Main concepts of the PSEO Document 20080627 Art83_12 13-Jul-07
The PSEO is NOT The PSEO IS a distribution scheme (“régime de répartition”) a pension fund The PSEO IS a notional ( = “virtual”) fund calculated annual contribution = amount needed to finance future pension payments related to annual rights 27.06.2008 Art83_WG
How does it work? Age 01.01.2029 : 64 years Age 31.12.2007: 42 years 4 years in service expected retirement from 01.01.2029 2004 2005 2006 2007 2029 2030 2031 2032 27.06.2008 Art83_WG
Rights are acquired each year of service: Contributions are paid each year of service Contributions paid each year give rights to 1.9% of final basic salary for each year of service 1.9% 1.9% 1.9% 1.9% 2004 2005 2006 2007 2029 2030 2031 2032 4 years service: 4 x 1.9% = 7.6% of final basic salary 27.06.2008 Art83_WG
Rights and contributions both relate to future pension payments Series of pension payments after retirement Each year’s rights are to a part of the final pension Each year’s contribution funds a part of the final pension 2004 2005 2006 2007 2029 2030 2031 2032 27.06.2008 Art83_WG
Liability of the pension scheme Sum of all pension payments to be made based on total rights earned at reference date Calculated at Reference date (eg 31.12.2007) 2007 2006 2004 2005 2007 2006 2004 2005 2007 2006 2004 2005 2007 2006 2004 2005 1.9% 1.9% 1.9% 1.9% 2004 2005 2006 2007 2029 2030 2031 2032 27.06.2008 Art83_WG
Liability of the pension scheme Sum of all pension payments to be made based on rights earned at reference date Find present value of pension payments (i.e. at 31.12.2007) Total for all members = total liability of PSEO Reference date 31.12.2007 2007 2006 2004 2005 2007 2006 2004 2005 2007 2006 2004 2005 2007 2006 2004 2005 1.9% 1.9% 1.9% 1.9% 2004 2005 2006 2007 2029 2030 2031 2032 27.06.2008 Art83_WG
Calculation reference date: 31.12.2007 Contribution rate: calculated for current year, based on population at 31.12 of previous year sum of all payments related to rights earned in 2007 (= “service cost”) Calculation reference date: 31.12.2007 2004 2005 2006 2007 2029 2030 2031 2032 rate to be applied from 01.07.2008 27.06.2008 Art83_WG
Contribution rate: staff contribution = 1/3 of present value of payments sum of string of payments related to rights earned in 2007 Calculate present value (i.e. at 31.12.2007) CR = Total service cost Total income 1/3 of present value as % of salary = contribution rate salary 2004 2005 2006 2007 2029 2030 2031 2032 rate applied from 01.07.2008 27.06.2008 Art83_WG
Budget expenditure: amount paid out each year in pensions for existing retired persons 27.06.2008 Art83_WG
Thank you for your attention The Working Group is asked to express its views on the issues discussed in this paper. Thank you for your attention 27.06.2008 Art83_WG