Financial situation
APF Pension Fund is a financial institution. Just like all other financial institutions, APF Pension Fund prepares a balance sheet each year, which is published in its annual report. However, it is important to know how well the pension fund is doing during the course of the year too. An important tool in this respect is the funding ratio.
The funding ratio
The funding ratio is a useful financial barometer for pension funds. If the funding ratio is 100%, we will have exactly 1 euro of cash funds for each euro of pension to be paid by us, whether now or in the future. The funding ratio expresses the health of the pension fund in the form of a percentage. The higher the funding ratio, the better the financial situation of the fund.
Different funding ratios A number of different funding ratios apply for APF Pension Fund:
- The policy funding ratio
This is the average of the last 12 current funding ratios. The policy funding ratio is also the most important funding ratio, because decisions about increases and decreases in pension values are made on the basis of this funding ratio. By using an average, this funding ratio fluctuates less than the current funding ratio does. - The current funding ratio
This is the funding ratio per month. This funding ratio can fluctuate significantly and immediately shows the consequences of financial developments.
The value of the funding ratio
The rules for the value of the funding ratio are laid down by law. We are required to have a policy funding ratio of 116.2%. This ensures that we have sufficient financial buffers in place to withstand tougher financial times. The 116.2%-limit may be adjusted from 1 year to the next. This might occur as the result of changes in the interest rate or because of a change in asset mix, for example.
What happens if the policy funding ratio is too low?
The policy funding ratio may be lower than 116.2% for a maximum of 10 years. Legislation also stipulates that the policy funding ratio may never fall below 104.1% for more than 5 years. If the policy funding ratio falls below 116.2%, we are required to prepare a recovery plan. It describes how we intend to realize a funding ratio of at least 116.2% again in a maximum of 10 years. If our estimates show that this will not be possible, or if the policy funding ratio is less than 104.1% for more than 5 years, we will be forced to decrease pension values. We are permitted to spread any decrease in pension value over a maximum of 10 years, which ensures that pension values do not decrease significantly in a very short space of time.
Recovery plan
A pension fund is required to prepare a recovery plan if its policy funding ratio is lower than the funding ratio required. In recent years, APF Pension Fund had been drawing up a recovery plan every year until 2022. The policy funding ratio at the end of June 2022 was 117.4%, meaning that starting from 2023, APF Pension Fund no longer has to draw up a recovery plan.
Supplementation
Each year, the Board will consider whether or not it is possible to increase the value of pensions with a supplement. This will depend on the financial situation of the fund and, in turn, the policy funding ratio of the fund. Since 2022, decisions on supplements have been made with the aim of entering the new pension system. Additional laws and regulations have applied for this since 1 July 2022. The Board always uses a variety of criteria to achieve a balanced decision-making process. View ‘increasing the value of pensions’ for more information.