Docstoc

Deficit of the Pension Fund CERN

Document Sample
Deficit of the Pension Fund CERN Powered By Docstoc
					    Deficit of the Pension Fund


                             Stakes

         Recommendations by the Governing
         Board of the Pension Fund, strongly
          supported by the Staff Association



CERN Staff Association   Meetings with the Delegations   1   August 2005
Summary
Some definitions
Some key figures
Issue
Our basic principles
Towards the “most probable” base line
Stabilization measures
Towards a 100% funding ratio
Conclusion

  CERN Staff Association   Meetings with the Delegations   2   August 2005
Some definitions                                                (1/4)


 Capitalized Fund (but not individualized)




   CERN Staff Association   Meetings with the Delegations   3       August 2005
Some definitions                                                (2/4)

 Actuarial Review
   Regular assessment (every 3 years) of the financial
   balance of the Pension Fund,
   Enabling, amongst other things, the calculation of
   the necessary contribution rate (defined benefits)
   On the basis of a certain number of hypotheses
       Existing population (sex, age, salary, pension)
       Probable evolution (death rate, retirement age,
       recruitment, complements, family changes, …)
       Economic parametres (inflation, salary and pension
       increases, …)


   CERN Staff Association   Meetings with the Delegations   4       August 2005
Some definitions                                               (3/4)

 Review closed fund
   supposes that the Organisation is disolved at the time of the
   review and the fund no longer receives contributions
 ► determines to what extent the Fund can honour its commitments
   to its beneficiaries today
 Review open fund
   supposes that the Organisation continues for another 30 years
   and, therefore continues to receive contributions over 30 years
 ► determines to what extent the Fund can honour its commitments
   to its beneficiaries over 30 years and beyond




  CERN Staff Association   Meetings with the Delegations   5       August 2005
Some definitions                                                                            (4/4)


 Funding ratio: Percentage of financial
 commitments of the Fund which can be covered
 by available funds


                                                      100%

                                                                                      Fortune
                                                                                      Wealth
               Valeur
             Present            Valeur
                            Present value                                Future        de la
                                                                                       of the
              actuelle
               Value        actuelle des
                              of future                                     futures
                                                                      contributions   Caisse
                                                                                       Fund
                des
                 of          prestations
                              pensions
             pensions          futures
             en cours
             currently
               being
                paid
                               EXPENDITURE                            REVENUE


   CERN Staff Association             Meetings with the Delegations           6                 August 2005
Some key figures                                                                   (1/4)

 Economic parametres of the actuarial review


                                                                  Current values

   Inflation                                                            3%
   Indexation of pensions                                               3%
   Indexation of salaries                                               3.5%
   Net effective rate of return                                         6%
   Real rate of return                                                  3%
   Technical interest rate                                              5.5%




   CERN Staff Association         Meetings with the Delegations     7                  August 2005
Some key figures                                                                                                                                                    (2/4)


 Evolution of the funding ratio and the
 contribution since 1988
                   120.0 %                                                                                                                                      31.0 %


                                                                                                                                                                30.0 %


                                                                                                                                                                29.0 %
                   110.0 %




                                                                                                                                                                          Contribution rate
                                                                                                                                                                28.0 %
   Funding ratio




                                                                                                                                                                27.0 %
                   100.0 %
                                                                                                                                                                26.0 %


                                                                                                                                                                25.0 %

                    90.0 %
                                                                                                                                                                24.0 %
                                                                                                               Funding ratio

                                                                                                           Rate of contribution
                                                                                                                                                                23.0 %


                    80.0 %                                                                                                                                      22.0 %
                             1988


                                    1989


                                           1990




                                                         1992


                                                                1993


                                                                       1994




                                                                                             1997


                                                                                                    1998


                                                                                                              1999




                                                                                                                               2001


                                                                                                                                      2002


                                                                                                                                                 2003


                                                                                                                                                        2004
                                                  1991




                                                                              1995


                                                                                      1996




                                                                                                                      2000
                                                                                     Years


                                                                                                                                                        Presentation by Actuary Nov. 2004

   CERN Staff Association                                          Meetings with the Delegations                                             8                                 August 2005
Some key figures                                                                                          (3/4)

     Technical balance sheet of a closed Fund on 1.1.2004
      Amounts rounded off to the nearest franc                         01.01.2004      01.01.2001                   Differences

A.FUND ASSETS
     a1. Fund assets                                                  3'750'274'338   3'992'466'950         -       242'192'612

TOTAL A     [a1]                                                   3'750'274'338      3'992'466'950        -        242'192'612

B.   ACTUARIAL COMMITMENTS OF THE FUND
      b1. Mathematical reserves for beneficiaries
          of pensions (without future adaptation)                     2'448'503'178   1'882'109'437                 566'393'741
     b2. Transfer values of active members or
          current values of differed pensions at 60 years
         (without future adaptation)                                  1'418'809'338   1'622'976'734         -       204'167'396
     b3. Reserves for longevity                                          36'727'548         -                        36'727'548

 TOTAL B     [b1 + b2 + b3]                                       3'904'040'064       3'505'086'171                 398'953'893

C. DIFFERENCE BETWEEN A ET B                                      -    153'765'726     487'380'779         -        641'146'505

D. RATIOS
     d1. Funding ratio of actuarial commitments
        or degree of capitalization                                      96.06 %           113.90 %             -     17.84 %

                                                                                              Presentation by Actuary Nov. 2004
         CERN Staff Association                Meetings with the Delegations           9                             August 2005
Some key figures                                                                                                                                                                                    (4/4)

Evolution of the demographic ratio since 1955
                                                                              M embres et       bénéficiaires (CE RN + E SO)
                                                                                                en fin d'année


           4500



           4000



           3500



           3000



           2500



           2000



           1500



           1000



            500



              0
              1955          1960    1965           1970     1975          1980          1985     1990         1995         2000         2005         2010          2015         2020         2025

                  M e m br e s     Bé né ficiair e s      Pr oje ction de s Bé né ficiair e s     Pr oje ction de s M e m br e s - e xtr aite du plan de s Re s s our ce s Hum aine s (Nov. 2002)

                                                                                                                                             Données Rapport annuel Caisse de Pensions




Hence the preference of a capitalized fund over a
budgeted fund
   CERN Staff Association                                                         Meetings with the Delegations                                                                 10                      August 2005
Issue                                                                                       (1/2)

 Results of the 2004 actuarial review

                                           96%
                                                                                      Fortune
                                                                                      Wealth
                                                                         Future         de la
                                                                                       of the
                                                                      contributions
                                                                           futures
        Present                                                                        Fund
                                                                                      Caisse
          Valeur           Valeur
        value of
         actuelle      actuelle des
                      Present value
        pensions
           des          prestations
                        of future
        currently
          being           futures
                         pension
        en cours
           paid


                                                                               REVENUE


               EXPENDITURE


 Funding ration which drops to 74% by 2033

   CERN Staff Association             Meetings with the Delegations           11                August 2005
Issue                                                                                                                (2/2)


105


100


 95


 90
                                                                                                          1st step:
 85


 80


 75
              M19
 70


 65


 60
      2004     2006   2008   2010     2012   2014     2016      2018      2020      2022   2024        2026   2028   2030     2032




             CERN Staff Association                 Meetings with the Delegations                 12                        August 2005
Our basic principles
 Capitalized fund
 With defined benefits
   Calculation of the amount of pension
   Indexation of pensions

 Contributions: maintain ratio 1/3 – 2/3

 Balanced measures
   Between pensioners – active members –
   Organization
   Between old and new members
   CERN Staff Association   Meetings with the Delegations   13   August 2005
     Towards the “most probable” base line                                                     (1/4)


A.   Economic parametres of the actuarial review
            The proposed parametres (following the recommendation by the Actuary) are
            more realistic (considering the current economic situation and the practice of
            annual adjustments) and more prudent
            (see slide 25, no. 1)


                                                                       Current values   Proposed values

Inflation                                                                   3%                2%
Indexation of pensions                                                      3%                2%
Indexation of salaries                                                     3.5%               2%
Net effective rate of return                                                6%                5%
Real rate of return                                                         3%                3%
Technical interest rate                                                    5.5%              4.5%

                                                                  Result: -13.2% end of 2033
       CERN Staff Association          Meetings with the Delegations              14            August 2005
 Towards the “most probable” base line                                            (2/4)


B. Compensation for the decrease in staff (at
   present the Actuary takes into account this
   decrease, but not the compensation owed to
   the Fund, in accordance with the Council
   Resolution of 1985)
          (see slide 25, no. 2)




                                                              Result: +4.6% end of 2033



   CERN Staff Association         Meetings with the Delegations      15           August 2005
  Towards the “most probable” base line                                             (3/4)

C. More realistic actuarial projections of deferred
   pensions
      Instead of retaining the least favorable case for calculations
      (very often the deferred pension), consider that people
      leaving the Organisation receive a transfer value
      No change in people’s rights, only a change in the calculation
      method
      Should the Organisation be dissolved, the Fund must be
      balanced whilst taking into account the reality i.e. a large
      number of deferred pensions
                (see slide 25, no. 3)


                                                                 Result: +2.3 % in 2033
    CERN Staff Association       Meetings with the Delegations         16           August 2005
Towards the “most probable” base line                                                           (4/4)




                                            95.8%
  Result :
                                              96%
                                                                                      Fortune
                                                                                      Wealth
             Present                                                     Future        de la
                                                                                       of the
                                                                            futures   Caisse
                                                                                       Fund
               value
               Valeur                                                 contributions
                                Valeur
                               Present
                of
              actuelle        value des
                             actuelleof
             pensions
                des          prestations
                                future
             currently         futures
                              pensions
              being
             en
               paid

                                                                            “REVENUE”            67.7% in 2033
                                                                                                74% in 2033
                   “EXPENDITURE”
    CERN Staff Association            Meetings with the Delegations            17                   August 2005
     Stabilization measures                                                                     (1/2)


1.    Confirm* the non-indexation of pensions on
      1.1.2005                  Result: +4.6% end of 2033




2.    Increase contributions
         +1% for active members
         +2% for the Organization
                                                            Result: +15.5% end of 2033
      (see slide 25, no. 4 and 5)

                                                                    * subject to an overall agreement
       CERN Staff Association       Meetings with the Delegations             18                August 2005
Stabilization measures                                         (2/2)




 CERN Staff Association   Meetings with the Delegations   19   August 2005
Towards a 100% funding ratio                                     (1/2)


 Any under-indexation of pensions eases the Fund’s
 balance significantly
 Added to the stabilization measures, it enables the
 Fund to reach 100% (funding ratio) :
 Principle :
 100 %




 96 %

   CERN Staff Association   Meetings with the Delegations   20       August 2005
Towards a 100% funding ratio                                     (2/2)


 Adopt a method of pension indexation which
 foresees:
   a fraction of the observed inflation granted, as
   long as the funding ratio in 30 years is below
   100%,
   a cumulated loss in purchasing power of each
   beneficiary limited to 8%.
    (see slide 25, no. 6)




   CERN Staff Association   Meetings with the Delegations   21       August 2005
     Impact of combined measures
   Measures taken using
  the most probable base               Overall improvement of the funding ratio
     line (67.7% in 2033)
    as a starting point          Active members                      Beneficiaries   Organization

Non-indexation of pensions
                                                                        4.6 %
in 2005

+1% in contributions for
                                        5.2%
active members from 2006


+ 2% in contributions for the
                                                                                        10.3%
Organization from 2006

Under-indexation of
                                                       13.2%
pensions

        CERN Staff Association       Meetings with the Delegations            22           August 2005
Conclusion                                                       (1/2)


 Set of balanced measures, but also a significant
 effort, which would :
   Balance our Pension Fund
   Replaces an arbitary indexation of pensions by a
   methodical indexation
   Limit the loss of purchasing power of pensioners




   CERN Staff Association   Meetings with the Delegations   23       August 2005
Conclusion                                                      (2/2)




  CERN Staff Association   Meetings with the Delegations   24       August 2005
No.                    GBPF Immediate recommendations                              slide no.

1     The approval of the up-to-date and more realistic values for the basic          14
      actuarial parameters
2     Future actuarial projections include, as a working hypothesis and               15
      pursuant to Council’s 1985 Resolution and Article II 1.16 of the Fund’s
      Rules, future compensations for the reduction of staff numbers deriving
      from the 1996 decision by the CERN Council, even though such
      compensations are to be decided upon by Council on a case-by-case
      basis.
3     Future actuarial projections be made using an appropriate simulation of         16
      the choice made by the staff members concerned between transfer value
      and deferred pension (on the basis of the actual decisions made by the
      staff members between the two options presented to them).

4     In the context of the present package of measures described in this             18
      document, the non indexation of pensions for 2005 be confirmed.
5     Contributions of the staff and the organizations be increased by 1pp and 2      18
      pp respectively as of 1 January 2006.
6     Approval of an indexation method which foresees only a fraction of the          21
      observed inflation be granted, as long as the funding ratio is below 100
      (funding ratio reaching 100% by end 2033; cumulated loss in purchasing
      power limited to 8% maximum.


         CERN Staff Association       Meetings with the Delegations   25           August 2005
No.                      GBPF Further recommendations                              Slide no.

7     The Governing Board recommends that the possibility of introducing a
      more actuarially correct calculation method for transfer values be studied
      further.
8     The Governing Board recommends that the assumptions and parameters
      relating to the constitution of a longevity reserve be reviewed regularly.

9     The Governing Board recommends that the possibility of introducing a
      feedback mechanism such as conditional indexation together with
      dynamic contributions be studied further.
10    The Governing Board recommends that an overall review of the Fund’s
      Rules be undertaken with the help of the Actuary shortly after a package
      of measures re-equilibrating the Fund has been approved and
      implemented. The aim of this review would be to ensure the coherence,
      clarity, implementability of the Rules as well as preventing abuse as far
      as possible.
11    The Governing Board recommends that the possibility of (partial) internal
      taxation of pensions or of retrocession of (parts of) the taxes levied on
      pensions be studied further.




         CERN Staff Association       Meetings with the Delegations   26           August 2005
                 THE END



CERN Staff Association   Meetings with the Delegations   27   August 2005
Our proposals                                                                                                                             (3/5)

Towards greater equilibrium between members nearing
retirement and current pensioners: explanation

                                            Rate of reduction of the indexation of pensions


       1.8
                    1.7
       1.6                 1.6
                                  1.5
       1.4                               1.4
                                                1.3
       1.2                                             1.2
                                                                 1.1
         1                                                               1
  %




                                                                                0.9
       0.8                                                                             0.8
                                                                                              0.7
       0.6                                                                                           0.6
                                                                                                            0.5
       0.4                                                                                                          0.4
                                                                                                                           0.3
       0.2                                                                                                                        0.2
                                                                                                                                         0.1
         0                                                                                                                                      0
                                                2010

                                                       2011




                                                                         2013

                                                                                2014

                                                                                       2015




                                                                                                     2017




                                                                                                                                         2022
                                                                 2012




                                                                                              2016




                                                                                                            2018
                                         2009




                                                                                                                                  2021
             2005

                    2006

                           2007

                                  2008




                                                                                                                    2019

                                                                                                                           2020
                                                                        Year of retirement




      CERN Staff Association                                  Meetings with the Delegations                        28                               August 2005
Summary                                                         (approximative figures)

Starting point
             100%

     96%                   97%
            A                                                                              92%
              90%


              89%                                                                          88%
                                                                                           85%
              80%




              70%
                                                                                           70%

                                                                                           65%
              60%
                                                                                                         B
                                                                                           60%

              50%

                    2004         2010   2015             2020           2025        2030     2034



        CERN Staff Association          Meetings with the Delegations          29                   August 2005
Our proposals                                                      (5/5)


5.   The Staff Association is opposed to the
     proposal by the Governing Board of the
     Pension Fund to calculate the amount of a
     pension on the average salary over the last 3
     or 5 years
       Contradicts the principle of defined benefits
       Other means can be envisaged to limit the effects
       of end-of-career promotions



     CERN Staff Association   Meetings with the Delegations   30       August 2005

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:11
posted:10/15/2012
language:English
pages:30