As of 1 July 2020, the system of automatic indexation, which was linked the indexation of the civil servants’ salaries, will be replaced by indexation that is linked to the increase of the cost of living and to the pension fund cover ratio. Indexation is only granted if the financial position of APS is strong enough. The pension fund cover ratio needs to be higher than 105%. If indexation can be granted, both the pensions and the future pension rights will be increased.
Duurtoeslag will cease to exist
The ‘duurtetoeslag’ (cost of living adjustment) which applied to employees in the old pension scheme (prior to 1998) will cease to exist. Accrued rights will be upheld. However, there will be no further accrual. In addition, the accrued rights will not be increased by 10% due to the increase of the retirement age, nor will they be reduced if a participant opts for early retirement. Indexation of the ‘duurtetoeslag’ will be the same as the conditional indexation of the pension.
The yardstick for measuring the financial position of APS is the cover ratio. It is the ratio of the assets and liabilities of the pension fund expressed in a percentage. If the cover ratio drops below 100%, APS has to draw up a recovery plan to bring the ratio back to at least 100% within a period of 5 years. If the recovery does not materialize within these 5 years, the employers and the participants (employees, former employees and pensioners) have to make a contribution to the fund that will restore the cover ratio to 100%. The employer will have to provide a capital injection, while the participants will see their pension and future pension rights reduced. The progress of the recovery plan will be monitored each year.