WILLEMSTAD – The General Pension Fund of Curaçao will temporarily not index pensions. This decision is based on the current financial position of the fund. The coverage ratio was reportedly insufficient in the years 2018 and 2019 to allow for indexation.
The disbursed pension amounts will not be adjusted for the rising cost of living. This means that current retirees lose purchasing power, as they can buy less with the same pension amount than before.
If the cost of living rises faster than income from pensions, this decision by APC may result in a reduction in the standard of living for retirees.
APC states that a provision has been made in the form of 'forgone indexation,' also known as catch-up indexation, where future improvements in the financial position of the fund may lead to partial or full application of these indexations.
Legal Frameworks and Coverage Ratio
According to the Pension Regulation for Civil Servants, it is allowed to index pensions if the salaries of civil servants increase due to the rise in the cost of living.
However, if the coverage ratio of the pension fund on the last day of the year preceding the indexing year is 105 percent or lower, the board may decide not to index. APC's coverage ratios were 100.2 percent and 103.4 percent at the end of 2018 and 2019, and 103.7 percent at the end of 2022.
Decision-Making Process
APC sought external actuarial expert advice for this decision. Based on this, it was concluded that current indexation would be financially irresponsible. The possibility of a one-time compensation to retirees was also considered, but this would negatively impact the coverage ratio and increase the risk of future pension cuts.