On March 6, 2017, the General Audit Chamber submitted its report to Parliament and the Minister of Finance, regarding the audit of the 2015 Financial Statements of the General Pension Fund (Algemeen Pensioenfonds Sint Maarten – APS).
The financial position of the APS has become more worrisome, according the Audit Chamber. The drop in the coverage ratio from 97.6% in 2014 to 93.2% in 2015, is a key indicator. The coverage ratio is an important measure used by a pension fund to determine if the fund’s assets will be able to cover future pension obligations. The minimum standard required by the Central Bank of Curaçao and Sint Maarten is 100%. Furthermore, APS did not meet the internal standard of its investment policy, which requires a long-term return of 5.5% on its entire investment portfolio. In 2015, the APS recorded a 0.39% return on its entire investment portfolio. The average return since 2011 is 4.29%.
Factors that contribute to the tenuous financial position of the APS include APS’s invoicing of lower than legally required premiums (22% instead of 25%), and the long outstanding claims against both the government of Sint Maarten and the General Pension Fund of Curaçao. The payment of ANG 19 million arising from the sale of the government building, and the payment of ANG 60 million based on the division of assets and liabilities between Sint Maarten and the Netherlands Antilles, was not fulfilled. As of the publication of their report, the Audit Chamber had not received confirmation of the resolution of these claims.
The Audit Chamber believes that the agreement reached between government, labor representatives of civil servants and the APS to reform the pension system may lead to sustainability of the Fund as compared to the existing arrangement. “However, compared to the current pension system, the new system represents austerity”, according to the Audit Chamber. The proposed changes of the pension system include an increase of the retirement age to 65 years, introduction of a pension based on the average-salary over a career instead of a final-salary arrangement, and the lowering of the minimum participation age to 18 years. In its report, the Audit Chamber expresses the hope that the APS will inform participants in a timely fashion about the reasons and consequences of the proposed changes.
There are several encouraging improvements at the Fund. APS presented the 2015 Financial Statements and the 2015 Budget within the legally required timeframe. In addition, APS is finalizing the amendment of its investment policy to align the policy with their new strategy. The APS reported that as of January 1, 2016, they have been invoicing based on the legally required premium of 25%.
The APS also increased the certainty regarding the accuracy and comprehensiveness of the basic data in the participants’ administration. The Audit Chamber cautions that despite the progress in improving the basic data, they cannot disregard the challenges relating to the payroll administration process of government. Government is the largest participating organization of the APS. Because of the inadequate management within the payroll administration process, there is a risk that the data provided by government to the APS is inaccurate and incomplete. Government’s shortcomings should not be allowed to impact the reliability of the participation administration of the APS. Therefore, the Audit Chamber recommends that government acts to ensure that their payroll administration is put in order.
Additional recommendations provided to APS include, drafting and implementing a well-defined and realistic plan to achieve a coverage ratio of at least 100%, and securing the outstanding claims.
The report is published in both English and Dutch and is available on the website of the General Audit Chamber (www.arsxm.org). ########