Following a period of sharp increases in official interest rates by central banks, it appears that the end of the steepest cycle of interest rate increases in decades has been reached. The first rate cuts are even expected in 2024, although central banks are trying to limit optimism regarding fast and sharp rate cuts.
The major economies demonstrated surprising resilience in 2023, with particularly the American economy performing better than expected. There is considerable uncertainty about economic developments in 2024. In certain parts of the world, such as the eurozone, the economy is recovering slowly. Geopolitical tensions are also increasing, for example in the Middle East. Central banks will closely monitor inflation developments.
The International Monetary Fund (IMF) is anticipating a global growth of 3.1% in 2024, an increase of 0.2% compared with earlier forecasts and equivalent to growth in 2023. Regarding growth prospects for the Netherlands and other European countries, the IMF is less optimistic. According to the IMF, the European economy fared significantly worse than expected in the final months of 2023 but the chances of a ‘soft landing’ have however increased. The IMF is warning of ongoing risks, such as the above-mentioned geopolitical tensions, which could disrupt commodity prices and supply chains. Other risks include setbacks related to the development of the Chinese economy, for instance due to ongoing problems in the Chinese real estate market. China’s economy has so far relied heavily on the real estate sector, but this sector is facing a significant drop in demand for new homes. It is therefore important that we remain cautious, as a sudden reversal in sentiment does not seem unrealistic.
The funding level increased slightly in early 2024, partly due to interest rate increases. The funding level was 119.1% by end March and the policy funding level stood at 122.7%.
The Board anticipates that important steps will be taken in 2024 towards the new pension contract. Social Partners have opted to present the new pension scheme to SPF in the summer. The new pension contract no longer primarily focuses on a ‘fixed’ pension payment that increases with inflation, which is an ambition that has proved to be not entirely feasible for many years. The pension payment will become more variable. This offers less assurance for members and pensioners, and SPF can also increase pensions earlier. On the other hand, negative results also increase the likelihood of pension cuts. The accrual of pension will now take place via personal pension capital.
In parallel with the Social Partners’ efforts, SPF will develop a Balancing Framework and will determine the risk appetite. The final decision regarding data quality is also being prepared.
In the autumn, fund bodies will consider the Social Partners’ Transition Plan and prepare preliminary decisions on the scheme’s introduction, communication and implementation.
Collective Act regarding the Future Pensions Act
A Collective Act in respect of the Future Pensions Act is expected during 2024. Several technical changes are being introduced to fulfil previous commitments made in the Senate and House of Representatives. It is not expected that there will be any issues with major implications for the design of the new scheme based on the Future Pensions Act or its implementation. The Board is of the opinion that clarification on this is needed quickly and hopes that there will be no major legislative changes for some time so that it can focus on a careful transition and on the design and implementation of the scheme.
Digital operational resilience regulation for the financial sector - DORA
This regulation harmonises the minimum digital resilience requirements for financial institutions and sets rules to better manage digital risks at outsourcing parties. Pension funds must meet the requirements from 2025. Pension funds are already confronted with DNB Good Practices Information Security, which will be supplemented and/or modified as a result of DORA. This will require considerable focus in 2024.
The sustainability policy is now a fixed item on the Board agenda. The Board will be taking further steps in 2024 with respect to sustainability and ESG. Topics in the planning for 2024 include:
The introduction of the Digital Operational Resilience Act (DORA) in 2025 means that the Board will have to make preparations in 2024, together with the administrator. This not only demands further knowledge development within the Board but also effective monitoring of the management measures by and through DPS.
The fund will conclude the update to the fund strategy in 2024. The reviewed SPF strategy will form the basis for the new communication strategy. The communication strategy indicates the frameworks and starting points for the communication policy. Derived from this, the Future Pensions Act Communication Plan will be shaped as part of the implementation plan.
In 2024, the fund will determine its ambition with respect to guiding choices, based on the communication strategy. The fund will then use this ambition to adjust the resources linked to communications.
The sale of DPS by dsm-firmenich in late 2023, started a process of making the pension administrator independent. This means a process of separation from the dsm-firmenich organisation. In PDN, DPS has obtained a new shareholder. For SPF, it is important that not only the new governance is designed effectively, but also that DPS arranges all processes in such a way that its operations retain their integrity and robustness. SPF is closely monitoring ongoing developments. The Board will take action to safeguard SPF’s interests, should this be necessary.