The funding level is an important yardstick for judging the pension fund’s financial situation. It indicates to what extent the pension assets are high enough to meet all future pension obligations (including, in particular, the pension benefit payments).

The figure below shows how the funding level for 2019 is calculated.

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PDN's funding level showed significant fluctuations in 2019 due to the interest rate volatility. At the end of 2019, the funding level was 104.0%, which is only 1.0% lower than the funding level at the beginning of the year (105.0%). Besides the funding level, a pension fund must calculate its ‘policy funding level,’ this being the average of the last twelve months of monthly funding levels. At the end of 2019 the policy funding level was 102.3, which is 7.0% lower than at the beginning of the year.

The policy funding level can be used to determine whether a pension fund needs to curtail accrued pensions and pensions that have commenced payment. The policy funding level can also be used to determine whether a pension fund is in a deficit situation, in which case the pension fund would be required to submit a recovery plan to the Dutch central bank, DNB (De Nederlandsche Bank). The recovery plan outlines how a pension fund aims to achieve a higher funding level in the coming years. The policy funding level plays a decisive role in the fund's decision on whether to index.  

Fortunately, the policy funding level did not necessitate any curtailment in 2019, but unfortunately neither did it allow any indexation.

Each year, PDN endeavors to raise the pensions of pensioners and the accrued pensions of former members to compensate for price developments, and to raise the accrued pensions of members to account for salary changes. The pensions and accrued pensions have not been increased in recent years. The gap that has gradually emerged has diminished the purchasing power of our pensions and the pension accrual.

Because we are subject to specific legal requirements and required buffers in relation to this area, as things look now the chances of increasing the pensions in any of the coming years are remote. If PDN’s financial situation improves, we will once again be able to offer indexation, and the Board may decide to add additional indexation in compensation for indexation not granted in previous years. Despite the fact that 2019 did not necessitate any curtailment, the risk of doing so cannot be ruled out. If the funding level al the end of 2020 is lower than around 92%, the Board may decide to reduce pensions and the accrued pension entitlements. More information about indexation is available on PDN’s website.