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)