information about indexation is available on SPF’s website.