NETHERLANDS - Dutch Social Affairs minister Aart Jan de Geus has changed the indexation matrix of the new financial assessment framework FTK, in order to enhance the clarity on communication to participants in pension schemes.
Based on advice from the Labour Foundation Star, as well as De Nederlandsche Bank and the Authority Financial Markets (AFM) regulators, de Geus has decided to merge the columns on indexation policy and granting of indexation in the matrix, he said in a letter to parliament.
The indexation matrix for pension funds and insurers is meant to provide a consistent combination of raised expectations, financing and actualising of conditional indexation. In addition, it provides rules for communication on conditional indexation.
Schemes must inform participants on expectations on the likelihood of future indexation in five steps, varying from 0-20% to 80-100%. They must also add an explanation of the risk indication.
The matrix will come into force as of January 1 2008.
At the same time, the parameters for the FTK will remain unchanged, based on advice of the Star, de Geus indicated. The rules will allow minimum expectations for the increase of the salary and price index of 3% and 2% respectively.
The maximum expectation for returns on fixed income will be 4.5%, after discounting investment costs.
The maximum risk premiums, set for equity in developed markets, private equity and emerging markets, are a geometrical average of 3%, 3.5% and 4% respectively. The corresponding figure for real estate and commodities has been set at 2%.
The parameters will take effect four weeks after they have been presented to parliament. A new set of parameters will be introduced as of January 1 2008. They are to be developed by a new committee of DNB, the Netherlands' Bureau for Economic Policy Analysis CPB and the Star.
De Geus has also made clear that he wants the principles for pension fund government to take effect as of January 1 2007, "so DNB can already start supervising the implementation next year. Without a legal base, this would be impossible."
According to the minister, DNB will start checking the pension funds' progress halfway through the year.
Separately, the €201bn civil service and education pension fund ABP has decided to an indexation of benefits and pension claims of 2.82% next year, it announced.
Moreover, its participants will receive an extra benefit of 2.47% straight away, it added.
The partly indexation - 77% of salary developments - is due to the improved financial position of the scheme, and fits within the collective labour agreements, or CAO's, it said.
ABP's coverage ratio has risen from 119.7% at the end of last year, to 131.2% on November 1. "Full indexation would have been possible at a funding ratio of 140%," it stated.