What do the recent AOV changes mean for you? Insights by Grant Thornton, part 1 of 3

What do the recent AOV changes mean for you? Insights by Grant Thornton, part 1 of 3

Recently, the General Old Age Insurance (in Dutch: Algemene Ouderdoms Verzekering [AOV]) age on St. Maarten has been increased from 62 years of age, to 65 years of age. This change has a significant impact on the business sector and work force in St. Maarten. This memorandum describes in three successive articles, the history of the AOV, the changes made, and the impact it will have on existing employment relationships and retirement plans.

The AOV adjustments

On May 20, 2020, the Government of Sint Maarten unconditionally agreed with the proposal of the Dutch government to receive the second tranche liquidity support loan. One of the conditions set by the Dutch government was that Sint Maarten must increase the pensionable age for civil servants from 62 to 65 years. In addition, the AOV age had to be increased to 65 as well.

Also, the AOV benefits were increased with 11 per cent. These adjustments have significant consequences for existing pension plans, future AOV benefits and cessantia provisions. This results in pitfalls the government, as well as employers, should avoid in order to prevent significant financial risks for employers as well as for employees.

AOV benefits

Persons who reside or work in Sint Maarten are insured under the AOV pension scheme. The AOV premiums are fully paid by the employees and employers. The AOV benefit that an insured is entitled to is built up with each year of insurance (the year the insured person resides or works in Sint Maarten).

The AOV age was set at 60 years of age in the early 1980’s. Before that time, it had been established at 62 years of age. As of January 1, 2016, until December 31, 2019, it had again been increased to 62 years of age, resulting in a benefit build-up of 2.13 per cent of the maximum AOV pension for each year of Insurance.

People would get a full AOV pension if they had been insured from the age of 15 up to 62 years old. As per July 1, 2020 (this deadline being set by The Netherlands) the pensionable age has increased to 65 so that as of January 1, 2020 the build-up period is 2 per cent per year (insurance from 15 – 65 years of age).

The increase of the pensionable age can be justified because of the worldwide increase of the life expectancy. The adjustments are also needed to increase the retirement benefits to a more socially accepted basic standard on Sint Maarten.

Increase of pensionable age for AOV

As a result of the increased AOV age, labour agreements (both individual and collective) need to be updated. The increase of the AOV age does not mean that the “retirement age” in labour agreements is also automatically increased. The increase in AOV age only means that beneficiaries will have to wait 3 more years before they start receiving AOV benefits AND that they must pay premiums for 3 more years.

This means that if labour agreements are not adjusted, the agreement will be terminated at the stated retirement age (in most cases, 62 years of age). The retired employee will then have to wait 3 years before the AOV benefits kick in and will still have to pay AOV premiums over income earned during that same period.

In part 2 of this series, regulation pensions, financial risk to employers and employees, and flexibility in retirement plans will be discussed.

Grant Thornton is a leading provider of audit, tax and advisory services in the Dutch Caribbean, with offices in Aruba, Bonaire, Curaçao and St. Maarten. For more information and for a copy of the information in this series, visit www.grantthornton-dc.com or find the company on Facebook @Grantthorntonsxm.