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Main concepts of the PSEO

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Presentation on theme: "Main concepts of the PSEO"— Presentation transcript:

1 Main concepts of the PSEO
Document Art83_12 13-Jul-07

2 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 Art83_WG

3 How does it work? Age 01.01.2029 : 64 years Age 31.12.2007: 42 years
4 years in service expected retirement from 2004 2005 2006 2007 2029 2030 2031 2032 Art83_WG

4 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 Art83_WG

5 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 Art83_WG

6 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 ) 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 Art83_WG

7 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 ) Total for all members = total liability of PSEO Reference date 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 Art83_WG

8 Calculation reference date: 31.12.2007
Contribution rate: calculated for current year, based on population at of previous year sum of all payments related to rights earned in 2007 (= “service cost”) Calculation reference date: 2004 2005 2006 2007 2029 2030 2031 2032 rate to be applied from Art83_WG

9 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 ) 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 Art83_WG

10 Budget expenditure: amount paid out each year in pensions for existing retired persons
Art83_WG

11 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 Art83_WG

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