Pension Scheme of European Officials (PSEO)

Transcription

1 Eurostat Unit C3 - Statistics for administrative purposes Luxembourg, 28 June 2013 Meeting of the Working Group on Article 83 of the Staff Regulations Luxembourg, 28 June 2013, 9:30 a.m., Jean Monnet building, room M4 Pension Scheme of European Officials (PSEO) Actuarial assumptions used in the assessment at Item 6.1 of the agenda

2 Table of contents 1 Introduction Summary of main variables Impact of changes to inputs used in the calculation of the contribution rate Discount rate General salary growth (GSG) Individual salary progression (ISP) Turnover Invalidity table Life table of healthy persons Life table of invalids Assumed retirement age Average age difference between men and women Probability of being married for men and women Loading factor for orphan's and survivor spouse's pension Conclusions

3 1 Introduction This document provides an overview of the actuarial assumptions and methodological choices related to the actuarial assessment of the PSEO at It thus constitutes a complementary information source with regard to document in item 6.2: "PSEO Actuarial assessment at Provisional results" (Doc Art83_06). Indications about the updating of some actuarial assumptions are given in articles 9 to 12 in Annex XII of Staff Regulations (SR) while rules are not clearly fixed for other assumptions. The life table (2008 ICSLT) and the average retirement age have to stay unchanged till the five-yearly actuarial assessment in Finally, the frequency of changes is not defined for assumptions like the individual salary progression (ISP), the invalidity table, the age difference by gender, the marital status, the probability to be married: those assumptions are updated according to the best actuarial practices. 2

4 2 Summary of main variables Table I (main parameters from the SR) and Table II (actuarial assumptions) present a not exhaustive overview of the main variables used in the assessment of the PSEO at Please refer to the Staff Regulations and its annexes for further detailed information. Table I Parameters used in the actuarial assessment at Legal source Parameter Value Staff Regulations in force from Reference date for the population (Annex XII Article 1) Maximum official retirement age (Staff Regulations Article 52) Minimum official retirement age (Staff Regulations Article 52 and Annex XIII Article 22) Minimum age for early retirement (Staff Regulations Article 52, Annex VIII Article 9 and Annex XIII Article 23) Category and grade for the minimum subsistence figure (Annex VIII Article 6) Maximum retirement pension (Staff Regulations Article 77) Annual accrual rate (Article 77 of the Staff Regulations and Article 21 of Annex XIII) Bonus for officials in service after the normal retirement age (Annex VIII Article 5 and Annex XIII Article 22) Minimum retirement pension (Staff Regulations Article 77) Invalidity allowance (Staff Regulations Article 78) 65 (67 on an exceptional basis) 63, or before for officials in service before , or before for officials in service before first step of grade 1 70% of the basic salary at the retirement date 1.9%, or 2% for officials recruited before Barcelona incentive 4% of the minimum subsistence figure per year of service 70% of the basic salary Minimum invalidity allowance (Staff Regulations Article 78) Reversion pension (Staff Regulations Article 79 and Annex VIII Article 18) Minimum reversionary pension (Staff Regulations Article 79 and Annex VIII Article 18) Survivor's pension (Staff Regulations Article 79 and Annex VIII Article 17) Minimum survivor's pension (Staff Regulations Article 79) 100% of the minimum subsistence figure 60% of the retirement pension 35% of the last basic salary 60% of the retirement pension that would have been payable to the official 35% of the last basic salary or minimum subsistence figure Parameters above constitute a synthesis of the pension scheme benefits defined in the SR. These parameters remain the same as those used in previous yearly assessments because a new version of the SR has not yet been adopted. In addition to parameters above, a set of assumptions are used on actuarial calculations. These assumptions need to be updated to take account of the demographic and economic evolution. The SR defines the frequency and way some of these assumptions need to be updated (life table, assumed retirement age). The table below summarises the assumptions used in the present pension assessment. 3

5 Table II Actuarial assumptions used in the actuarial assessment at Item Value Adjustment frequency Observation years Economical assumptions Salary grid In force from y 1y Real discount rate (RDR) 3.2% 1y 30y (1) General salary growth (GSG) -0.3% 1y 30y (1) General pension revaluation (GPR) (equal to GSG) -0.3% 1y 30y (1) Individual salary progression (ISP) 2013 ISP Table 5y 10y (2) Coefficient for orphan's and divorced spouse's pension Annex VIII coefficient (correction coefficient) 10% 5y 5y 0.0% - - Demographic assumptions Mortality table (healthy people) 2013 ICSLT 5y 5y Mortality table (Invalids) 2013 ICSLT + 3 years old 5y 5y Invalidity table 2013 EU Invalidity Table 5y 5y Current marital status Status at evaluation date - - Probability of men being married at retirement age Probability of women being married at retirement age Average age difference between an official and his / her partner 81% 5y 5y 49% 5y 5y 2 years 5y 5y Assumed retirement age 63 to 64 5y 5y Turnover 2013 T1 and T2 tables 5y 5y (1) Depending on the yearly data availability. 22 years are available at (2) Depending on the yearly data availability and changes on seniority step advancement and promotion rules. 8 years are available at

6 Table III Comparison of actuarial assumptions used for the PSEO assessments at and Item Assessment Economical assumptions Salary grid In force from In force from Real discount rate (RDR) 2.6% 3.2% General salary growth (GSG) -0.2% -0.3% General pension revaluation (GPR) (equal to GSG) -0,2% -0.3% Individual salary progression (ISP) 2012 ISP Table 2013 ISP Table Coefficient for orphan's and divorced spouse's pension Annex VIII coefficient (correction coefficient) 10% 10% 0.0% 0.0% Demographic assumptions Mortality table (healthy people) 2008 ICSLT 2013 ICSLT Mortality table (Invalids) 2008 ICSLT + 3 years old 2013 ICSLT + 3 years old Invalidity table 2012 EU Invalidity Table 2013 EU Invalidity Table Current marital status status at evaluation date Status at evaluation date Probability of men being married at retirement age Probability of women being married at retirement age Average age difference between an official and his / her partner 84% 81% 38% 49% 3 years 2 years Assumed retirement age 63 to to 64 Turnover 2012 T1 and T2 tables 2013 T1 and T2 tables 5

7 3 Impact of changes to inputs used in the calculation of the contribution rate The yearly change in the calculated contribution rate is explained by the combined effect of changes in population, assumptions and methodology. The yearly change amounts to %: the present assessment produces a figure of 8.9% compared to 9.9% in the assessment at ), change mainly explained by the RDR increase (+0.6%) and GSG decreases (-0.1%) and the use of updated Invalidity table and Life Table. Table IV summarises the impact of these changes. Further details about assumptions used are given in the next paragraphs. Table IV Explanation of the yearly change in the calculated pension contribution rates at and Items Remark Change breakdown Change in assumptions Population at and assumptions 2012 instead of RDR - Assumptions 2013 but RDR GSG - Assumptions 2013 but GSG ISP - Assumptions 2013 but ISP Mortality - Assumptions 2013 but Mortality Invalidity - Assumptions 2013 but Invalidity Turnover - Assumptions 2013 but Turnover Difference age male/female - Prob Marriage Changes in population and other changes - Assumptions 2013 but DiffAge Assumptions 2013 but Prob Marriage Total change

8 4 Discount rate Annex XII, article 10 of the Staff Regulations specifies that: 1. The interest rates to be taken into consideration for the actuarial calculations shall be based on the observed average annual interest rates on the long-term public debt of Member States as published by the Commission. An appropriate consumer price index shall be used to calculate the corresponding interest rate net of inflation as needed for the actuarial calculations. 2. The effective annual rate to be taken into consideration for the actuarial calculations shall be the average of the real average interest rates for the 12 years preceding the current year. Article 10 of the Annex XII, expires on 30 June 2013 compliant with article 14 of the Annex XII. On the other hand the calculated contribution rate is supposed to be applied since 1 July Best actuarial practices suggest enlarging the periods of observations for the calculation of the interest rate to be used in actuarial calculations: thus Eurostat will base the RDR on a moving average of 30 yearly interest rates. An average of real discount rates (RDR) from 1991 until 2012 (22 years) is being used in the PSEO assessment at as the 1982 to 1990 interest rates are not available). Nominal discount rate (NDR): 6%. This figure is the 1991 to 2012 average of nominal rates for euro area zero-coupon (government bonds) with a maturity of 21 years, 21 years being the duration of the scheme. Inflation rate (IR): 2.6%. This is the 1991 to 2012 average of the EU HICP consumer price index. Real discount rate (RDR): 3.2%. It is the 1991 to 2012 average of the real discount rates. The yearly RDR is calculated as [(1+NDR)/(1+IR)]-1. 7

9 Table V. Real discount rate (RDR) Nominal rate (NDR) Inflationrate (IR) Real discount rate (RDR) Year (1) (2) (3) Average 22 years (1) (2) (3) (4) (5) Till 1998: long-term government borrow ing rates. Since 1999: Euro zero-coupon government bond curve w ith a maturity of 21 years. Till 1998: National Accounts private consumption deflator. Since 1999: Harmonised Index of Consumer Prices (HICP). The follow ing formula is used: RDR = (1+NDR)/(1+IR)-1 rounded to 1 decimal Nominal rate estimated by Eurostat (data not available at ECB) Provisional Inflation rate. The final rate w ill be available by the end of February 2009 (no The 0.6% increase of the RDR (3.2% used in this assessment instead of 2.6% used in the assessment at ) makes the contribution rate decrease by 1.5% percentage points, assumed stable the other assumptions. 8

10 Rates Art83WG meeting Graph I. NDR, IR and RDR rates from 1991 to NDR 10.0 IR RDR ACTION: Due to the expire of article 10 of Annex XII of the SR on 30 June, applied the best actuarial practices and taken into account data availability, a moving average up to 30 yearly interest rates will be used for the computation of the RDR. A 3.2% RDR (based on 22 yearly interest rates) will be used in the PSEO assessment at General salary growth (GSG) As for the discount rate, Annex XII gives specific rules to calculate the General Salary Growth (GSG). Article 11 says on the one hand that the annual change in salary scales to be used for the actuarial calculations shall be based on the Specific Indicator (SI) 1 and, on the other hand, that the effective annual rate shall be the average of the net SI applied for the 12 years preceding the current year. Annex XII, article 11 expires on 30 June 2013 according to Article 14 of the Annex XII while the calculated contribution rate is supposed to be applied since 1 July In the other hand, to be consistent with the RDR proposal, Eurostat will base the GSG on a moving average of 30 SI. Thus an average of GSG from 1991 until 2012 (22 years) is being used in the PSEO assessment at The Specific Indicator (SI) measures the changes in the purchasing power of salaries of national civil servants in central government. It is implemented according to Annex XI of the Staff Regulations. 9

11 In 2011 the European Commission proposed an adjustment of 1.7% for salaries and pensions effective from 1 July : however by decision of 19 December 2011 (2011/866/EU), the Council decided not to adopt the Commission's proposal 3. The consequent non adjustment of salaries in 2011, combined with the 3.6% inflation rate (BII), led to a 2011 implicit applied SI of -3.5%, (96.5 x = 1.000). In 2012 the European Commission proposed an adjustment of 1.7% (same as in 2011) for salaries and pensions effective from 1 July : however the Council has not yet adopted the Commission's proposal. The consequent non adjustment of salaries in 2012, combined with the 2.8% inflation rate (BII), led to a 2012 implicit applied SI of -2.7%, (97.3 x = 1.000). Being the net SI applied in 2011 and 2012 respectively -3.5% and -2.7%, the GSG 22- years (1991 to 2012) moving geometric average amounts to -0.3%.. Table VI. General Salary Growth based on implicit 2011 and 2012 SI Year SI Average 22 years -0.3 The 0.1% GSG decrease (-0.3% used in the assessment at instead of -0.2% used in the assessment at ) leads to a 0.2% contribution rate decrease, 2 The 2011 proposal for adjusting salaries and pensions of EU officials was the result of a 1.8% Specific Indicator (SI) and of a 3.6%.inflation index (Brussels International Index (BII)) /866/EU: Council Decision of 19 December 2011 concerning the Commission s proposal for a Council Regulation adjusting with the effect from 1 July 2011 the remuneration and pension of the officials and other servants of the European Union and the correction coefficients applied thereto. 4 The 2012 proposal for adjusting salaries and pensions of EU officials was the result of a -1.1% Specific Indicator (SI) and of a 2.8%.inflation index (Brussels International Index (BII)) 10

12 assumed stable the other assumptions: the calculated pension contribution rate amounts to 8.9%. Had the Council adopted the European Commission proposals on 2011 and 2012 adjustment of salaries and pensions with effect respectively from 1 July 2011 and 1 July 2012, the pension contribution rate would have been 9.3% due to the application of the SI and GSG detailed in Table VII: 2011 SI = -1.8% and 2012 SI = -1.1% ; 22 years GSG = -0.1% (see table VII below); Table VII. General Salary Growth based on the calculated 1991 and 2012 SI Year SI Average 22 years

13 Rates % Art83WG meeting Graph II shows that the yearly SI is quite volatile while the GSG (22 years moving average of ISP) is very stable close to 0%. Graph II. Yearly SI and GSG (22 years moving average of ISP) SI 22y average -4.0 ACTION: Due to the expire of article 11 of Annex XII of the SR on 30 June and taking account of best actuarial practices and data availability, a moving average up to 30 SI will be used on computation of the GSG. A -0.3% GSG (based on 22 applied SI) will be used on the assessment at Should the Council approve retroactive salary increases from 1 st July 2011 and from 1 st July 2012, a -0.1% GSG (instead of -0.3%) will be used in computation. 6 Individual salary progression (ISP) The Individual Salary Progression (ISP) refers to the salary increase due to the career advancement of EU officials, i.e. promotions and seniority steps. The ISP has an impact on the contribution rate much lower than the RDR and GSG ones. With the introduction of the new Staff Regulations on , the career progression of EU officials has been completely reviewed. Annex XIII of these Staff Regulations includes transitional measures which made the determination of this assumption quite complicated. 12

14 The active population is divided into homogeneous groups according to their characteristics: 1. Officials recruited before Officials recruited from onwards 3. Temporary Agents 4. Contract Agents 5. Parliamentary Assistants Table VIII. Weight of the active population by ISP group at ISP Group 1 Officials recruited before Officials recruited from onwards 3 Temporary Agent 4 Contract Agent 5 Parliamentary Assistant Weight 38% 27% 16% 17% 2% Total 100.0% ISP rates of Officials ISP rates to be applied to officials (ISP groups 1 and 2) have been updated to take account of the observed promotion rates from 2005 to 2012 (according to the methodology agreed at the June 2006 Art83WG meeting). Thus the promotion rate to be used in the 2013 ISP calculation is the mean of the theoretical promotion rates and the observed promotion rates from 2005 to 2012 (see table IX). 13

15 Table IX. Promotion rates used in the officials' ISP rate Category and Grade Promotion rate Theoretical promotion rates (2) Observed promotion rates (3) (average) (1) AD 16 0% (x) 0% 0% 0% 0% 0% 0% 0% 0% AD 15 2% (x) 3% 4% 4% 1% 2% 4% 1% 0% AD 14 4% (x) 3% 3% 3% 3% 5% 4% 4% 4.00% AD 13 8% 20% 8% 8% 11% 11% 8% 5% 1% 0.00% AD 12 15% 25% 25% 25% 19% 14% 10% 5% 5% 4% AD 11 25% 25% 32% 45% 30% 26% 25% 16% 15% 15% AD 10 27% 25% 19% 14% 11% 46% 48% 36% 29% 19% AD 09 19% 25% 32% 33% 29% 30% 11% 4% 1% 6% AD 08 31% 33% 30% 21% 22% 36% 53% 35% 31% 20% AD 07 27% 33% 31% 32% 35% 25% 12% 20% 30% 22% AD 06 24% 33% 36% 35% 32% 23% 30% 20% 6% 0% AD 05 24% 33% 40% 37% 28% 21% 34% 16% 8% 0% AST 11 0% (x) 0% 0% 0% 0% 0% 1% 0% 0% AST 10 15% 20% 23% 22% 22% 15% 12% 7% 7% 6% AST 09 9% 20% 17% 14% 13% 13% 2% 3% 0% 0% AST 08 21% 25% 25% 28% 21% 23% 22% 17% 16% 15% AST 07 20% 25% 23% 20% 17% 23% 21% 16% 17% 19% AST 06 20% 20% 22% 25% 28% 25% 25% 13% 12% 11% AST 05 22% 22% 23% 25% 22% 22% 24% 19% 20% 20% AST 04 24% 22% 32% 31% 26% 27% 23% 18% 21% 20% AST 03 29% 24% 33% 28% 37% 40% 28% 23% 20% 26% AST 02 32% 24% 35% 38% 30% 13% 20% 51% 44% 34% AST 01 24% 20% 42% 46% 33% 24% 32% 13% 5% 5% (1) Moving average in accordance w ith the decision of the Art83 Working Group' at its meeting (2) Theoretical rate based on Annexes IB and XIII (Articles 9 and 10) of the Staff Regulations administrative notices number concerning the 2005 promotion exercise and on (3) A promotion is observed w hen the grade in a year (N) is higher than in the previous year (N-1) (x) No theoretical rate (x) have been calculated The 2012 ISP rates by grade and step and the number of years to retirement have been updated for the PSEO assessment at Officials ISP rates Two global ISP rates (individual ISP rates weighted by population) of 1.6% and 2.0% have been respectively calculated for: officials recruited before ; officials recruited from onwards. These rates are calculated for publication purposes only, the single rates by grade and years to retirement are used in computations. Temporary Agents ISP rates An ISP rate of 1.6% is used in the PSEO assessment at (same rate as for the PSEO assessment at ). Contract Agents ISP rates An ISP rate of 1.0% is used in the PSEO assessment at (same rate as for the assessment at ) 14

16 Parliamentary Assistants ISP rates A 0% ISP is applied to this new category since no seniority steps and promotions are envisaged in the Council Regulation (EC) No 160/2009. Impact of the ISP rates change on the pension contribution rate Table below shows the ISP rates used in 2011 and 2012 assessments: Table X. Average ISP rates by population group ISP groups Average ISP rate by group Change 1 Officials recruited before % 1.6% 0.4% 2 Officials recruited from onwards 1.3% 2.0% 0.7% 3 Temporary agents 1.6% 1.6% 0.0% 4 Contract agents 1.0% 1.0% 0.0% 5 PA. Fixed contract. Art % 0.0% 0.0% The 2013 update of this assumption had a negligible impact in the pension contribution rate. The ISP, which is based on the average of observed promotions from 2004 to 2012, revealed to be a quite stable assumption. Furthermore compared to the RDR and GSG, the ISP impact on the pension contribution rate is really small. As a consequence, it is proposed to agree on a five-yearly update of the ISP assumption and on funding its computation on the promotions observed in the 12 preceding years (same period as for the GSG). ACTION: The updated 2013 ISP rates will be used in the PSEO assessment at This assumption will be updated on the occasion of the 5 years assessment or before this deadline in case of relevant SR amendments. This assumption will be based on promotions observed in the 10 preceding years or less in case of recent modifications to the SR. 15

17 7 Turnover Turnover definition Turnover takes account of the fact that active PSEO members (Officials, Temporary Agents, Contract Agents and Parliamentary Assistants) might terminate their activity one day for one reason or another, and thus leave the PSEO pension scheme. For more accurate computations, we distinguish two types of turnover: Turnover due to end of contract validity (T1). Turnover due to voluntary and unexpected losses (T2). (This mainly concerns resignation before the end of a contract, dismissal for incompetence and disappearance.) Contract types According to the Staff Regulations and Conditions of employment of other servants of the European Communities, active staff is recruited to work in the institution for a definite or indefinite period of time. Some fixed-period contracts can be renewed once or more times for a fixed or even for an indefinite period. To compute turnover due to end of contract validity (T1), the active PSEO population has been classified according to the contract types shown in Table XI: Table XI. Contract types Contract Explanation Type AI1 Indefinite contractual link applicable to permanent officials Fixed period contract according to Article 8 of "Conditions of employment of other servants", applicable to Temporary Staff who were engaged to fill a post according to BF1 Article 2 (a). One-time renewable contract for a maximum initial period of 4 years, renewable once for an additional period of 2 years. Any further renewal should be for an indefinite period Fixed period contract according to Article 8 of "Conditions of employment of other servants", applicable to Temporary Staff who were engaged to fill a post according to BF2 Article 2 (b). Maximum initial period will not exceed 4 years. Fixed contract for a maximum period of 4 years, renewable once for an additional period of 2 years Fixed period contract according to Article 8 of "Conditions of employment of other servants", applicable to Temporary Staff who were engaged to fill a post according to BF3 Article 2 (d). Maximum initial period will not exceed 4 years. Fixed contract for a maximum period of 4 years, renewable once for an additional period of 2 years BI1 BI2 DF1 DF2 DI1 EF1 Indefinite period contract following a fixed period contract under Article 2(a) according to Article 8 of "Conditions of employment of other servants", applicable to Temporary Staff Indefinite period contract according to Article 8 of Condition of employment of other servants, applicable to Temporary Staff engaged according to Article 2 Fixed period contract according to Article 85 of "Conditions of employment of other servants", applicable to Contract Staff who were engaged to fill a post according to Article 3a. Contract for a maximun period of 5 years, renewable once for a fixed period of not more than 5 additional years. Fixed period contract according to Article 88 of "Conditions of employment of other servants", applicable to Contract Staff who were engaged to fill a post according to Article 3b. Renewable contract with the limit of a total duration of 3 years Indefinite period contract following a fixed period contract according to Article 85 of "Conditions of employment of other servants", for Contract Staff who were engaged to fill a post according to Article 3a. Fixed period contract according to Article 130 of "Conditions of employment of other servants", applicable to Accredited Parlamentary Assistans. Two times renewable contract not exceding the the end of the corresponding parliamentary term 16

18 T1. Turnover due to the contract expiration Two assumptions have been defined: the ratio of indefinite contracts to fixed-length contracts; the average duration of contracts (in years). Table XII shows the rates of both assumptions above by contract type, based on observations made. Table XII. T1 rates by contract types Contract Types T1 (end of contract) Contract F2I (CDI / CDD) Duration Average 1 2 AI1 FP. Contract with indefinite duration (2) BF1 TA. Fixed term contract. Art 8 and Art 2 (a) 5.4 BF2 TA. Fixed term contract. Art 8 and Art 2 (b) 5.2 BF3 TA. Fixed term contract. Art 8 and Art 2 (d) 5.6 BI1 TA. Contract with indefinite duration. Art 8 and Art 2 (a) 0.27 (2) BI2 TA. Contract with indefinite duration. Art 8 and Art 2 (c) (2) DF1 CA. Fixed term contract. Art 85 and Art 3a 8.2 DF2 CA. Fixed term contract. Art 88 and Art 3b 2.7 DI1 CA. Contract with indefinite duration. Art 85 and Art 3a 0.08 (2) EF1 PA. Fixed term contract. Art Column 1: Fix contracts became Indefinite at the end of the fix period (e.g. BI1 compared to total contracts (BF1 + BI1)) Column 2: Contract duration is limited to 35 in indefinite contracts (AI1, BI1, BI2 and DI1) (2): Non applicable to indefinite contracts (3) Turnover 2. Turnover due to reasons other than decease, retirement, invalidity and T1 (end of contract) T2. Turnover due to voluntary and unexpected losses. The number of active staff who left institutions due to resignation, dismissal for incompetence and disappearance in the year N has been compared to the active population in the year N-1 to obtain the yearly T2 by contract type. The rate to be used in the PSEO actuarial calculation has been computed as the average of the observed losses in the last five years (2008 to 2012) compared to active staff from 2007 to

19 Table XIII. T2 rates by contract types Contract Types T2 (other cause) 3 AI1 FP. Contract with indefinite duration BF1 TA. Fixed term contract. Art 8 and Art 2 (a) BF2 TA. Fixed term contract. Art 8 and Art 2 (b) BF3 TA. Fixed term contract. Art 8 and Art 2 (d) BI1 TA. Contract with indefinite duration. Art 8 and Art 2 (a) BI2 TA. Contract with indefinite duration. Art 8 and Art 2 (c) DF1 CA. Fixed term contract. Art 85 and Art 3a DF2 CA. Fixed term contract. Art 88 and Art 3b DI1 CA. Contract with indefinite duration. Art 85 and Art 3a EF1 PA. Fixed term contract. Art T1 and T2 turnover rates changes had a very low impact in the PSEO assessment at (-0.1%) on the pension contribution rate. T1 and T2 are quite stable assumptions and their impact on the pension contribution rate is very limited. It is thus proposed to agree on a five-yearly update of the Turnover assumption and on funding its calculation on the observed turnover in the 5 preceding years. ACTION: The updated T1 and T2 rates detailed above will be used for the PSEO assessment at This assumption will be updated on the occasion of the 5 years assessment and be based on turnover observation in the 5 preceding years. 8 Invalidity table A first invalidity table (2004-EU Invalidity table) was used in the 2004 assessment. According to the decision taken at the 26 th June 2007 meeting of the Art83 Working Group, this table must be yearly updated to reflect the evolution of beneficiaries of an invalidity allowance (new category of population created by the new Staff Regulation in force from the 1 st May 2004). A 5-years moving average of invalidity observations is used. 18

20 Table XVII. Invalids from 2008 to 2012 Year Invalides Total 499 Table XIV EU Invalidity table Unisex version (extract) Age x Invalidity probabilities of becoming invalid at age x q' x The use of the updated Invalidity table (2013 Invalidity Table) has a low impact on the pension contribution rate (-0.2%). Invalidity is a quite stable assumption and its impact of changes in the pension contribution rate is small. It is thus proposed to agree on a five-yearly update of the Invalidity assumption and to fund its computation on the number of disabilities observed in the 5 preceding years. ACTION: The new 2013 Invalidity table will be used in the assessment at This assumption will be updated on the occasion of the 5 years assessments and be based on invalidity observation in the 5 preceding years. 19

21 9 Life table of healthy persons The life table was initially updated the year of entry force of the current SR (EU-2004 life table). In accordance with Annex XII of the SR and the decision taken at the meeting of the Article 83 Working Group, a second update of the life table occurred on the occasion of the first five years assessment (life table known as ICSLT2008), This year, the table is being updated again in collaboration with several international institutions based in Europa OECD, EC (Eurostat), BEI, OHIM, and Eurocontrol to produce a new Life Table denominated ICSLT2013. Without prejudice of the final result of the inter-institutional update process, Eurostat has provisionally updated the life table to be used in the present provisional assessment of the PSEO: this provisional update (ICSLT2013Prov) is based on the mortality observed in the EU Institutions and agencies only as the data related to some of the other international institutional above mentioned are not yet available. The use of the ICSLT2013Prov makes the pension contribution rate increase by 0.5% if other assumptions remain unchanged. This increase is explained by the increase of the life expectancy and the inclusion of a future life expectancy trend: this involves moving from a periodic (static) life table to a prospective (dynamic) one. However it is useful to clarify that this provisional version of the ICSLT will be replaced by the final one once available. XV. Extract of the ICSLT2013Provisional (extract from 1 st year) Age Dying probability Men Life expectancy Dying probability Women Life expectancy x, y q x e x q y e y

22 Table XVI shows life expectancy from the ICSLT2013Provisional is a little higher than in the ICSLT2008 as the death probabilities are generally lower. XVI. Change in life expectancy (ICSLT ICSLT2013Provisional comparison) Age Probability of death Men Life expectancy Probability of death Women Life expectancy x, y qx ex qy ey ACTION: The 2013 ICSLT Provisional will be used in the PSEO assessment at This life table will be replaced by the final ICSLT2013 once available. The Life Table assumption will be updated on the occasion of the 5 years assessments and be based on mortality observed in the 5 preceding years 10 Life table of invalids The Life table of invalids will be based on the ICSLT2013. A mortality rate corresponding to a healthy person 3 years older than the invalid must be applied to the invalid population. This approach was implemented for the first time in the 2008 assessment (decision taken in the meeting of the Article 83 WG) and used since then till the current assessment. No impact on the pension contribution has been observed as the same practice was used in the PSEO assessment at ACTION: No change is proposed. A mortality rate corresponding to a healthy person 3 years older than the invalid will be applied to the invalid population. This assumption will be updated on the occasion of the 5 years assessments and be based on mortality observed in the 5 precedent years. 21

23 11 Assumed retirement age The average retirement age, also named assumed retirement age, is used in the context of actuarial calculations as defined in Annex XII of Staff Regulations. Eurostat fixed it at 63 or 64 years according to the official's age, status and years of service at 30 April 2004 (see details in table XVIII below). This methodological approach was presented at the June 2004 meeting of the Article 83 Working Group. Table XVII can be revised on the occasion of the five-yearly actuarial PSEO assessment. More precisely, the Article 4(3) of Annex XII stipulates that: It is assumed that all retirements (except for invalidity) will occur at a fixed average age (r). The average retirement age shall be updated only on the occasion of the five-yearly actuarial assessment referred to in Article 1 of this Annex and may be different for different groups of staff. The following groups of active staff were defined by Eurostat to implement the parts of Annex XII to the Staff Regulations, concerning retirement age and the Barcelona incentive (BI): Table XVII Staff groups for retirement age and BI implementation Staff groups Old or New staff (New staff joined EU institutions after ) Legal base Official age and pensionable years according to Annex XIII Official age as at Link of conditions Pensionable years Group 1 Old staff Old SR (Old SR were applied till ) Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Old staff Old staff Old staff Old staff Old staff New Staff Annex XIII of new SR Annex XIII of new SR Annex XIII of new SR Annex XIII of new SR Annex XIII of new SR SR in force from >= 50 years old or years old and years old and years old and < 30 years old and (Annex XIII is not applicable) >= 20 years of service < 20 years of service < 20 years of service < 20 years of service < 20 years of service Table XVIII shows the annual accrual rate for pension, the Barcelona incentive (BI), the normal retirement age and the assumed retirement age for the staff groups above used in 2004 to 2013 pension assessments. 22

24 Table XVIII 2004 Assumed retirement age and BI by age group of officials Staff group (age and years of service as at ) Annual accrual rate Barcelona incentive Barcelona incentive maximum Normal retirement age Assumed retirement age (4) (1) (2) (3) Actives Invalids Group 1 Old Staff Regulations 2.00% (5) >= 50 years old or >= Group % years of service Group 3 Group 4 Group 5 Group 6 Group years old and < 20 years of service years old and < 20 years of service years old and < 20 years of service < 30 years old and < 20 years of service New officials (after ) 2.00% 3.00% 4.50% % 2.75% 4.00% % 2.50% 3.50% % 2.00% % 2.00% (1) The Barcelona incentive corresponds to an increase in pension expressed as a percentage of the last basic salary (Article 5 of Annex VIII and Article 22 of Annex XIII). (2) The Barcelona incentive maximum is a percentage of the total pension rights acquired by an official at the age of 60 (Article 5 of Annex VIII and Article 22 of Annex XIII). For example, the Barcelona incentive for officials aged between 40 and 49 is 3% of the last basic salary but not exceeding 4.5% of the pension rights acquired by those officials at the age of 60. (3) The age in this column is the simple average of ages from the table detailed in Article 22 of Annex XIII, rounded to entire year. This average is calculated only to facilitate the presentation in this table. In practice, institutions apply the table detailed in Article 22 of Annex XIII when calculating individual rights. Eurostat does not use this column when calculating the contribution rate for pension; assumed retirement ages detailed in columns (4) are used instead. (4) In accordance with to Article 4.3 of Annex XII, it is assumed that all retirements (except for invalidity) will occur at a fixed average age. This column shows these average ages by staff group, which have been deduced from the observations in accordance with Article 9 of Annex XII. (5) Officials, aged 50 years or over or with 20 or more years service as at 30/04/2004, who remain in service after the normal retirement age are entitled, for each year worked after that age, to an increase in their pension equal to 5% of the amount of the pension rights acquired at the age of 60 (the same premise was applied in the past under the former Staff Regulations).. Please note that pension incentives are based on acquired pension rights in groups 1 and 2 above (Old Staff Regulations), while they are based on the last basic salary for groups 3 to 5 (New Staff Regulations). The assumed retirement ages detailed in the two right columns in the table XVIII were estimated on the occasion of the 2004 pension assessment and were presented at the June 2004 meeting of the Article 83 Working Group. Observation on retirement ages in years 2008 to 2012 confirm these assumed retirement ages correspond to expectation. Thus, they must be used in the present pension assessment. ACTION: No changes in methodology are proposed. The assumed retirement ages detailed in table XVIII will be used for the PSEO assessment at This assumption will be updated (if needed) on the occasion of the 5 years assessments or before this deadline should the SR is amended involving modifications to the retirement legal basis 23

25 12 Average age difference between men and women Observations made on the PSEO population at revealed that official men are 1.9 years older than their partners and official women are 2.6 years younger than their partners. After weighting the figures above to take into account the women and men proportions in the PSEO population, the average age difference between men and women has been set to 2 years (3 years had been used in the assessment at ). This change has no significant impact on the pension contribution rate ACTION: A 2 years difference between men and women ages will be used in the PSEO assessment at This assumption will be updated on the occasion of the 5 years assessments 13 Probability of being married for men and women The probability of being married at retirement has been set to 81% for men and 49% for women. The probabilities used in the 2012 assessment were respectively 0.84 and The change is mainly due to the changes in the PSEO population which probably reflect current social habits. The update of this actuarial assumption has no significant impact on the pension contribution rate ACTION: The updated probabilities of being married at retirement (0.81 for men and 0.49 for women) will be used in the PSEO assessment at This assumption will be updated on the occasion of the 5 years assessments 14 Loading factor for orphan's and survivor spouse's pension Current actuarial practice is to add 10% to a payable reversion pension to allow for the pension payable to orphans after the death of the surviving spouse (or of the official if there is no surviving spouse) and any pension payable to divorced spouses. Eurostat estimates that the impact of this factor on the contribution rate is minor and does not consider an update to this assumption necessary at the present time. ACTION: No action concerning this assumption is proposed. Eurostat proposes to use the same value as in previous years for the actuarial PSEO assessment at

26 15 Conclusions Eurostat checked the actuarial assumptions on the occasion of this second five-yearly pension assessment. Most of these assumptions were updated, some according to the Staff Regulations and some others to reflect observations made. The global impact of these changes, in addition to change in the PSEO population (active staff as at ) is a decrease of 1 percentage point (8.9% is obtained in this assessment instead of 9.9% in the assessment at ). You may refer to the document " Art83_06" for further details. ACTION: The Working Group is invited to give its opinion on Eurostat s proposals and action points above. 25