The Caribbean Connection

Organised by Kring Internationaal

Johan de Witthuis, Utrecht, 23 april 2015

Welkom

Welcome Wilkommen

Bienvenida

Bienvenu Bem-vindo

Velkommen

Benvenuto Välkommen

Tervetuloa

Dobrodošli Witaj

Program 16.30 Doors open

17.00 Welcome and introduction of the guests by Caroline Tuin, Chairperson Kring Internationaal

17.05 General pensions in the Netherlands by Stephan Buckens, Coordinator Kring Internationaal

17.15 General Pensions in Suriname by Ilemele Venetiaan, Coordinator Kring Internationaal

17.45 General Pensions in Curaçao by Stacey René (live from Curaçao)

18.15 Q&A

18.30 Closing drinks and networking opportunity

19.30 Doors close

Welcome and introduction of the

speakers

Caroline Tuin

Agenda • Welcome

• Introduction of our guests

Welcome

On the second meeting of the

Kring Internationaal

Introduction of our guests

• Stephan Buckens

– Coordinator Kring Internationaal

– Dutch actuary since 1997, who originally studied Econometrics at the University of Tilburg

– Since 2012 working for Philips Pensionfund in Eindhoven in a consulting actuarial role for the Board. Before working at Philips he has worked for 5 years at Aon and 10 years at Towers Watson as a consulting actuary.

Introduction of our guests (2)

• Ilemele Venetiaan

- Coordinator Kring Internationaal

- Actuary in Suriname since 1995, who studied actuarial science in Amsterdam

- Since 2005 owner of Active Consultancy NV. Before she worked at Ernst & Young In Suriname

- Chairperson of Quota International of Suriname

Introduction of our guests (3)

• Stacey René

- Actuary from Curaçao, who studied Econometrics at University of Tilburg

- Since 2013 she is charge of the Montae Caribbean office located on Curaçao. She works as an actuary and consultant serving clients on all the Dutch Caribbean islands.

- Before moving back to Curaçao, she worked for 6 years at Aon Hewitt in the Netherlands

General Pensions in the Netherlands

Stephan Buckens

Agenda • Pension System

• Some social security changes

Pension system

STATE Pay-as-you-go Secures minimum standard of living

OCCUPATIONAL Employers/Industry wide ‘Mandatory’ DB or (C)DC

PRIVATE

Voluntary

I II III

Some social security changes

1. Changes in pensions act and regulations 1. nFTK (New Pension Act)

2. “Witteveenkader” – fiscal maximum salary 100k

3. Above 100k net annuity or net pension

4. Pension accrual maximum 1.875% (average pay)

5. Pensionable age 67

2. Labour market and employment 1. Review tax system, goal is to simplify

2. Improve mobility

3. Other (income) plans 1. Life cycle savings scheme 80% taxed (no longer as of 2016)

2. Old age (AOW) – faster increase 1. March 27, 2015 – faster increase AOW-age: age 67 in 2021 (was 2023)

2. As of January 1, 2016: AOW-age is 65 years 6 months (was 65 years 5 months)

General Pensions in Suriname

Ilemele Venetiaan

Agenda

1. Brief introduction: Social Security in Suriname

2. Contents of the General Pension Act

3. Financing of benefits resulting from the General Pension Act

4. Closing

1. Brief Introduction

Social security in Suriname

− General Old Age Allowane (“Algemene Oudedagsvoorziening AOV”)

− National Basic Health Insurance (mandatory)

− Minimum wage

− Other: − Children’s allowance

− Disability allowance

− Etc. etc. (mandatory paid maternity leave, mandatory casualty insurance, …)

− General Pension • Mandatory pension for all workers in Suriname

The General Pension Act Material Content:

Organization and management

Obligations

Benefits and rules

Financing:

Contributions

Alternatives

The General Pension Act; Material Content (1)

– Plan executor:

The General Pension Fund under the supervision of the

Pension Board, which is responsible for making sure all

parties adher to the Act.

– Effective date:

December 8th, 2014

– Employer obligation:

Every employer is obligated to offer his/her resident

employees a pension plan, that provides benefits equal or

more than those in the General Pension Act.

The General Pension Act; Material Content (2)

– Existing pension plans:

Employers with existing pension plans had 30 days after

the effective date to submit documents to the Pension

Board, for their plan to be assessed whether it was up to

minimum standards.

If the plan was labeled below standard, the employer had

30 days to:

• Modify the plan rules or

• Enroll employees in the national plan and terminate the

existing plan.

The General Pension Act; Material Content (3)

− Benefit payment rights:

• A participant will only receive General Pension payments if contributions are made for 5 or more years.

− Contributors:

• All working residents (including self employed) are obligated to pay contributions, except if participating in a permitted company plan.

− Contributions:

• The employer is obligated to withhold General Pension contributions from employees’ salaries and timely pay both employee and employer’s contribution to the fund.

The General Pension Act; Material Content (4)

− Pensionable salary:

Participant’s wage excluding overtime, vacation and other incidental allowances, from a monthly minimum of SRD.500 to a maximum of SRD.5000.

− Retirement age:

60th Birthday

− Service year:

A period of one (1) year during which contributions were made.

The General Pension Act; Material Content (5)

Benefits at retirement age:

• General Pension is derived from the following formula:

# Service Years * 2% * Average PS

Where:

Average PS = Average pensionable salary of last 60

months prior to retirement

The General Pension Act; Material Content (6)

Benefits at death:

• One-time grant of 2*monthly pension upon death of a retired participant.

• Spousal Pension:

– 70% of the deceased’s (potential) General Pension.

– Paid out temporarily for a maximum of 10 years.

– If participant is not married, partnership must have been legalized at notary for five years or more at time of death, for spouse to be eligible for spousal pension.

• Orphans’ pension:

70% of deceased’s (potential) General Pension, paid out only if no spousal pension is paid, until the youngest eligible orphan reaches the age of 21.

The General Pension Act; Material Content (7)

• Disability Pension: – Right granted upon being classified as permanently

disable to perform one’s profession.

– Disability Pension = Potential General Pension.

• Pension benefit buy in: – Participants can buy in up to 2 years of pension benefits.

– Within one year of the Act’s commencement Suriname nationals can buy in a pension benefit of SRD.300/month.

• Minimum pension benefit: SRD.300/month

The General Pension Act; Material Content (8)

• Organizational structure: – A Pension Board sees to all parties adhering to the

Pension Act.

– The General Pension Fund will be responsible for the operations involved in carrying out the Pension Act.

• Sanctions:

– Parties not adhering to the contents of the Pension Act risk penalties between SRD.500 and SRD.100,000.

The General Pension Act; Financing

• Contributions: – Monthly premium = 3% of pensionable salary

(PS).

– As of January 1st, 2016 contribution rate will annually increase by 0.5% of PS to a maximum of 28%.

– Monthly PS per participant: o Minimum SRD.500

o Maximum SRD.5,00.

– Employee pays a maximum of 50% of total contribution.

– Employer pays a minimum of 50% of total contribution.

The General Pension Act

Financing

Financing

• The financing system is based on year to year “pay as you

go”

• Initially contribution rates are low, as the system starts

with zero retirees.

• Contribution rates will rise steeply over time as number of

retirees will quickly grow during the first decades, whereas

the number of contributors will not.

• The Pension Act states:

– Contribution rates will increase by 0.5% annually.

– Contribution rates will not be higher than 28%.

• Will this annual increase be sufficient on the long run?

2012 Suriname demographics

Source: Algemeen Bureau voor de Statistiek; Census 2012

• Suriname’s demographics chart is still pyramid shaped.

• The base however looks to be narrowing, although the 0-4 category is larger than the 5-9 category.

Pay as you go financing and alternatives

• Will annual fixed payg premiums be sufficient for the scheme to be self supportive?

Alternative financing:

• Fully Funding: – Initial contributions several times higher than initial payg.

– Long term contributions most likely to stabilize under “normal” economic circumstances.

• Partial Funding: – Terminal funding

o Initial contributions also several times higher than initial payg.

o Long term contributions most likely also high and will remain upward trend.

– Multi year payg o Mitigation of steep increase characteristic for year to year

payg.

Closing

• Questions: – Must a mandatory pension plan, in place to provide

basic coverage, lead to pension accrual of over 70% of pensionable salary?

– Is year to year payg the optimal choice to finance the General Pension Act, even though the demographic chart is pyramid shaped?

– Which alternative financing system could be considered given that: o System needs to benefit from pyramid shaped

demographic chart.

while at the same time: o Uncontrolled increase of contribution rates is avoided.

o Initial contribution rates are affordable.

o Accumulation of large funds, hence need to invest and manage large amounts is limited.

o No long term financing deficits occur.

Questions??

General Pensions in Curaçao

Stacey René

Agenda • Diversity and similarity in the Dutch Caribbean

• Pension system

• Pension developments and issues in the Dutch Caribbean

Diversity in the Dutch Caribbean

• 6 islands

• 4 different jurisdictions

• 3 supervisory bodies (central banks) for different islands

– Central Bank of Curaçao and St Martin (CBCS)

– Central Bank of Aruba (CBA)

– De Nederlandsche Bank (DNB)

• Diverging economic policies/incentives and

• Slightly diverging demographics

Similarity in the Dutch Caribbean

• Three pillar system

• Shift in occupational pension plans from DB to DC

– New schemes mainly DC

• Longevity

• Return of investments (general)

Pension system

Pay-as-you-go Independent of income Secures minimum standard of living Rise of the retirement age

Arranged between employers and employees Defined benefit or defined contribution plan Relative low percentage of employers offering a pension arrangement

Voluntary, tailor-made

supplementary

arrangements Provides additional benefits for higher or earlier pension

STATE OCCUPATIONAL PRIVATE

I II III

Pension developments & issues

Developments and issues

• Participation

• Ageing and longevity

• Rise of retirement age

• Mandatory pension scheme

• Interest rate

• Valuation

Mandatory pensions

• Aruba introduced mandatory occupational pension as of 2012

– DC-scheme based on a minimum of 6%

• Curacao and St. Martin are considering introducing

– Current participation levels around 60%

Discussion with respect to impact on economy (timing for introduction) versus sense of urgency for old age income

Participation

• Pension assets relative to the size of the economy

• Average for mature pension market is approx 20%

• All islands have this standard mature pension market

0% 50% 100% 150% 200%

Panama

Dominican Republic

Jamaica

Trinidad and Tobago

Sint Maarten

Aruba

USA

Curacao

The Netherlands

Pension assets / GPD

Ageing and longevity

• Worldwide trend with respect to changing population compilation resulting in an ageing work population

• Many studies (being) conducted regarding mortality in the Dutch Caribbean with different perspectives.

– Suitability of Old Dutch mortality tables?

– Developing own Dutch Caribbean

• Enough reliable data?

• Comparable trend in mortality?

– Homogeneous population amongst islands?

Ageing and longevity (2)

• Some conclusions:

– Life expectancy in Dutch Caribbean closer to life expectancy in the Netherlands than previously assumed

– Life expectancy in Dutch Caribbean increases at higher rate than previously assumed

– Difficult to verify the whether the trend in mortality coincides; based on assumption.

– Slight differences amongst islands

• E.g. younger population on St. Martin indicates higher life expectancy than on other islands

Retirement age

• Rise in retirement age on every island

• Curacao: From 60 tot 65 years

• Aruba: From 60 gradulaly to 65 years in 2024

• St. Martin: considering 60 to 62 years

• BES-islands: Gradually from 60 to 65 years

Occupational pension scheme follow

• Benefits unchanged

• Benefits actuarial neutral

– Discussion with respect to actuarial neutral

Interest rate

• Pension funds and other instutional investors face

• Low interest rates

• Additional challenge due to the Central Bank’s investment rule requiring to invest 60% of assets of institutional investors locally

• History (till very recently): high yielding local bonds

• Curacao and Sint Maarten : low yielding bonds (less than 3%)

Valuation

• Liabilities: Switch to market value or maintain flat rate?

–What is market value? Which market?

–How to define risk free

–Acceptable level of flat rate?

Resume

Interesting next steps

• New Pension Act for Curacao and St. Martin in very near future

–Solvency requirements (VEV), recovery plans

• New reporting guidelines for pension funds

• More attention for market-oriented supervision

Contact

QUESTIONS??

Next event

October 2015

The American Connection

Please join us for

drinks and talks