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Pensions Under Pressure.

First let me thank APS (Algemeen Pensioenfonds Sint Maarten – General Pension Fund Sint Maarten) for putting together a well informative pension seminar on May 19, 2017, with the theme “Your Future is Our Day to Day.”
The conference was opened by Ms. Rachael Geerlings followed by opening remarks by the Honorable Minister of Finance Mr. Richard Gibson sr. Mr. Gibson opening speech gave a bleak picture of trillions of underfunded pension obligations in various states in America. He referred to an article in the Financial Times with the headlines “US faces a crisis as pension funding hole hits $3.85 trillion”. The article mentions that for Chicago it has been estimated that they are underfunded as far as pension liabilities are concerned with an amount that equals 19 years of the total tax revenues Chicago expects to receive. Mr. Gibson went on to say that this is a looming crisis that not only Chicago is facing but it is a looming pension problem that keeps increasing. Looking closer to home, Puerto Rico is also in hot water. Mr. Gibson said that the only way out is either: increase taxes (which nobody wants), reduce pension benefits, or a combination of both. It spells misery Mr. Gibson said. “APS pension fund is healthy. We are one of the few that can boast that our pension fund is healthy” Mr. Gibson said.
Mr. Franklyn Richards, Chairman of the Board, basically gave a summary of what the other speakers would present while also highlighting that APS is fairly new while the Curacao pension fund has had something like 80 years experience in the area and by comparison, considering APS started on 10-10-10, APS is making strides despite the challenges that lie ahead.
Mr. Williams, Manager Pension Administration & Reporting APS, the topic was “Your Status and the Fund.” He gave an overview of the mutation forms that should be filled in if there is a change in your status (e.g. marriage, divorce, children, raise in salary, etc). He also gave an overview of documents that are sent out and how we should review them thoroughly looking for any discrepancies. He then showed an example of by not having correct information from members in the fund how this trickle downs into the calculations and what the effects are for the coverage ratio.
Then the reality check presentation was given so eloquently by Ms. Kendra Arnell, Project Manager APS, with the topic “Pension Reform for your Pension Retention.” From Ms. Arnell’s presentation, the members learned that the financial stability of the fund is at risk. More is being taken from the fund than what is being put in. This can be seen by comparing the pension capital with pension obligations over time and looking at the trend. Two key trends were shown that have an effect on the fund namely Age distribution and persons living longer. Low saving interest rates were also mentioned as a contributing factor. Ms. Arnell also brought good news in terms of the proposed pension reforms such as allowing persons to contribute from the age of 18 as oppose to the existing age of 25, possibilities to allow persons to contribute more towards their pension, allow the possibilities for other companies and institutions to join the fund, besides Government and Government affiliated institutions, making the fund more flexible by updating the existing law that governs the pension fund, etc.
Then Ms. Claire Edwards, Risk and Investment Analyst APS, touched on the topic “APS Investments for Your Future.” Ms. Edwards gave an overview of the internal investing procedure, what has been the average return on the investments (for 2016 this was 5.74%), how the investments overseas are handled, the asset classes, who all oversee and monitor this process, and an overview of the local investments.
During the question and answer round, a lot of persons posted some interesting questions. Because the return on the invested funds was below 6% (APS target is 5.5%), I wanted a better understanding how APS management go about looking for investments. Locally it appears that not much effort has to be done as proposals come to APS on a regular basis. Some are too small to be considered because a Naf 5 million threshold has been established. The international part, for simplicity of this article, is outsourced but is being monitored by the APS.
In my view, better returns on investment for the future will not come from investing in the stock market due to the increasing volatility and the likely pending financial crash due to a broken interconnected financial system that has yet to be reformed properly. Growth in particular in the U.S. market is artificial and has been based on speculation rather than on real productivity. Coupled with that, productivity will remain low as the income and wealth inequality continues to rise. Thus to get better opportunities, one needs to get on the ground floor in various countries to find the “roses among the weeds.” I also believe that prosperity starts at home. Many are so caught up by the fallacy that more means better that they sometimes fail to understand that this thinking is against natural law. Nothing can grow consistently forever particularly in a world so imbalanced in so many different ways. Also, in a world where money is losing value (purchasing power) faster than what the majority of persons’ earnings can keep pace with, reducing one's costs seems the way to go also. Investments that help reduce the cost of living in general means less money will be needed to be given out by the cost savings realized by such investments. Investments in: solar parks, bio-fuels, farms locally and abroad, block-chain technology (or funds), residential and commercial real estate, etc can help lower the costs which increase purchasing power. Except for developing countries like Africa, India, etc, growth in the developed world has stabilized. And because income and wealth is so heavily concentrated, I would not bet on seeing any growth trends in developed countries as seen in the past.
From my vantage point, demographics and increasing life expectancy are only a small part of the problem. Pushing up the pension age thus will try to solve a part of the problem while causing other problems which will further amplify the pension problem. Without going too much in detail for the sake of space, the truth of the matter is, we have a broken and outdated financial system which is not only subjected to manipulation, unethical and unjust practices that are rewarded, it is also based on scarcity values in a world where technology has eradicated scarcity. This means that money has become less relevant in a world where abundance can be created without the need for that much labor. That being said, if you take a helicopter view, you might conclude the following: the convergence of interconnected problems and dilemmas if left up to the status quo will lead to greater chaos and eventually destruction. But then again, the final prophecy must be fulfilled hence “let thy will be done on earth as it is in heaven.”

By Emilio Kalmera, 23-May-17

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