The pension reform became effective on July 1st, 2020. This means that there are some important changes in your pension plan with APS. The changes are aimed at reducing the cost of the pension system and making it sustainable for the future.
In July and September 2020, three webinars were organized to explain the major changes in Sint Maarten’s pension scheme. A recording of the webinar and the presentation used can be viewed below.
THE MOST IMPORTANT CHANGES IN THE PENSION REFORM
Pension scheme changes from final to average pay
The pension amount will no longer be based on the last earned salary (final pay scheme) but on an average-salary scheme with a yearly accrual of 2% of the gross salary in that year (minus the franchise).
Retirement age goes up from 62 to 65
The new retirement age will be 65. It will still be possible to retire between 62 and 65, due to the flexibilization of the retirement age. But advancing your pension has financial consequences. The sooner you retire, the lower your pension will be.
Pension accrual starts at age of 18
In the past you started to accrue pension at the age of 25. This has changed to the age of 18. You can accrue more pension over the span of your career due to this measure and the above-mentioned increase of the retirement age.
Pension payments will now start three years later due to the increase in pension age to 65 years. To compensate for this, the already accrued pension rights up to the date that the new pension scheme takes effect, will be increased with 10%. This does not apply to the ‘Duurtetoeslag’.
Total contribution decreases, employee contribution remains the same
The total contribution that the employer pays for your pension is reduced from 25% to 18% of your gross salary. Your contribution remains the same at 8% of gross salary minus the franchise.
Accrual percentage can change
In the new legislation the accrual percentage depends on the total contribution that is needed to cover the accrual of pension each year. This means if the required contribution is below 18%, then the accrual percentage remains 2%. If the required contribution is higher than 18%, the accrual percentage will be lowered to 1.75%.
The present ‘Duurtetoeslag’ regulation, which only applies to employees in the old pension scheme (prior to 1998) will cease to exist. Accrued rights will be upheld however, further accrual will not be possible. In addition, accrued rights will not increase with 10% when the pension age is increased.
The present system of automatic indexation, which is linked to the indexation of the civil servants’ salaries, will be replaced with an indexation that is linked to the increase of the cost of living and the pension fund cover ratio. In case of indexation both the pensions as well as the future pension rights will be increased.
No indexation will be applied if the cover ratio is less than 105%.
The percentage remains 70% of retirement pension. The possibility of future reduction of the amount and the duration of this pension will be included in the ordinance. The widow/widowers’ pension for ex-spouses will cease to exist.
The orphan’s pension remains the same at 14% of the senior’s pension for half-orphans and 28% for full orphans (both parents deceased). The age limit for orphans has changed from age 21 to 18. Orphans who are still studying or are disabled for work will receive the orphan’s pension until age 27 instead of 25.
The disability pension remains 70% of the attainable senior’s pension. An important new element is that there will be a medical re-examination every five years. In the future the legislation will include that a participant can be declared partially disabled or that the disability benefit will be stopped if someone is declared fit to work.
A new element of the reform is that APS will have to submit a recovery plan to the Central Bank and the Minister of Finance if the cover ratio drops below 100%. The plan must state which measures APS will take to restore the financial position within five years. Such measures include increase of the pension contribution and as a last resort, if all other recovery measures fail, the pensions can be cut.
During the video meetings the changes of the reform will be discussed in more detail. You will also have the opportunity to ask your questions then.