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Ikea Netherlands builds solution for funding gap at pension fund

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STIP, the €408m Dutch pension fund of home furnishing store Ikea, has introduced a new pension plan including an employer’s obligation to plug any funding gap.

It said the new arrangements followed an agreement between the sponsor and trade unions about financing the pensions of its 15,000 members.

The provision of guarantees on funding levels has become rare in the Netherlands.

Many have abolished the guarantee – made expensive by low interest rates in the wake of the financial crisis – and have instead paid a one-off contribution as risks shifted to their schemes’ members.

A survey by financial newspaper FD suggested that no more than 29 sponsors had committed themselves to plugging a funding gap via a guarantee.

Key in the new pension plan of the Ikea scheme is the replacement of a cost-covering contribution with a premium that is cushioned over a three-year period, but aimed at achieving an annual funding of 105%.

This is the minimum required level to avoid rights cuts: under the financial assessment framework (FTK), Dutch pension funds have to apply a discount if their funding is short of 105% for five consecutive years.

The scheme said the new contribution model was also lower and less volatile.

STIP added that the employer was required to fill in the shortfall if the scheme was unable to prevent or postpone discounts in benefits and accrued pension rights in any other way.

At September-end, the coverage ratio of Ikea’s pension fund stood at 116.1%.

As the FTK allows pension funds to start compensating for inflation in part when their funding level hits 110%, STIP has granted its 6,940 workers a 0.11% inflation-linked payment based on the salary index in January this year.

Deferred members and pensioners, whose indexation follows the consumer index, received an inflation compensation of 0.09%.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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