Pension Fund Aruba "in red"

April 26, 2010 5:35 AM

ARUBA--Aruba's general and largest pension fund "APFA" is increasing the pension premium from 41 to 68 per cent to be able to fulfil its financial obligations.

Affiliated employers will therefore have to pay 60 per cent on premiums, retroactive to January 1 of this year. The largest employer affiliated with APFA is Government, which has been notified of the forced premium hike.

The labour unions were also informed of the "serious scenario" described by APFA. The other employers associated with the pension fund, such as utility company WEB, telephone company Setar and airport authority AAA, will receive an explanation this week.

The pension fund has been running into difficulties for years due to the expensive PVL pension scheme, which is applicable to civil servants and semi-civil servants. Research has shown that this scheme was one of the most expensive pension plans in the world.

APFA has been calling for adjustments to this scheme for years. However, even that would currently be insufficient, according to APFA spokeswoman Jennifer Jacobs. The financing deficit increased to 626 million florins last year.

The latter is even without the so-called "investment buffer," because with this buffer (necessary to counterbalance, for example, financial crises), the deficit is as much as 856 million florins.

The pension fund is sounding the alarm again, says Jacobs, due to the results of a so-called "scientific balance," which is an analysis carried out by the actuary every five years. Actuary Towers Watson made a report of the period 2003-2007, from which it was concluded that the premium had to drastically increase.

One reason is that expectations for the fund's returns will have to be lowered. For example, the fund assumed interest of 6.5 per cent and a 7 per cent return in 2007, but the latter turned out to be one per cent less.

Another reason for the premium increase is the worldwide recession in 2008 due to the crisis in the financial markets. All pension funds encountered this, but APFA has still not recovered, Jacobs explained.

She gave the Antillean General Pension Fund APNA as an example. "We do not have a buffer, but a deficit, while APNA has a buffer and is therefore recovering very quickly from the crisis."

That buffer exists because the Antillean fund had already started adjusting the pension scheme in 1998 by building in a franchise (threshold amount over which no pension is built up). In addition, the retirement age was raised to 60, while the latter had not been done in Aruba, and the pension age for APFA members is still 55.

According to Jacobs, APFA will still submit the annual accounts for 2008 and 2009 this year. From interim figures, it appears that the "cover percentage" was 68 per cent two years ago and 72.7 last year, "in other words a slight improvement, as we had a return increase of 10.8 per cent in 2009."

"Nevertheless," she states, "the fund can never clear the deficit if nothing changes. There are various scenarios, which could also mean cutting back the current pension payments, but this is not APFA's business. It is up to the employers, Government and unions to take a decision. We only provide information and advice."

In any case, the new, increased premiums will have to be paid very soon. APFA could not give any indication as to exactly how much more Government and other employers involved would have to pay, but after an increase of the (total) premium by 10 per cent last year, Government had paid 20 million florins extra.

Jacobs emphasised that the pension fund was not bankrupt, even though it was seriously in the red. "We cannot go bankrupt, because it has been legally determined that one has to pay."

Employees pay between five and 9.8 per cent, while the employers pay the rest. This means that, for example, Government now has to pay 60 per cent of the salary of its officials in premiums. Moreover, APFA is strict, and anyone not paying within one month will have to pay an interest fine as well.

Nevertheless, even if payment then remains forthcoming, it does not mean that the present pensioners will receive less in pension. However, says Jacobs, the pension is unaffordable and therefore reductions cannot be excluded in the future.

)Source± The Daily Herald'

26 April 2010