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 2020 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.

2020 was another challenging year for SPF. 
The outbreak of the coronavirus pandemic at the beginning of the year affected the fund on all fronts. There was an initial sharp fall in the Global Capital Markets that SPF invests in. This meant that the funding level of the fund was also affected. This fall in the funding level was made even worse by falling interest rates. Over the course of the year, stock markets recovered. This was in contrast to interest rates, which remained low. In March 2020, the funding level dropped to a low point of 92.6%. This value brings the funding level close to critical. As a result, the policy funding level fell below 100% at the end of the year. When the stock market eventually recovered, the fund's funding level also recovered and towards the end of the year it stood at 103.2%. 

Fortunately, the policy funding level did not necessitate any curtailment in 2020, 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. This is SPF's ambition and is called indexation. However, we can only index if our financial situation is strong enough.

Unfortunately, the fund has failed to achieve its target of an indexed pension again this year. 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 2020, the chance remains that pensions will have to be cut in the following years. More information about indexation is available on SPF’s website.