Blog: No indexation compensation per 1 January 2020

17 December 2020 | Blog

We are halfway through December and the festive season is fast approaching. The year 2019 has almost ended. Like other pension funds our policy funding ratio has gone down over the past year. This is primarily due to the continuous decrease in the rate of interest. That is bad news for our pension fund. The consequence of a decreasing rate of interest is that we must put aside more funds to be able to pay out all pensions in the future. Up to now our investments have done well, but not well enough to compensate the consequences of the decrease in interest rates. Unfortunately, this has resulted in a worsening of the financial position of our fund.

No pension increases per 1 January 2020

Money undergoes a slight decrease in value year after year. You can buy less in 2020 than you could with the same amount in 2019. This is called ‘inflation’. The Heineken Pension Fund tries to compensate your pension for inflation every year. In other words: your accrued pension increases each year in keeping with the general increase in prices. This is what we call an inflation-proof pension. It is not always possible to keep pensions in line with the increase in prices. If finances are disappointing, as is the case right now, it is always possible that the Heineken Pension Fund is unable to grant compensation either in full or in part. This means that the value of your pension becomes less.

The financial situation on 30 September 2019, expressed in terms of the policy funding ratio, is the decisive factor as to whether we can increase pensions or whether we need to cut back on pensions. The policy funding ratio is the point of reference used for pension adjustments.

On 30 September 2019 the policy funding ratio was 107%. Unfortunately, that is not enough to be able to raise pensions on 1 January 2020. However, the financial situation of our pension fund is still enough to ensure that no cutbacks will need to be made.

How does the policy funding ratio play a role in compensation?

The current funding ratio denotes the ratio between a pension fund’s commitments and assets at a given time. A current funding ratio of 100% implies that a pension fund has exactly enough assets to meet its commitments.

The policy funding ratio is the average of the current funding ratios over the past 12 months. The HPF must use the policy funding ratio when taking a decision to adjust pensions. The policy funding ratio determines whether we can raise the pensions (indexation compensation) or need to reduce them (cutback).

Indexation compensation can only be granted if the policy funding ratio is at least 110%. If the policy funding ratio lies between this lower limit of 110% and the upper limit of approx. 125% then partial indexation compensation can be granted. If the policy funding ratio is higher or the same as this upper limit, then full indexation compensation can be granted. We expect to be able to increase your pension over the next few years.

We wish you all a very Merry Christmas and a Happy New Year!

Heineken Pension Fund

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