Indexation policy

ABN AMRO Pensioenfonds endeavours to adjust the pensions on April first every year to compensate for price increase in the previous year. When pensions are adjusted in line with inflation in this way, this is called indexation.

How we calculate inflation

The price increases are determined on the basis of the Dutch consumer price index (CPI) - all households, as published by Statistics Netherlands (CBS), for the period January to January. This price index reflects increases in the prices of items such as food, clothing, housing and transport.

When do we grant indexation?

The Board decides if the pensions will be indexed and to what extent. Indexation is conditional. One of the conditions is that the pension fund's financial position must allow scope for granting indexation. The funding ratio is used as a criterion for this purpose.

What factors does the Board take into consideration?

The Board of ABN AMRO Pensioenfonds considers the future-proof indexation funding ratio, the policy funding ratio and the economic funding ratio. When the economic funding ratio is determined, the value of the investments and the value of the liabilities are calculated using the current market interest rate (in the context of indexation this is the interest rate at the end of December). In the case of the policy funding ratio, the value of the liabilities is calculated using an interest rate set by the Dutch Central Bank (DNB). The future-proof indexation funding ratio indicates the level that the policy funding ratio must reach in order for full indexation to be granted. This is based on the principle that the level in question must be sufficient to allow full indexation in the future as well as in the current year.

What are the guidelines for applying indexation?

The Board has adopted guidelines for applying indexation. These guidelines take account of the need to maintain purchasing power in the long term and manage the impact of any reduction in pensions. The guidelines are as follows:

  • The policy funding ratio at the end of December in the preceding year must be above 110%.

  • When deciding on indexation, the Board considers the impact on the economic funding ratio and whether indexing the pensions would be responsible. If doing so would pose a threat to the economic funding ratio, a lower level of indexation will be granted or, if appropriate, the pensions will not be indexed at all. Any years when indexation was not granted can be made up once the pension fund's financial position improves.

  • If there is scope for indexation, the pension fund will grant regular indexation first. Regular indexation is compensation for price increases in the relevant year. The level of indexation depends on the relationship between the policy funding ratio and the future-proof indexation funding ratio.

  • If life expectancy rises faster than calculated, we will have to pay pensions for longer and will need to maintain larger provisions. These will initially be formed from the funds earmarked for regular indexation. This will lead to a lower level of regular indexation.

  • If, after granting regular indexation, further scope for indexation remains, the Board may decide to grant a one-off indexation. We may use 20% of the buffer (the amount in excess of the future-proof indexation funding ratio) for a one-off indexation. A one-off indexation is used to make up for previous years when no indexation was granted or to compensate for previous reductions in pensions.

Is the Board able to deviate from the guidelines?

The Board may change the policy or deviate from the above guidelines if the circumstances give grounds to do so. This is possible, for example, if there is a change in the relevant legislation or regulations or if this is in the interests of our current participants, former participants and pensioners as well as the employer.