Your pension and the crisis in Europe
ING CDC Pensioenfonds closely monitors developments in the world and in the financial markets. After all, these have an impact on the pension fund's funding ratio. In the first quarter, we saw interest rates and inflation rise. And the world was shocked by the Russian invasion of Ukraine. How will that affect your pension? Read more here.
The pension fund's funding ratio is a measure of its financial position. If the funding ratio is 100%, the pension fund has exactly enough cash to pay out its pension commitments. The higher the funding ratio, the better the pension fund’s financial position.
Impact of interest rates
The funding ratio is the ratio between the pension fund’s assets (investments) and its commitments. Alongside return on the pension fund’s investments, interest rates have an impact on the fund's performance as well. When interest rates decline, the funding ratio declines too. When interest rates rise, the funding ratio grows and the pension fund's financial position improves.
Rising interest rates in Q1
In the period January to 25 February 2022, the pension fund's market funding ratio remained almost unchanged despite high levels of volatility in the financial markets. The high levels of volatility were mostly fuelled by fear with regard to the speed at which central banks were reversing their eased monetary policies, which had been put in place during the coronavirus pandemic in order to keep the economy running. In addition to the monetary policies, geopolitical tension between Russia and the West had a major impact. All these developments caused share prices to decline and interest rates to rise.
“Rising interest rates caused the pension fund's commitments to decline in close parallel with the overall downturn in the value of its equities, properties and bonds portfolios.”
Growing inflation
Earlier this year, stock markets were jolted by reports published by the American central bank indicating that interest rates would be raised more rapidly than the markets had foreseen. The European Central Bank (ECB) surprised the markets by opening the door to interest rate raises. Growing inflation in the USA as well as in Europe underline expectations that high inflation rates will be less temporary than central banks had foreseen in the recent past.
Crisis in Europe
The recent invasion of Ukraine by Russia is causing uncertainty worldwide, which is reflected by surging volatility on the financial markets. Initially, interest rates and share prices dropped in response to the developments, but bargain hunters and Putin's willingness to negotiate on the second day of the invasion halted this trend. Read our message about the reduction of our exposure to Russian equities here.
“The impact on funding ratios is difficult to measure: it depends on multiple elements, including the duration and the uncertain resolution of this crisis.”
Stay up to date
If you want to stay up-to-date on the financial situation of ING CDC Pensioenfonds and the implications for your pension, check the website for news and quarterly updates on topics including the funding ratio, developments in the financial markets and investment results.