Published On: Tue, Apr 14th, 2020

The muddy waters of political pensions

Government Administration Building with Flags- 20200220 JHPHILIPSBURG – For decades politicians in St. Maarten have been freewheeling towards their old age pension: from their already impressive salaries they never paid a penny for it. If Minister of Finance Ardwell Irion is good for his word, this is about to change – but no matter what he wants to regulate by law, politicians will always be better off than the ordinary working people.

A press release issued by Irion on April 5 contains the following statement about the reaction of the Council of Ministers and members of parliament to a proposed 10 percent salary cut: “All signatories agreed that legislation will be established to regulate the contribution towards the pension of political authorities and that as of April 1st, 2020, political authorities, pending the formalization of the legislation as mentioned in the previous point, the salary cut will go into effect.”

It is not the clearest statement ever made by a politician but the intent seems to be something like this: ministers and parliamentarians are going to take a 10 percent salary cut and legislation is underway to regulate their contribution to their own pension entitlements. But it remains unclear whether they will consider the future payment of their pension premium as part of their salary cut,

That would be what the Dutch like to call een sigaar uit eigen doos; there is no proper English translation for this expression – it’s a bit like pretending to pay for something while in reality, you don’t. In this case: politicians were always supposed to pay premium towards their pension; presenting such payments as a salary cut is at best a cheap parlor trick.

The Board financial supervision (Cft) clarified two days later in a letter to the chairman of the Kingdom Council of Ministers (Prime Minister Mark Rutte) what is on offer: the politicians give up 6 percent representation cost and 500 guilders a month in car allowance up to an amount that equals 10 percent of their net income.

If we stick to the example of members of parliament and put their gross monthly paycheck at 20,000 guilders (net is approximately 12,440), it means that they would give up 1,200 plus 500 guilders – 1,700 guilders (8.5 percent of their gross salary; 13.6 percent of net income), while they are only prepared to give up 10 percent (1,244 guilders).

Minister Irion’s statement smells a bit: it seems that politicians are not giving up any part of their salary at all – they just took a rain check on some minor fringe benefits for the rest of the year.

This brings us to the pension regulation for politicians and what this means for their income. This regulation consists of two parts; the first one deals with redundancy pay (wachtgeld) and the second part with the old age pension.

For the purpose of this article the focus will be on the old age pension. The explanatory memorandum suggests a 3 percent contribution towards this pension but the law itself mentions 5 percent. To build up their full pension entitlements to 70 percent of their salary, politicians therefore needs just 14 years in office – and under certain conditions even less – to reach that point.

To put this into perspective: civil servants build up their pension entitlements at 2 percent per year and the clock starts ticking when they are 25. By age 60 they have the 70 percent. In the Netherlands private sector workers also build up 2 percent per year but this has to add up to 100 percent for a full pension; in this case, the count begins at age 15.

But here is the thing with our politicians: so far they have not paid a penny towards their pension. Article 30 of the pension law for politicians states that these payments have to be regulated by national decree –something that is only now in the works according to Minister Irion. How long it will take to become effective is anybody’s guess.

Here is another aspect: there is no such thing as an actual pension fund for politicians. Their pension has to be paid straight out of the national budget – in other words, by the tax payers.  A recent budget mentioned 1.14 million guilders for pensions; this amount does not include redundancy pay (wachtgeld).

We asked financial experts to look at what politicians should be paying as a contribution towards their pension. The answers complement each other.

If the premium payments would be the same as those of civil servant via the General Pension Fund APS, 1,428 a month would have to be withheld from the gross salary of a member of parliament – currently around 20,000 guilders. But the government would have to contribute another 3,432 for the same purpose. In other words: while each MPs would contribute almost 17,136 guilders a year, the burden for the national budget would be something like 41,184  – per parliamentarian; add to the cost for fifteen MPS around 45,000 for each of the seven ministers and the minister plenipotentiary and the annual burden for the national budget in terms of pensions premiums would come to more than 1.2 million guilders.

That would still not do the trick because civil servants pay premiums for 35 years to reach a full pension, while politicians reach full pension after just 14 years. Politicians who receive redundancy pay (usually minimum 1 and maximum 2 years) continue to build up pension rights; that could be 2 years and therefore they would reach full pension after just 12 years in office.

Even if politicians would pay the same premiums as civil servants, it would not begin to cover the cost of their future pensions; one expert noted that it represents just 14/35 [40%, -Ed.] of what a civil servant is paying into her or his pension fund.

Here is an interesting piece of trivia: many politicians were once civil servants and some return to the civil service after their stint in politics (current examples are for instance Prime Minister Silveria Jacobs and MP Claudius Buncamper). They are also entitled to an APS pension over their years in the civil service. It is therefore perfectly possible to be entitled to a 100 percent political pension and a 50 percent APS pension.

Payment or no payment: it does not change anything about the pension a politician will get in the fall of her or his life. On a gross monthly salary of 20,000 the franchise (an amount that is deducted from the salary to calculate the pension) is 1,594 guilders. Retired politicians would then get 70 percent of (20,000 – 1,594) = 12,884 gross per month [US$7.158, -Ed.]

There is one bright point in this whole affair: politicians who are still active after retirement age (as an MP or a minister) are not entitled to their pension while they still get paid for the function they hold.

There are however still quite some unanswered questions. Like this one: will parliamentarians reclaim their representation costs and car allowances once the contribution to their pension has been regulated? And how much are they going to pay each month for their pension?

To be continued.

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