The Caribbean Netherlands Pension Fund (PCN) has put its difficult early years behind it: last week it proudly announced on its website that the September funding ratio rose to 138.5 percent, a percentage that other Dutch pension funds will look at with some jealousy.

PCN:

As of December 31, 2023, PCN had 7,935 ‘customers’: 1,193 pensioners, 3,786 active participants, and 2,956 former participants (currently working for an employer not affiliated with PCN). In 2023, $15.3 million in pension money was paid out. Assets under management amounted to $568 million at the end of 2023. In that year, a return of 9.9 percent was achieved.

An interview with PCN Chairman Harald Linkels.

Judging by the funding ratio and the return achieved, the PCN seems to be doing well. Is that a correct observation?

“PCN is in very good shape. A coverage ratio of more than 138 percent is a very comfortable position. As I always explain it, in simple terms, this means that for every dollar of liabilities, PCN has $1.38 in cash. Although the minimum required coverage ratio for the BES islands is one hundred percent, in the Netherlands, this is 105 percent, in practice you also have to take into account the required reserves. As a result, PCN must actually have a coverage ratio of at least 115 percent.”

How did you manage to overcome the first difficult years?

“The first few years were very volatile. When PCN was founded in 2010, it was founded based on principles that were common in the Netherlands Antilles. This meant, among other things, a fixed actuarial interest rate of about 4% and the Antillean mortality table. It is important to mention that PCN has a different regulator than the Antillean funds, namely the Dutch Central Bank (DNB) and not the Central Bank of Curaçao and Sint Maarten. DNB wanted us to apply Dutch principles, including discounting the liabilities at market interest rates, not fictitious fixed interest rates. In addition, DNB wanted us to use the Dutch mortality table. In the Netherlands, life expectancy was considerably higher than assumed on the islands.

The two changes in what PCN had to use when calculating its liabilities led to a reduction in the funding ratio of about twenty percent. On paper, we went from healthy to unhealthy within a very short period, in other words: the fund went underfunded At its lowest point, we had a funding ratio of barely 77 percent. To put it again in simple terms, for every dollar of liabilities we had, at least on paper, only 77 cents in cash. That was a very worrisome moment.”

What has been done to get out of harm’s way?

“At the end of the day, there is not a single factor that has led to recovery. In 2017, PCN implemented a 3.5 percent reduction in its liabilities, as a result of which the funding ratio grew by the same percentage. In addition, we have had several years with very favorable investment results and interest rates have also risen significantly in recent years. While the use of market interest rates played a major role in us in the first few years, it has helped us enormously in recent years. PCN has been reluctant to grant indexations, even in the years when the financial situation has improved. This has helped the funding ratio considerably, but it also means that the purchasing power of pensioners has lagged behind the increase in the cost of living. Offering a pension that retains its value is one of the fund’s most important ambitions. In recent years, this has only partially been achieved. In recent years, we have been able to index considerably and with the current funding ratio, I expect that as of 1 January 2025 we will be able to fully compensate pensioners for price increases in the past twelve months.”

What has been the impact of the corona crisis on the fund and its activities?

“We have hardly been affected by the corona crisis. As strange as that may sound, 2020 was a good investment year. Our local investments have also done well and there have been no payment arrears. All of this is probably in no small part thanks to the financial compensation that has also been granted to entrepreneurs on the BES islands by the Dutch government.”

As a relatively small fund, it makes you vulnerable to crises in the world by definition. Wouldn’t it be better, for the sake of stability, to seek affiliation with, for example, the ABP?

“Although we are indeed a small fund, we use the same renowned asset managers as others, many times larger pension funds. For example, the world’s largest asset manager, Blackrock, also manages PCN’s investments. And in the end, you often invest in the same global investments as other pension funds. An important difference between APB and other Dutch pension funds is that we operate in a dollar environment and not in a Euro environment. Economic realities on the islands, such as inflation, have historically moved more closely with what is happening in America than what is happening in Europe. By being on the islands, we have a good feeling with our participants and we can also provide good service to them. To merge into a larger whole, such as joining another pension fund that is at a great distance, could lead to less customization for our participants and pensioners.

In terms of investments, we have certainly not done worse than other large pension funds in the Netherlands, for example, over the years. And our funding ratio is significantly higher than is the case with many other Dutch – and much larger – pension funds. At the end of September, ABP’s funding ratio was more than 114%, or more than 20% lower than PCN’s. Technically, it wouldn’t be easy either. The BES islands have their own pension law, the BES Pensions Act. This deviates significantly from the Dutch Pensions Act and the associated supervisory framework. We also notice that on the islands the concept of ‘solidarity’ still stands proudly. In the Netherlands, the issue of individualization and individual pension pots is more important. On the islands, this is even less of an issue. You can see that the Netherlands has been struggling with the pension issue for years. Fortunately, that goat largely passes us by. It also creates a lot of unrest and challenges.”

What are the biggest challenges for PCN in 2024?

“If I’m completely honest, the year 2024 hasn’t been challenging yet. The investments are paying off nicely, the organisation is stable and there are few operational challenges.”

Investing also means taking risks. Has PCN ever made a loss-making investment?

“PCN invests the vast majority of its capital in very secure investments, especially U.S. government bonds. A smaller proportion of investments are invested in corporate bonds and equities. They move, globally, up and down. However, there has been consistent growth over the years. In addition, PCN invests about five percent of its capital locally on the islands. These include business loans and investments in real estate. PCN has never lost a dollar since it started investing locally. That is a very good result, but of course, it is no guarantee for the future. Also when it comes to local investments, we are very careful and projects go through a long process before PCN decides to put money into something. Just as we have a manager for international investments in the Netherlands, we hire the expertise of The Curaçao Financial Group (CFG) for local investments. This has proven to be a very solid partner with a lot of relevant expertise, which means that there is not only good analysis in advance but also monitoring and reporting of current loans and investments.”

PCN also explicitly supports local initiatives. How much money is involved and how will it be distributed ‘fairly’ among the three islands?

“I have some difficulty with the word support. After all, PCN invests to make a return or to make money. Locally, our investments yield a return of around 6 percent. year. No matter how beautiful a project or initiative is; It has to be monetized. Otherwise, we will not invest in it. Making money for the participants is one of the main missions of PCN. Not supporting projects. That said, locally, the so-called ESG factors are also increasingly leading concerning the decisions in what to invest in and what not to invest in. ESG stands for Environment, Social, and Governance. We mainly want to invest in things that do not harm our nature or the climate, that are important from a social or societal point of view, and in projects that have solid governance or are well managed and managed.

We are doing our best to invest on all three islands when it comes to local investments. But the quality of an investment and the degree of initiative are leading. In total, there is currently about thirty million dollars in local investments. If we include all current applications, this amounts to a total of about 43 million. In practice, Saba is our absolute frontrunner. Comparatively, especially if you compare it to the number of inhabitants, we invest a lot on Saba. St Eustatius, on the other hand, is lagging. In recent years, the government of Saba has shown that it is open to taking on projects together with PCN. Just think of the expansion of the local hospital in The Bottom and a new building for after-school care. Thanks to the involvement of both the local and Dutch governments, we also see these as relatively safe investments. CFG does the preliminary work for us and advises the board on what to invest in and what not to invest in. Of course, attention is also paid to the necessary securities for the fund.”

Which projects are you most proud of as chairman?

“I am very proud of several things. Among other things, I am very proud of the behavior of our pensioners at the time of the cut. Although no one likes to have their income cut, our retirees were generally understanding. We did a lot of education and held many meetings to explain the situation of PCN. The cuts have not led to a revolt of pensioners or participants. I’m proud of that.

I am also proud of the establishment of a strong local organization. When PCN was founded, everything was one hundred percent outsourced to parties in the Netherlands; both asset management and the entire administration. As of 1 January 2019, we are self-administering. That’s quite an achievement because you have to set up everything yourself and recruit local staff and there are also very high requirements, again set by DNB, for risk management and, for example, the security of your automated systems and your data storage. Since its inception, we have been able to count on the expertise of Montae & Partners. Without them, we might not have dared to take these steps. But this stop also ultimately led to a stronger pension fund. In addition, I am very proud of our local investments and the establishment of the Participatiemaatschappij Caribisch Nederland (PMCN), which functions as our local investment vehicle.”

“The funding ratio is a good indicator of the financial health of a fund. With the current funding ratio, the fund is doing very well. After seven lean years, in which everything went wrong, we are now experiencing seven fat years in which everything is going well. But the dot can change again in a moment. No matter how well you try to hedge against global crises as a fund, you can always be affected by things that you have no control over at all. Think of a stock market crisis, or the outbreak of a war. PCN is not immune to that.

The 2017 discount was caused by a very exceptional combination of circumstances and is not expected to recur any time soon. I have to say that we have a very good relationship with our employers, but specifically also with the Ministry of the Interior and Kingdom Relations and the Rijksdienst Caribisch Nederland. What we have always done in the past is to sit around the table with each other when we are faced with challenges. Parties, including the trade unions that are part of the Caribbean Netherlands sector consultation, have always been willing to sit down with each other to jointly deal with a crisis or challenge. However, the result of this is not always beneficial. A few years ago, for example, it was decided to significantly or cap the pensionable salary, partly motivated by a very unstable interest rate and – mainly because of this – a gloomy future scenario at the moment. This intervention has had more negative effects than positive effects, especially for those who earn more than the capped maximum. I would very much like to see that this is undone someday. The necessary discussions are already taking place about this.

Finally, I would like to draw attention to the role and influence of DNB. The regulator is critical and demanding, also towards PCN. On more than one occasion, we have had very strong, fundamental differences of opinion. However, the relationship has always been fine and characterized by mutual respect and understanding of each other’s roles. In the end, with an exchange of arguments, we always agreed. In my opinion, DNB’s strict supervision certainly contributes to the stability of PCN and thus to the certainty for our pensioners and future pensioners that their pensions are safe in both the short and long term.”

DossierKoninkrijksRelaties