Pension funds were able to implement significant increases last year, but at the same time lost a lot of money with their investments. In the end, they are still in a solid position due to the rise in interest rates, according to the annual reports of the country’s five largest pension funds.
Pension funds together saw their assets decrease by no less than 300 billion euros. They point to the war in Ukraine and its impact on the economy. Rising interest rates also caused stock prices to fall sharply. Civil servants’ pension fund ABP, the largest fund in the Netherlands, saw no less than 97 billion euros in invested capital go up in smoke.
On the other hand, the value of payable pensions fell by 85 billion. This is mainly because the interest with which the fund has to calculate rose. At a higher interest rate, a fund needs to have less money in cash for obligations in the future.
On the one hand, therefore, large losses, but on the other hand, they also had to keep less money in the drawer. This allowed the five largest funds to finally increase pensions.
The ABP even did this twice to compensate for price increases: first in July by 2.39 percent and as of January 1, 2023 by another 11.96 percent. Historical percentages. According to chairman of the board Harmen van Wijnen, the ABP will keep enough fat on its bones even after that increase.
‘Increase and investment loss difficult to explain’
Care pension fund PFZW, metal technology fund PMT, metal electro fund PME and bpfBOUW also saw a negative return of more than 20 percent in 2022. Pensions were nevertheless increased. “Good news,” says PFZW director Joanne Kelderman. “Because it was also a tough year for everyone who accrues or receives a pension with us,” she points to the sky-high inflation.
According to PME chairman Eric Uijen, it is difficult to explain that pensions could go up considerably given the losses on the stock market. “But our obligations fell faster (by almost a quarter, ed.)”, says Uijen.
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Funding ratios show limited impact of investment loss
The funding ratios, the ratio between the money in cash and the money that is needed to pay out all pensions now and in the future, also show that the pension funds are in good shape.
The five largest pension funds ended 2022 with a funding ratio well above 100 percent. With a funding ratio of 100 percent, funds have exactly 100 euros in cash per 100 euros in future pension benefits.
Dekkingsgraad per pensioenfonds (eind 2022)
- ABP: 110,9 procent
- PFZW: 109,2 procent
- PMT: 106,8 procent
- bpfBOUW: 122 procent
- PME: 110,4 procent
‘Paradox shows the need for a new pension system’
According to ABP chairman of the board Van Wijnen, the ‘pension paradox’, the special combination of very negative investment results and extreme pension increases, shows that it is time for a new pension system.
Now the chance to increase pensions is strongly influenced by the interest rate. Interest rates are rising while investment returns are poor, so funds can increase pensions. In recent years, low interest rates have always been a reason why pensions could not be increased, despite good investment results.
In the new pension system, which was approved by the House of Representatives in December, pensions will increase more directly during good stock market years and shrink slightly faster if investment returns are poor.
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