The outgoing Dutch government will reduce the threshold for indexation of pensions from 110% to 105% as of next year, the deputy minister for Social Affairs Dennis Wiersma told parliament on Thursday.
The minister responded to a motion tabled by the PvdA, ChristenUnie and CDA parties asking the government to make it easier for pension funds to index pensions as of 2022. Most Dutch retirees have not received any indexation since 2009 because of insufficient funding ratios.
The opposition Labour Party (PvdA) had asked for a reduction of the indexation threshold to 105% earlier this month for funds that intend to switch to the new defined contribution (DC)-based pension system, but this proposal was rejected by the government.
As a compromise, the government has now said pension funds can index pensions from 105% once the draft pension law has been published, so they can better judge the possible consequences of such a decision.
Last month, deputy minister Wiersma said pension funds could only decide to index pensions retroactively, after the pension law would have been voted through parliament.
Since the draft pension law will not be sent to parliament until some time next year, at least part of 2022 indexation for the funds in question will have to be implemented retroactively.
The possibility to index pensions sooner does not come without conditions though. If pension funds with a funding ratio between 105% and 110% decide to partially index pensions, they need to explain why, and they are required to promise they will retroactively annul the indexation if they end up not moving to the new DC-based pensions contract.
The decision does not immediately help pensioners of the large sector funds ABP, PFZW, PME and PMT because their average funding ratios over the past 12 months (the decisive metric for indexation decisions) are still far below 105%.
Of the largest five pension funds, only the fund for the construction industry Bouw – with a so-called policy funding ratio of 115.9% at the end of September – would benefit from the measure.
How many funds will eventually make use of the relaxed rules remains to be seen. René van de Kieft, the president of pension fund PostNL, which has a policy funding ratio of 117%, labelled the planned relaxation of indexation rules “an unsavoury idea”.
Meanwhile, trade unions FNV and CNV welcomed the news. “We have been pushing for quicker indexation for months,” said Willem Noordman, responsible for pensions at FNV.
The CNV also said it welcomed the news, but noted all pension funds would have to “make their own balanced considerations, taking into account the financial situation of the fund in the light of the new pension system”.