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Philips sees “uncertainty” of pension indexation

NETHERLANDS – Electronics giant Philips has said that its new pensions agreement may mean a “degree of uncertainty” for members due to a shift in indexation policy.

Koninklijke Philips Electronics and its unions signed a new collective labour agreement, or CAO, unions earlier this year which encompassed a shift to average-salary pensions.

In April it predicted a 1.2 billion-euro cut in benefit obligations – as well as ongoing savings – as a result of the agreement, under which indexation will explicitly become conditional.

“The condition for indexation will then be that the Pension Fund has sufficient finances,” the Eindhoven-based group has said in a pensions newsletter for employees. “That means that in the future it may be that in a particular year your pension is not indexed at all, or is only partly indexed.”

“That represents a degree of uncertainty, therefore,” the newsletter states. “You never have the guarantee that indexation will take place, as there is no right to indexation, and also for the longer term it is not certain whether, and if so to what extent, indexation will take place.”

On the other hand, it was also possible that a higher indexation will be applied than the collective salary increase – if the scheme has “ample financial resources”.

Philips says that the indexation of pensions that are already being paid and of paid-up pensions will also be “explicitly conditional”.

The company says its new pension arrangements will come into effect on January 1 2005.

According to the scheme’s 2003 annual report, the total return on investments was 9.5% - which was “the main force” in the improvement of the funding ratio to 106.7% end of 2003.

In June this year, Schootse Poort, the manager of Philips’ 12.5 billion euros in pension assets, closed its doors to new third-party clients. It was also renamed as the Philips Pensions Competence Center.

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