Members of the Dutch pension scheme for the cigar-making industry (Sigarenindustrie) are to receive a 17% increase in pension rights following a merger with the agriculture sector scheme.

The rise was due to the differing coverage ratios of the two schemes, according to Sigarenindustrie’s annual report.

The €211m Sigarenindustrie scheme was 114% funded at the end of 2016, when the funds merged, while the €16.4bn BPL Pensioen was 97% funded.

To avoid negative tax consequences, the increase came in a three-stage process, with an 11% rise at the time of the merger – the maximum allowed for indexation in arrears.

A further 3% was added to the pension rights immediately after the merger and another 3% rise is to follow in 2018.

The pension fund’s supervisory board (RvT) said that the scheme had refrained from putting part of the surplus into a separate fund, as this was deemed at odds with a balanced approach to all participants.

In the RvT’s opinion, the 2,500 participants of Sigarenindustrie were better off at BPL Pensioen on balance, despite its substantially lower funding.

It said that the advantage of the increased pension rights as well as the better pension arrangements at BPL Pensioen far outweighed any possible future drawbacks.

Last year, Sigarenindustrie charged a 19% contribution rate for an annual accrual of 1.75%, while BPL Pensioen’s contribution rate was 21.7% for an annual accrual of 1.875%.

Costs per participant at the cigar scheme were €427, against €111 at BPL. Combined asset management and transaction costs were 0.71% and 0.40% for the two schemes, respectively.

Sigarenindustrie had contracted out both its administration and asset management to Achmea. BPL has only outsourced its asset management to Achmea. TKP Pensioen carries out its administration.

Sigarenindustrie is expected to liquidate in September.