ABN AMRO Pension Fund tries to adjust the pensions every year on April 1st to compensate for the price increases in the previous year. This adjustment of pensions to price increases is called indexation. Our indexation policy applies to the base pension arrangement and not to the net pension arrangement.

The price increases are determined on the basis of the consumer price index - all households (CPI), as published by Statistics Netherlands (CBS) for the January-to-January period. This price index tracks the price increases of e.g. food, clothing, housing and transport.

The board decides whether and to what extent indexation is granted. The indexation is conditional. One condition is that the pension fund's financial situation leaves sufficient scope for indexation. The funding level is used to measure the financial position.

ABN AMRO Pension Fund looks at the future-proof indexation funding level (FPI), the policy funding level and the economic funding level. With the economic funding level, the value of the investments and the value of the liabilities is calculated using the current market interest rate (as at the end of December).

 

For the policy funding level, the value of the liabilities is calculated using an interest rate set by DNB (the Dutch central bank). The FPI indicates the level at which the pensions can be fully indexed. The principle is that at this level full indexation is not just granted in one year only, but is expected to be consistently granted each year.

The board has set guidelines for granting indexation. These aim to preserve purchasing power over the longer term and mitigate the risk of pension reductions for all beneficiaries.

Guidelines:

  • The policy funding level at the end of December of the preceding year must be higher than 110%.
  • In making its indexation decision, the board will also look at the consequences for the economic funding level to determine whether indexation is responsible.
  • If there is scope for indexation, the pension fund will grant normal indexation first. Normal indexation serves to compensate the price increases in that year. The degree of indexation depends on the ratio between the policy funding level and the FPI.
  • If life expectancy rises faster than previously calculated, the pension fund must pay out the pensions over a longer period. In this case more provisions are necessary. These are formed in first instance from the funds earmarked for normal indexation. The normal indexation will then be lower.
  • If, after granting normal indexation, there are still sufficient funds for further indexation, the board can grant a one-off indexation. The pension fund is allowed to use 20% of the buffer for one-off indexation. One-off indexation serves to catch up on missed indexations or compensating pension reductions in previous years.

    The board can change the policy or deviate from the above guidelines if circumstances so require. For instance, to comply with regulatory changes or to protect the interests of the beneficiaries.