Hundreds of thousands of Dutch retirees at the major pension funds received good news last summer: their pension benefits are going up for the first time in years. Compared to inflation of an estimated 9.9 percent this year , that’s a modest increase – but it’s something. Because at many pension funds, payments have come to a standstill in previous years. In the meantime, prices have risen, which means that large groups of retirees were able to buy less and less. Pension funds aim to offer their participants a pension that is value- or welfare-oriented. Only that has not been possible in the past decade and a half. Many funds have not been able to increase distributions. Take civil servants fund ABP, with more than three million participants the largest in the Netherlands. From 2010 to July of this year, it has not increased pensions, or in pension terms: indexed. Another example is PMT, for people who work or have worked in metal and technology. Erik Daae, former director of Waarborg Platina, Gold and Silver – a government service privatized in 1987 – is a member of that fund. He is still trying to enforce indexation through the courts. He calculated that the purchasing power of his supplementary pension has fallen by more than 26 percent in fifteen years. “We are not in the lowest income group. They are really getting into trouble with the high costs for household and energy, but the loss of purchasing power is quite painful for us,” says Daae. He adds that he is also conducting the procedure to prevent his children and grandchildren from also getting a bad pension. Less film and theater 2009 was the first year in which Daae’s benefit did not increase. “When that continued year after year, we said we were going to be more economical. Fewer holidays, fewer large gifts for the children and grandchildren, less dining out, less movies, less theatre.” How different is the situation of Jan Groot Koerkamp, former employee of ABN Amro. The bank’s pension fund has increased benefits by more than a quarter over the past thirteen years. The latest increase, last April, was 6.4 percent. Because his pension has increased, Groot Koerkamp and his wife have to make few concessions in their spending. “If we were to miss a quarter of the pension, we would really have to do something about the expenditure. I think we would get rid of the second car anyway. We would also organize holidays differently and eating out would also go out. It’s the luxury you’d get out of it.” But the difference between those who did see their pension increase and those who had to do without indexation goes beyond vacations and luxury goods. Daae and Groot Koerkamp view future healthcare costs very differently. Groot Koerkamp: „You will have to deal with extra expenses if you become less mobile. We try to reserve something for that. If we hadn’t had that indexation, it would have been a different story.” Daae is concerned about the extra expenses. “I assume that we will have to pay for medical costs ourselves. I am now eighty, and at my age the loss of purchasing power cannot be compensated with additional income.” There is therefore great dissatisfaction among pensioners whose pension is not indexed. This is apparent from research reported by ABP in its annual report for 2021 . The fund asked its participants about the missed indexation. Nearly two in five retirees feel that this is doing them a (great) injustice. Only 4 percent understood the lack of an increase. Erik Daae is still trying to enforce indexation through the courts. Photo David van Dam Full citizen The consequences of the loss of purchasing power go beyond purely material and financial insecurity, says financial psychologist Anne Abbenes. She works as a coach and trainer and is a guest lecturer at UCLL University of Applied Sciences in Leuven. While their own income is stagnating, retirees see that the income of the working part of the population is still growing. “You get the idea that you can no longer participate in society, that you are no longer seen as a full citizen. That also does something to your mental well-being.” People with a small supplementary pension or only AOW notice immediately if prices in the supermarket rise or if energy becomes more expensive. They immediately have more trouble making ends meet and have less left at the end of the month. But pensioners with a large supplementary pension are also very much affected by the combination of high inflation and stagnating benefits, says Abbenes. She points to research that was done after the financial crisis into the effect of a sudden drop in disposable income among people with a somewhat higher income. Years later, it turned out that they were still struggling with psychological problems, increased alcohol use and even drug use. “Compared to less financially privileged peers, the negative effects were greater. The lack of understanding for their situation increases the feeling of exclusion and reinforces the negative effect on health and mental well-being.” Out of the financial comfort zone People who see their purchasing power decline may also feel excluded from their social circle. Abbenes mentions the example of a former civil servant who receives a pension from the ABP, whose friends have worked at a bank and have seen their benefits rise in recent years. Such differences occur regularly. “You are neighbours, the children grow up together, you go on holiday together. Then it happens that one fund does index and the other does not, so that you can suddenly no longer participate. People then get out of their financial comfort zone and that gives them psychological complaints.” With inflation rising to 14.5 percent in September , the erosion of the value of supplementary pension benefits continues at a rapid pace. Although the effect of this is mitigated by a higher AOW benefit – which increases in line with collectively negotiated wages and increases by another 10 percent as of 1 January – it still means that more people with a larger supplementary pension can spend less on balance, Abbenes concludes. . “They have to give up important things for them. As a result, the effect of exclusion is very noticeable. These people are not yet in payment problems or in debt, but the negative health effect is no less because of it.” Pension benefits Some funds did increase Although the assets under management by pension funds have grown strongly in recent years, pensions at many funds have not been able to keep pace with prices and wages. This was because interest rates fell and the funding ratio, the measure of the financial health of a pension fund, was too low. Under the current rules of the pension system, funds therefore had to keep much more capital in cash. However, the situation was not the same for all funds. Civil servants fund ABP and health care fund PFZW have not increased pensions for years, but funds for other sectors did have room for this. What seems to play a role is the extent to which funds hedge the risk of falling interest rates. ABN Amro Pension Fund is an example. The bank’s employee fund has approximately 29,000 pensioners. Since 2009, their pensions have been increased by about 19 percent. Former employees of ING and insurer NN also saw their pensions rise during this period . Another example is the KLM Flying Personnel Pension Fund, for pilots of the airline. Here pensions rose by about a quarter during this period. A version of this article also appeared in the newspaper of October 21, 2022