APS’ building
CAY HILL--Finance Minister Marinka Gumbs on Wednesday morning announced that APS’ pension will be indexed by 2.1% retroactively to January 1.
She told reporters at the live Council of Ministers press briefing that the adjustment is a result of APS’ coverage ratio of 109% at the end of 2023.
APS said in a subsequent press release that for the first time since the introduction of the new Pension Ordinance for civil servants, it can adjust the pensions of its participants for inflation.
General Director Oscar Williams stated: “On July 1, 2020, the Pension Ordinance underwent significant changes. One of these changes involved indexation. From that point on, APS can only adjust pensions for inflation under certain conditions. Previously, this adjustment was unconditional and dependent on the wage adjustment by government.”
APS can only increase pensions if the coverage ratio is at least 105%. The 2023 financial statements show that 2023 was a positive year for APS. By the end of 2023, the coverage ratio stood at 109.09%.
Chairperson Nathalie Tackling commented: “We are pleased to announce a full inflation-based increase in pensions for all our participants, reflecting the rise in living costs that everyone has felt. This adjustment ensures that our retirees maintain their purchasing power. However, it is crucial to understand that our coverage ratio is subject to fluctuations due to varying market conditions. While we can index pensions this year, there may be years when this isn’t possible. Our ability to make these adjustments depends heavily on the financial markets and prevailing interest rates.”
The pensions will be retroactively increased by 2.1% from January 1, 2024.
Pension accrual in 2024
Future pension accruals will also increase. Due to high market interest rates, the costs for pension accrual are relatively low. Consequently, the pension accrual rate can be increased from 1.75% to 2% in 2024. APS warns that the level of pension accrual is largely dependent on market interest rates.
Williams stated: “Unfortunately, as a pension fund, we cannot avoid market movements. High interest rates are favourable for the pension fund. We are pleased that the increase of the pension accrual rate can take place this year, but it is important to note that this can be adjusted yearly. The Pension Ordinance prescribes when pension accrual must be adjusted.” This is the first time since the introduction of the Pension Ordinance on July 1, 2020, that accruals can be increased.
Recovery plan
The value of the investment portfolio saw a substantial increase due to favourable developments in international financial markets, alongside a rise in the actuarial interest rate.
These factors combined to improve APS’s financial position. The coverage ratio increased from 98.86% at the end of 2022 to 109.09% at the end of 2023. As a result, the recovery plan that APS had established in 2023 has been concluded. Tackling said the calculations for the recovery plan indicated that the APS coverage ratio would likely reach at least 100% within the stipulated five-year period without additional measures. “We are pleased that this recovery has manifested within a year. APS is committed to maintaining the financial stability of the pension fund while ensuring the welfare of its participants. The recent improvements in our financial position enable us to offer better benefits and increased pension accruals. We will continue to monitor market conditions closely and adjust our strategies as necessary to safeguard the long-term sustainability of the fund,” said Tackling.
