Pension Reform1 July 2020
By:
Oscar Williams (Manager Pension Administration / Adjunct Director)
Eric Tjon Tam Pau (Senior Pension Administrator)
Contents✓ Why Pension Reform ?
✓ Role of APS
✓ Changes per the 1st of July 2020
✓ Effects on the pension calculations
✓ Government pension procedures
✓ Q&A (LIVE)
Why Pension Reform ?
Government has approved the Pension Reform on June 18th, 2020 (PB 2020, nr. 34)
Why Reform?❖ To ensure the quality of pension for participants now and in the future❖ To create a more affordable pension scheme for all stakeholders.❖ To improve the sustainability of the fund for the future
Pension Benefit Obligation is increasing ❖ Number of participants is increasing❖ Persons are living longer
Pension assets (capital) is limited:❖ Premiums paid are not cost effective❖ Limited investment opportunities❖ Fluctuating investment returns
Role of APSResponsibility:
APS core responsibilities are to execute the PLvO. APS collects pension premiums, invest collected premiums, manage risks and pay out pensions.
Advisory Role:
Along with the execution of the law, APS also advises on issues that concern the law or have effect on the pension fund. APS can also be considered as a “gesprekspartner” for other entities. Hereby sharing experiences with other stakeholders.
Accountability:
APS is accountable to the Minister of Finance of Sint Maarten. The task of changing the “Pensioenlandsverordening” lies with the Government of St. Maarten.
Changes per the 1st of July 2020
➢ Pensionable age➢ Premiums➢ Pension scheme➢ Indexation➢ Duurtetoeslag➢ Pension accrual➢ Compensation➢ Maximum build-up➢ Other changes
➢ Pensionable age
Increase of the retirement age from 62 to 65 years of age, with the possibility of retiring (with a lower pension) at the age of 62.
➢ Premiums
The total pension premium will be reduced from 25% to 18%. The employee part of the total premium will remain at 8% of the salary minus the franchise. Once a participant can no longer add to his/her pension he/she no longer has to pay premium.
➢ Pension scheme
Instead of on the current Final Pay scheme, the pension will be based on an average-salary scheme with a yearly accrual of 2% of the gross salary in that year (minus the franchise).
OLD scheme NEW scheme
➢ Indexation
• The present system of automatic indexation, which is linked to the indexation of the civil servants’ salaries, will be replaced with an indexation that is linked to the increase of the cost of living and the pension fund cover ratio. In case of indexation both the pensions as well as the future pension rights will be increased.
• No indexation will be applied if: • Cover ratio is less than 105%
➢ Duurtetoeslag
• The present ‘Duurtetoeslag’ regulation, which only applies to employees in the old pension scheme (prior to 1998) will cease to exist.
• Accrued rights will be upheld however, further accrual will not be possible. In addition, accrued rights will not increase with 10% when the pension age is increased.
➢ Pension accrual
Initially it will be 2% but the percentage can be lowered up to 1.75% if the pension premiums no longer cover the cost.
➢ Compensation
Pension payments will now start three years later due to the increase in pension age to 65 years. To compensate for this, the already accrued pension rights up to the date that the new pension scheme takes effect, will be increased with 10%. This does not apply to the ‘Duurtetoeslag’.
➢Maximum build-up
• The new pension scheme is based on the average salary. This usually results in less accrued pension. However, one can now accrue pension during more years. One can enter the scheme as of the age of 18, instead of 25. So in total 47 years can be accrued.
• To make sure that all the additional years will result in higher pensions the maximum pension has been changed as well.
• Instead of 74% percent of the final pay, it now stands at 100% of the highest salary minus the AOV and Duurtetoeslag(if applicable).
➢ Other changes
• Widow/widowers and orphans pension:
o The possibility of future reduction of the amount and the duration of this pension will be included in the ordinance.
o The widow/widowers pension for ex-spouses will seize to exist. o Orphans will get a pension until the age of 18 instead of 21 if not in school, and until the age
of 27 instead of 25 if attending school.
• Disability Pension:
o Re-examination of the diagnosed disability will be done every 5 years and (subsequent) ending of the disability pension will become possible. The possibility of introducing partial
disability, and subsequent partial pension, will be included in the ordinance in the future.
Effect on the pension calculations What Present scheme up to 1 – 7- 2020 Pension reform scheme from 1 – 7 -2020
Pension scheme Final pay Average pay
Starting At age 25 At age 18
Pension basis Average salary of the last two years minus the franchise Basis of calculation per January 1 minus the franchise
Franchise 12*10/7*AOV Remains the same
Build-up rate 2% per year 2% or 1,75% depending on the actuarial premium
Pensionable age 62 65
Indexation Unconditional Conditional
➢ Formula calculation
• Senior’s pension per year (new scheme) =
(Year salary – Franchise) x 1 year x 2% x part. %
• Total senior’s pension at pensionable age of 65 years =
Accrued pension including increase of 10% (old scheme) +Total pension accumulated over the years (new scheme)
Example 1: A young participant with a short term in service
Age 30
Years already in service 5
Gross salary per month 3,500
Salary increase 1%
Retirementage
Annualaccrual
Accrued pension
Future accrual of pension
Maximum pension
APS
Old scheme 62 2.00% 191 2,160 2,351
New scheme 65 2.00% 210 1,844 2,054
Difference -297
Example 2: A young participant with a higher salary andshort term in service
Age 30
Years already in service 5
Gross salary per month 6,500
Salary increase 1%
Retirementage
Annual accrual
Accrued pension
Futureaccrual of pension
Maximum pension
APS
Old scheme 62 2.00% 491 4,887 5,378
New scheme 65 2.00% 540 4,381 4,921
Difference -457
Example 3: An older participant with long term in service
Age 55
Years already in service 15
Gross salary per month 8,500
Salary increase 1,5%
Retirement age
Annual accrual
Accrued pension
Future accrual of pension
Maximum pension
APS
Old scheme 62 2.00% 2,072 1,319 3,391
New scheme 65 2.00% 2,279 1,286 3,564
Difference 174
Example 4: An older participant with a long term in service
Age 55
Years already in service
30
Gross salary per month 5,000Salary
increase 1,5%
Retirement age
Annualaccrual
Accruedpension
Futureaccrual of pension
AccruedDuurte-toeslag
Futureaccrual of Duurte-toeslag
Maximum pension
Old scheme 622.50% /1.67% 2,272 443 1,228 105 4,048
New scheme 65 2.00% 2,499 761 1,228 0 4,489
Difference 440
Early retirement between 62 and 65 years
➢ The increase of the retirement age is from 62 to 65 years of age.
➢ There is an option to retire from the age of 62.
➢ If one choses the option for early retirement the accrued pension will be adjusted with approximately 6% per year. This based on the fact that the early retirement pension will start at an earlier age and will be paid for a longer period also taking into account the actuarial assumption.
Early retirement
Retirement age 65 years:
62 yrs 63 yrs 64 yrs 65 yrs 80 yrs
Retirement age 62 years:
62 yrs 63 yrs 64 yrs 65 yrs 80 yrs
25002300
21001900
0
500
1000
1500
2000
2500
3000
Old age pension + Duurtetoeslag
Effect early retirement
65 years 64 years 63 years 62 years
Example 5: An older participant with long term in service (pension-age at 63 years)
Age 55Years already in service
30
Gross salary per month 5,000
Retirement ageAnnual accrual
Accruedpension
Futureaccrual of pension
AccruedDuurte-toeslag
Futureaccrual of Duurte-toeslag
Maximum pension
Old scheme 622.50%/1.6
7% 2,272 114 1,228 86 3,700New scheme 65 2.00% 2,499 681 1,228 0 4,408New scheme (early retirement) 63 2.00% 2,199 480 1,080 0 3,759
Retiring at 65• The present retirement procedure stays the same:
• 6 to 4 months prior to the retirement day you will receive notice from P&O with letters to take to
• APS and SZV to start the process of arranging your pension and health-insurance.
• The dismissal decree usually comes a little later.
Retiring early?
• Please give 6 months notice to P&O in writing to ensure everything can be done in time.
• The procedure is the same as with retirement at 65.
Algemeen Pensioenfonds Sint MaartenYogesh Commercial Complex Unit 1A/1B
A. J. C. Brouwers Road #4Cul-de-Sac, St. Maarten, Dutch Caribbean
apsxm.orgapsxmorg
Thank you for your attention
Q & A (live)