1. ‘Mandatory basic pension, legal structure pension providers and investment rule’ May 14, 2014 Rafael Pichardo Secretary Board of Managing Director of Vidanova Pension Fund Foundation

2. AGENDA 1.The introduction of mandatory basic pension in Curacao 2.Legal structure of pension providers 3.The Investment Rule of the Central Bank of Curacao & St. Maarten

3. The introduction of mandatory basic pension in Curacao AOV-system is neither sufficient nor sustainable  AOV in 2014 = 862 per pensioner (not sufficient)  In 1965 we had 7 workers per pensioner. Premium (862 : 7) = 123.2 per worker If salary is 1000 than AOV premium is 12.3% of the salary In 2030 we will have 2 workers per 1 pensioner AOV in 2014 = 862 per pensioner Premium (862 : 2) = 431 per worker If salary is 1000 premium is 43.1% of salary (not sustainable)  Pension coverage 2 nd pillar ± 50% Source: Buck consultants

4. Basic contents of the mandatory pension plan Target group: every worker who is liable to pay premium also independent workers Target group: every worker who is liable to pay premium also independent workers Capitalized individual (collective) basic pension based on defined contribution system Capitalized individual (collective) basic pension based on defined contribution system Retirement age 65 years or later maximum 70 years Retirement age 65 years or later maximum 70 years Premium: starting with 2% gradually increasing in 2 subsequent years to 6% Premium: starting with 2% gradually increasing in 2 subsequent years to 6% Extra premium contributions are allowed Extra premium contributions are allowed Contribution ratio 50% : 50% Contribution ratio 50% : 50% Conditional indexation of pension payments Conditional indexation of pension payments

5. Basic contents of the mandatory pension plan (cont) Pension base is 12 x monthly salary minus deduction (franchise) and eventually all other fixed income components Pension base is 12 x monthly salary minus deduction (franchise) and eventually all other fixed income components Execution cost providers maximum 5% of available premium Execution cost providers maximum 5% of available premium Disability and survivors risk can in addition be insured Disability and survivors risk can in addition be insured Individual value transfer to another provider is in the law Individual value transfer to another provider is in the law Privately managed (only licensed pension funds or life insurance companies) Privately managed (only licensed pension funds or life insurance companies) Supervision by CBCS Supervision by CBCS

6. Legal structure pension providers Proposition regarding the management of the mandatory pension plan Proposition regarding the management of the mandatory pension plan  licensed pension funds or life insurance companies CBCS stands for CBCS stands for a.Industry-wide pension fund b.Company pension fund CBCS is working on a amendment of law in which multi – employer pension funds will be prohibited

7. Several legal structure for pension providers (cont) Advantages of multi - employer pension funds More types of pension schemes available More types of pension schemes available Economies of scale Economies of scale Supervision by CBCS will be easier Supervision by CBCS will be easier Ring Fencing creates the possibility to take wishes and specific characteristics of the employer regarding investment policy into account Ring Fencing creates the possibility to take wishes and specific characteristics of the employer regarding investment policy into account Better able to deal with the investment rule imposed by the CBCS (up to a certain extend) Better able to deal with the investment rule imposed by the CBCS (up to a certain extend)

8. Investment Rule Provision pension liability First ANG 10 mln ANG 10 mln < 20 mln Above ANG 20 Minimum Resident 40%50%60% Maximum Non residents Maximum Non residents 60% 60% 50%40%

9. Investment Rule (cont) Limitation to investment policy of pension fund Limitation to investment policy of pension fund Small pension funds on one hand will be more able to comply with the investment rule Small pension funds on one hand will be more able to comply with the investment rule Larger pension funds on the other hand will be better able to create a diversified local investment portfolio  opportunity for multi- employer pension fund Larger pension funds on the other hand will be better able to create a diversified local investment portfolio  opportunity for multi- employer pension fund

10. Conclusions AOV system is not sufficient neither sustainable on the long term AOV system is not sufficient neither sustainable on the long term 50% of working population still does not have a 2 nd pillar pension; 50% of working population still does not have a 2 nd pillar pension; Mandatory basic pension proposal is imperative Mandatory basic pension proposal is imperative Multi –employer pension fund can play a key role in managing the mandatory basic pension and can apply ring fencing Multi –employer pension fund can play a key role in managing the mandatory basic pension and can apply ring fencing Multi-employer pension will till a certain extend be better able to deal with the investment rule Multi-employer pension will till a certain extend be better able to deal with the investment rule

11. Thank you for your attention Rafael Pichardo Secretary Board of Supervisory Director of Vidanova Pension Fund Foundation