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Large pension funds: ‘We cannot increase pensions yet’

According to the rules, pension funds are only allowed to increase their benefits if the funding ratio is above 110% on average for a year. The funding ratio is still below 110% for all large funds.

At bpfBOUW, the fifth-largest fund in the Netherlands with 776,000 participants, the funding ratio was well above the 110% limit on average over the past 12 months. Retired construction workers can therefore cautiously hope for an increase next year. “Hopefully we can continue this growth in the last months of this year. We still see a lot of uncertainties in the financial markets,” said CEO Eline Lundgren.

There are plans to relax the rules so that funds can raise pensions earlier. From 2023, they may already pay out more at a funding ratio of 105%.

Caution unnecessary

But there are also calls for even more flexibility with pension increases. Since 2008, the assets of all funds together have almost tripled from 592 billion euros to 1692 billion euros in 2020, wrote emeritus professor of applied economics and member of the accountability body of pension fund ABP Bernard van Praag. earlier this year.

For example, if pensions had increased in line with inflation since 2008, the funds would have spent a total of 4 billion euros on their buffers last year, according to Van Praag. “That is not even 0.25% of the total assets.”

An amount that the pension funds could have paid without hesitation with their returns, says Van Praag. The political caution since 2008 has therefore been “completely unnecessary,” he said.

New system

“Van Praag’s calculation seems a bit on the low side to me,” says Corine Reedijk, pension consultant at Aon. “But the general idea is not strange. It is in a sense in line with the new pension system, which must come into effect in 2027 at the latest. The idea is that returns that are made are also paid out more. But until then we are stuck. still clinging to the rules we have now.”

Professor Marike Knoef also sees that Van Praag’s plea is similar to the idea behind the new system. “You can index faster in this, but you also have to cut back faster,” says the Leiden professor of economics and director of pension think tank Netspar.

“But you have to be honest with us that if we now use the pension assets to increase pensions, that also means that you are also distributing money that has been reserved for younger generations to the current elderly.”

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