Vidanova Pension Fund Foundation celebrates its 45th anniversary!

Vidanova (formerly SPU) is a foundation whose beginnings date back to April 25th, 1968. In November of that same year, the Public Notary, Dr. Jacob Schiltkamp, passed a deed to transfer the assets from Stichting Pensioenfonds OGEM Nederland BV to the local foundation. In 1977, Vidanova became an independent entity from the founding company OGEM, and since then, Vidanova has had its own Board of Trustees. It is supervised by the Central Bank of Curaçao and St. Maarten as mandated by law for the management of all private pension funds.

This year Vidanova celebrated its 45th anniversary. In light of this milestone, Business Magazine interviewed executive director, Rafael Pichardo. Pichardo became involved with Vidanova in 1986 and was appointed as executive director in 1997. Since then, the company has grown by leaps and bounds, with a fivefold increase in sponsors and a tripling of assets. Vidanova, under the lead of Pichardo, has also contributed significantly to the research and development of the future of pensions on Curaçao and has played an integral role in paving the way towards complete pension reform.

Curaçao Business Magazine (CBM): What would you like the general public to know about Vidanova?

Rafael Pichardo (RP): We are a multi-employer pension fund, which means sponsors in the private sector can join the fund. What we basically do, is we administer pension plans and manage the assets and the liabilities for these companies, which are established on the islands of the former Netherlands Antilles. In 1968, the company started with 8 sponsors, 1 pension plan, just over 400 participants and 4.8 million in assets. This year, Vidanova celebrated its 45th anniversary on April 25th and we now have 12 pension plans, over 4,200 participants, and, up until the first quarter of 2013, our asset base grew to over 750 million. We have also grown tremendously on both a quantitative and qualitative basis in terms of providing better service to our sponsors. In our 45 years we’ve never had underfunding; our funding ratio has always been above 100%. We have had a long-term net fund return of over 7% over that period of time. We have tried to maintain the buying power of our pensioners as high as possible by providing them with indexation. For instance, since 1988 going forward, we have indexed on average 2% per year. We are ISO 9001 certified, a certification for quality management. We have a board in which sponsors and participants have representation under an independent president. We are transparent in what we do and on a yearly basis we provide a report of our performance to both the participants and to the sponsors. We have a total of eight employees and we do all of the internal work of the company ourselves. Of course, we use an independent actuary from the Netherlands for certification and we use Price Waterhouse Coopers as our external auditor. We are very proud of what we have achieved over the 45 years. I can probably say that it’s a remarkable development that has taken place over that time.

CBM: Can anyone open a pension agreement with Vidanova?

RF: We are a foundation that administers collective pension plans. This means that a sponsor with Vidanova can be an organization that collectively consists of two or more individuals. We aren’t allowed to enter into agreements with individuals. An individual can only join the fund if he or she works for an employer who is a sponsor with Vidanova. The sponsor and participants choose the pension arrangement they desire, and we administer it and manage the funds for them.

CBM: In 16 years, the fund grew by leaps and bounds (from 9 sponsors to 48, from 1,800 to over 4,000 participants, a tripling of assets). What do you think is the main contributing factor leading to this growth?

RF: Our consistent, well thought-out policies and consistent management over the years, focusing on the interest of the participants. As a pension fund, the only interest we serve is the interest of our participants. We are exempt from profit tax because we are a pension foundation. We don’t have dividends to pay to any shareholder. Basically, our participants are our shareholders. What we have tried to do over the years is to focus on the interest of the participants, guarantee continuity of the fund and maintain solvency as high as possible. All of our policies have been consistently developed in such a way to guarantee continuity of the pension fund. This has been our focus, both in quantitative and qualitative terms. That is what we have been doing and that is what we have reached until now.

What we have tried to do over the years is to focus on the interest of the participants, guarantee continuity of the fund and maintain solvency as high as possible.

CBM: You mentioned that in 2008, Vidanova took the initiative to set up a report to address the concerns regarding the pension system in our country, particularly the effects of aging and the financial viability of the system. What has Vidanova done to help the government set up a better plan and how can Vidanova continue to help the government in the future?

RF: As a corporate citizen, we formed a commission, together with the Chamber of Commerce, the Association of Industries (Vereniging Bedrijfsleven Curaçao) and other professionals to analyze the pension system in the Netherlands Antilles at that time. Analyzing the statistics going forward, it’s evident that our country is aging at a tremendous pace, but we aren’t growing enough to compensate for it. Based on the Central Bureau of Statistics, in 2030 around 28% or nearly one third of our population will be over 60 years old. Besides that, our population isn’t growing. Since 2004, our fertility rate for women is 1.9, which means that a couple isn’t replacing itself anymore. By 2030, it is assumed that the population of Curaçao will be around the same that it is now, approximately 150,000 people.
Currently, our pension system is comprised of three pillars. The basic pillar is our social security, the AOV. The AOV is financed through a pay-as-you-go system, which basically means that those who are working today are paying the premiums that fund the pensions that are being paid today. The second pillar is the company pension plan, for example, the collective pension plans we (Vidanova) administer. Those two combined can reach a maximum of 70% of a person’s last earned salary over a full built-up period of at least 35 years. That’s the fiscal limit allowed on Curaçao. When the AOV system started in 1960, there were around seven employees paying the pension premium per one pensioner. At that time, the retirement age was 65 years. By 2030, it is predicted that we will have just two employees paying the pension premium for one pensioner. This will be a very big problem. To give an example, let’s say that Curaçao consists of 10 people. One of those 10 retires and receives 9,000 guilders as an AOV pension. That means the 9,000 guilders has to be paid by the 9 employees who are working today, so 1,000 guilders each. In three years, three more employees retire, all receiving AOV pensions of 9,000 guilders. Now, instead of nine divided by 9,000, the six employees who are left working have to contribute a total of 36,000 for AOV pensions, or 6,000 each instead of 1,000 each when the ratio was one pensioner to nine employees. Imagine what will happen in 2030 when you have two employees who have to support one pensioner. That’s something impossible to sustain.
Another issue is health care. Research has shown that people over 60 years old, on a relative basis, assume much more health care costs than a healthy person of 30 years. The comparison is one healthy person of 30 years consumes around 30-40% while one person of 60 years or older consumes around 280%, on a relative basis. Therefore, in 2030 we will have two problems. The whole AOV system and its financing base, which we currently have, will not be sustainable anymore because you don’t have enough people to fund it, and on the other hand you will have a huge problem with costs in health care. If 30% of your population is over 60, how are we going to pay the expected increase in health care costs?
On top of it all, people are living longer. In 1960 a pension was probably paid out over a 10-year span. Today you have to plan to pay out a pension for 20 years or more.
Curaçao needs a population policy because we have to grow. The Chamber of Commerce has already suggested to the government many times that we have to grow from 150,000 to 300,000, but in order to be able to do that, we need to have economic growth. Economic growth is the basis for more employment, more economic activity, more money coming in from sources like taxes, etc.
You can imagine the dire situation we will have by 2030 if changes aren’t made. This is why we analyzed the whole system and proposed changes to the government, including phasing out the whole AOV system over time and using a mandatory pension system for everyone. So our concern was expressed to the government, we sent a report, we gave presentations, but we can’t implement those changes because it has to go through parliament. Basically, not much was done with the 2008 report. However, last year the government decided to form a commission, of which I was a part, to come up with a mandatory basic pension plan for all the workers who don’t have a second pillar. The commission submitted its report in early January of this year and the government put it in this government program with the intention to introduce it by January 1, 2014. However, it still has to pass parliament. The parliament already passed reform in the health care law on February 1, 2013. In March, they also passed the age increase for the AOV, including premium increases. However, up to now, the economy isn’t improving. We have a problem and we are trying to convince the government that we have to take action because if we don’t, our children and our country will have a big problem to deal with in 2030.

By 2030, it is predicted that we will have just two employees paying the pension premium for one pensioner.

CBM: How can you guarantee when a person reaches retirement age that the money is there? How can the person feel secure?

RF: We are able to make that guarantee because our liabilities are completely financed on a yearly basis. Furthermore, we have consistent policies directed towards continuity. We have to maintain solvency and manage cash flow. Our investment policy is designed to invest the money in such a way so that we can generate the necessary cash flow needed to pay pensions over the lifespan of the retirees, on average for 20 years. We constantly focus on our long-term liabilities and how we are going to cover that. Today the pension world calls that “asset and liability matching” over the years. We do “asset liability management studies” every 5 years. In those studies, based on certain models and assumptions, many scenarios are generated going forward. Out of that study, you get a result on which you base your policies like indexation, premium policies, investment polices and pension policies. What we try to do is set those scenarios and policies in place so we are able to guarantee not only continuity, but also cash flows that we need to be able to pay the pensions over the long term. Our focus is not only looking at today, but also 20 to 30 years going forward. Our actuaries and advisors are involved in making calculations that help us address our policies in such a way that we can guarantee our solvency and continuity over the short and the long term.

Our investment policy is designed to invest the money in such a way so that we can generate the necessary cash flow needed to pay pensions over the lifespan of the retirees, on average for 20 years.

CBM: What do you think about the Chilean pension system? What can be done to implement that? Can Vidanova help implement that pension fund model on Curaçao?

RF: That’s basically the idea (a mandatory, individualized defined contribution pension plan for all workers). It’s in our report that we proposed to the government. As a matter of fact on October 4, 2013, we are hosting a seminar in celebration of Vidanova’s 45 year anniversary where we are inviting speakers from Chile, Columbia, Santo Domingo and the Netherlands who will expressly focus on what we have discussed today and how we can create a sustainable system going forward. In view of the fact that by January 1, 2014 the mandatory pension system will be in effect, we want to invite politicians and others involved to come to the seminar and listen to the Chilean history of 33 years with this type of system, Columbia that has had the system for 10 – 15 years, Santo Domingo that now has 12 years of experience and of course, an expert from the Netherlands. These are international speakers of high standards who have gone through the whole process and can explain the ins and outs of the system.

CBM: Since you started as Executive Director in 1997, what do you believe has had the most substantial positive impact on the fund?

RF: I think you can summarize it in one word: professionalization. We have migrated from a pension administrative status to a professional pension provider that serves sponsors and participants on a total basis, but also improving quality of services, guaranteeing continuity, solvency and all those aspects that are important. So in one word, we have professionalized our pension fund to be able to meet current and future challenges over time. I think that is the most important contribution, on both a qualitative, as well as a quantitative basis. Also, we have been very transparent to our sponsors. As a matter of fact, you can see in our 45 years that we only grew in sponsors and participants and our client loyalty is very good. We measure client satisfaction on a yearly basis. We listen to our sponsors and participants and try to accommodate them as much as possible. We support them with ideas and advice when they have problems and we try to do that consistently. I think that is the main focus and the reason why we are where we are today.

CBM: Is there anything else you would like to add?

RF: Fifty percent of Curaçao’s workers don’t have a second pillar pension. It’s a cultural thing. They need to understand that they are responsible as an individual for their own future, not somebody else. If they understand that, they can be educated on how to reach their material goals with financial planning on a consistent basis. In the past, incomes were lower, so people tended to believe that the money was needed in the present and saving for tomorrow was lower on their list of priorities. The belief of focusing on benefits now rather than focusing on benefits later has been a part of our culture for many years. It’s part of our way of thinking that has to change. People have to understand that we cannot rely on government or anyone else. We have to rely primarily on ourselves. The government has to create conditions to facilitate that, but we cannot put the government as the responsible entity for our retirement. That is my concern and the self-reliance aspect of pensions and retirement should be promoted more.

CBM: You are retiring the end of this year (2013). What are your plans after retirement?

I come from a human resource background and worked in that field for over 20 years before I became involved in pensions. I think the most important thing is to manage your time productively. I have worked consistently for nearly 38 years. I always tell people that if you see your lifespan, starting at 4 years old, you start going to school and get into a routine – wake up early, go to school, etc. When you finish school, you continue in that same routine when you start working. By the time you retire, you have had a constant routine for nearly 56 years. Managing the time that becomes available to you when you retire in a productive way is the most important but also scary thing, because if you sit around and watch television all day and do nothing, you will basically have a problem with your mental development. You won’t be productive and I think it will affect you very rapidly if you don’t do something about it. So, I’ve been focusing on what I want to do. I’ve made a list of things I can do as a professional, hobbies I want to pursue, and other contributions as a corporate citizen, in my leisure time, etc. I’m prioritizing these and will pursue them as much as possible. I want to do things differently, but on my terms. I don’t want to have the same routine anymore and I want to be able to manage my time in the way that I think is best for me.

For more information, you can go to Vidanova’s website
at www.vidanova.net.