NETHERLANDS – The two largest Dutch pension funds have unveiled their indexation rates for this year.

Civil service fund Stichting Pensioenfonds ABP has announced that there will be a 1.77% increase of pensions in 2004. This represents two-thirds of the rise in public sector salaries.

Healthcare fund PGGM will retain full indexation in 2004, at 2.05%.

ABP spokesman Marcel Vleugels said that the rise is still higher than the rise in the average cost of living.

This is largely due to the fact that the Dutch public sector is still catching up with private sector salaries. The current two-thirds indexation is based upon the fact that ABP’s coverage ratio in June 2003 was around 104%.

Index gradation – “staffeling” in Dutch - is set to be introduced from January 1 2005. This means that there will be a direct link between coverage ratio and indexation. Until now, total indexation has been the practice, meaning that indexation was an average of all salary increases of the sectors the pension fund covers.

According to Vleugels, no problems are foreseen in the coming year – as the government currently has implemented a stop on salary increases.

PGGM spokesman Kees Verhagen said the fund would have to raise its pension premiums going forward, to reach the targeted coverage ratio of 120% in 2010/2011. The pension premium will be 13% in 2004, for 2005 the plan is 15.5%.

This then would be already the targeted level. This has been necessary due to the stated index gradation system of the regulator, the Pensioen- & Verzekeringskamer. The fund does not expect any more premium increases - though that will still depend on future financial market conditions.

PGGM’s pension premiums are on average 50-50 shared by employers and employees – while for ABP the ratio is 66-34.