What Drives Pension Indexation in Turbulent Times? An Empirical Examination of Dutch Pension Funds

Recovery measures of underfunded pension funds: higher contributions, no indexation or pension cuts?

“…Davis and De Haan (2012) present empirical evidence for about 200 Dutch defined benefit pension funds in 1996-2005, showing that the willingness or ability of the sponsoring firm to give a voluntary donation to the pension fund depends, among other things, on the financial position of that firm itself. Broeders et al (2014) empirically analyse indexation by 166 Dutch pension funds from 2007 to 2010 and show that the key drivers of conditional indexation are the funding ratio, inflation and the real wage growth. Bikker et al (2014), using balance sheet data of Dutch pension funds during 1993-2005 and the fact that in the pre-FTK period the discount rate was still fixed, deduce that there is a link between the funding ratio on the one hand and the expansion (e.g.…”

“…DNB (2013) notes, however, that the inflation rate need not be consistent with a fund's ambition, given that the basis for indexation (wage inflation, price inflation, or a combination of those two) is different for each fund and may vary over time. For an analysis of partial indexation of 166 Dutch pension funds from 2007 to 2010 using another dataset; see Broeders et al (2014), who show that the key drivers of indexation are the funding ratio, inflation and the real wage growth and that pension funds are using real rather than nominal policy ladders for indexation. 12 Pension cuts are another source of increase of the funding ratio (Smid, 2010).…”

“…For an analysis of partial indexation of 166 Dutch pension funds from 2007 to 2010 using another dataset; see Broeders et al . (2014), who show that the key drivers of indexation are the funding ratio, inflation and the real wage growth and that pension funds are using real rather than nominal policy ladders for indexation.…”