The financial position of our pension fund can be seen from the coverage ratio. The coverage ratio is a snapshot in time and is expressed as a percentage. This percentage represents the ratio between the capital that a pension fund holds and the capital that it needs. If the coverage ratio is 105%, the pension fund will have €1.05 in its coffers for every €1.00 that it needs to pay out in pension payments.
Different every day
The coverage ratio differs from day to day. The financial position actually changes continuously. The values of shares and other investments go up and down, interest rates rise and fall, participants leave, and people retire.
Overview of coverage ratios
In this graph (in Dutch), you can see how the coverage ratio of our pension fund has developed in recent months.
This overview is partly based on provisional figures. The definitive coverage ratio of the pension fund is determined once a year. You can find these details in the annual reports .
Two coverage ratios
Our pension fund has two coverage ratios:
- the current coverage ratio, which is a snapshot in time at the end of each month or quarter
- the policy coverage ratio, which is a running average of current coverage ratios of the past year
All pension funds are obliged to determine the policy coverage ratio from 1 January 2015 onwards. This rule is included in the new Financial Assessment Framework (nieuwe Financieel Toetsingskader, nFTK). The nFTK contains the regulations with which pension funds must comply. From 2015 onwards, we only publish the policy coverage ratio.
Requirements of the coverage ratio
The policy coverage ratio must satisfy certain requirements. An important boundary is the required coverage ratio. That is the blue line in the graph. If the policy coverage ratio drops under the boundary, our pension fund must submit a recovery plan to the supervisory body, De Nederlandsche Bank (DNB, the Dutch Central Bank). This recovery plan sets out how our pension fund intends to ensure that the coverage ratio returns to a level above the required coverage ratio. If we are unable to recover within the period set, in the worst-case scenario our pension fund may have to reduce the pensions.
There is also another boundary, the absolute minimum required coverage ratio. That is the red line in the graph. If the coverage ratio drops below this level, the pension fund must reduce pensions. Within our fund, this is currently not the case.
As a consequence of the low interest rate in particular, the coverage ratio of our fund is below the required level. There is a shortage of capital. Our fund submits a recovery plan to De Nederlandsche Bank (DNB, the Dutch Central Bank) each year. This plan sets out how our fund intends to restore the financial position to the required level.