NETHERLANDS - PGGM, the €77bn Dutch health care pension fund, will apply full indexation to pensions from the beginning of next year, the fund announced today.
Effectively, pension rights of both healthcare employees and pensioners will be increased by 1.86%. This increase compensates for the wage inflation rate in the healthcare and social work sector, according to PGGM.
The full indexation is permitted, because the fund has reached the required cover ratio of 130% on the reference date, September 30 this year.
Because of this, the second largest Dutch fund could also announce that it will leave the contribution rate for old-age pensions and partner pension unchanged in 2007. This means a rate of 22.5% of salary less the contribution threshold.
Last January the fund could not completely compensate for the wage inflation growth, because its financial buffer was too small.
As a result, PGGM increased members' pension rights by about half of the salary increase in the healthcare sector. This came to only 0.45%, as salaries saw little growth in 2005.
The fund aims to compensate for the arrears as soon as the cover ratio reaches 150%.
As of January 1, 2008, pension funds will need to provide their participants with an indexation table, as a qualitative and visual indication of the expectations on indexation. Also funds must provide some insight about the degree of certainty in the build-up of pension claims or the current pension.