THE FUTURE OF YOUR PENSIONS APS INTO THE FUTURE THE FUTURE OF YOUR PENSIONS Oscar Williams – Manager Pension Department/Adjunct Director

TOPICS Premiums Pension, Provison and Coverage Ratio Pending Pension Reform Statistics database APS Role of APS TOPICS

ROLE OF APS PRIMARY FOCUS Tasks APS core responsibility is to execute the Pensioenlandsverordening Overheidsdienaren (AB 2016, no.16). Pay out of the related pension benefits Manage risks / good governance Manage the pension administration of our participants Invest collected premiums and returns Tasks

ROLE OF APS ADVISORY ROLE Along with the execution of the law, APS also advises on issues that concern the law or have an effect on the pension fund as a whole. Based on the above, APS can also be considered as a “gesprekspartner” for other entities. Hereby sharing experiences with other stakeholders. The task of changing the “Pensioenlandsverordening” lies with the Government of St. Maarten.

In total there are 20 employers affiliated with APS. COMPOSITION In total there are 20 employers affiliated with APS. The Government of St. Maarten (including de Staten, Raden, ARK etc.) has the most with 1910 participants (70% of the active population). The Foundation Catholic Education St. Maarten has the second biggest amount with 239 participants (9% of the active population).

EMPLOYEE DATABASE COMPOSITION Year 2014 2015 2016 2017 2018* (estimate) Actives 2655 2617 2590 2601 2684 Pensioners 780 850 908 961 941 Other beneficiaries 169 167 175 178 181 Participants with deferred rights 434 525 602 681 764 Total population 4038 4159 4275 4421 4570

CURRENT PENSION SCHEME Final salary serves as starting point for the pension accrual Each year, the accrued pension is adapted to the most recent pension base as if this applied throughout the entire service career The costs of the system are high which makes it unsustainable In fact, there is automatic indexation until the retirement date

CALCULATION METHODS x x Pension base (salary-franchise) Accrual percentage Service years Part-time percentage 1. Pension (accrued) = x x x 2. Pension Obligation Benefit = Pension (accrued) Factor (based on the mortality tables) x 3. Coverage ratio = Total assets Pension Obligation Benefit /

PENSION BENEFIT OBLIGATION & COVERAGE RATIO 2017 2020* 2023* A. Fund Assets (x 1 milj.) 674 754 843 B. Pension Benefit Obligation (x 1 milj.) 654 878 Coverage ratio (=A/B) 103% 100% 96% (*estimate)

THE CHALLENGE FOR APS Premiums Pension benefits Investment return

PREMIUMS Based on the current “Pensioenlandsverordening” the premium is set at 25% of the gross salary of the participant. The so called cost-effective premium consists of the costs that are needed for the active participants that should be covered by the actual received premiums (25%). The cost-effective premium is intended for the accrual of pension for the active participants. The premium should cover the following components : The yearly accrual of pension (coming service). The back service costs of the pension. The costs affiliated with the passing of a participant in active service. (financing of the widow(ers) pension. The costs affiliated with an active getting disabled and not fit to work. (financing of the disability pension while the income of premium stops. The costs for executing the pension scheme.

The costs for the solvency of the fund. In addition, for the premium to contribute to the funds (solvency) and recovery to a coverage ratio of 115% it should cover the following: The costs for the solvency of the fund. Over the last 7 years the premium of 25% has not been cost-effective. 2010 2011 2012 2013 2014 2015 2016 2017 Premium cost-effective >25% <25% In the actuarial year report of 2017 the premium was barely covering the necessary costs but not enough to contribute to the solvency of the fund. This is expected to continue if the scheme doesn’t change.

PENDING PENSION REFORM Why Reform ? To ensure the quality of the 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. Persons will receive pension benefits over a longer period. This is the trend on the surrounding islands and the rest of the world. Pension assets (capital) is limited: Premiums paid are not cost effective: insufficient to cover costs of the pension plan (underfunding) Large outstanding debt  not all funds available for investing Fluctuating investment returns Limited investment opportunities

PENDING PENSION REFORM - PROPOSED CHANGES - Average pay system: Salary of each year serves as starting point for the pension accrual The accrued pension is the sum of the annual accrual The pension is possibly increased with indexation

PENDING PENSION REFORM Retirement age: 65 years with option to retire from 62 years. 01 Participation: from 18 years – decreased from 25 years. Indexation of pension depending on the coverage ratio of the fund. 08 02 07 03 No further accrual of Duurtetoeslag (DT). Accrued DT remains until pensionable age. Accrued pension benefits  one time increase of 10% at implementation of reform. PENDING PENSION REFORM - PROPOSED CHANGES - 06 04 Participants can make additional deposits. 05 The premium: 18% of the gross salary. By maximum accrued pension  premium no longer mandatory. The accrual of pension remains 2%. It can be lowered to 1,75% if the 18% premium is not cost-effective.

PENSION BENEFIT OBLIGATION & COVERAGE RATIO (AFTER REFORM) 2017 2020* 2023* A. Fund Assets (x 1 milj.) 674 720 843 B. Pension Benefit Obligation (x 1 milj.) 654 673 779 Coverage ratio (=A/B) 103% 107% (*estimate)

INVESTING TOGETHER IN OUR FUTURE Thank you!