52007SC1466

[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 6.11.2007

SEC(2007) 1466

COMMISSION STAFF WORKIN G DOCUMENT accompanying document to the

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL on the rate of contribution to the pension scheme of officials and other servants of the European Communities {COM(2007) 684 final}

COMMISSION STAFF WORKING DOCUMENT

Articles 83 and 83a and Annex XII of the Staff Regulations Report on the 2007 actuarial assessment of the Pension Scheme for European Officials (PSEO) Reference date: 31 December 2006 REPORT Eurostat, Unit D-5 Remuneration and Pensions Luxembourg, 1 September 2007

TABLE OF CONTENTS

1. Contribution rate 6

2. Update of the assessment of the actuarial balance 6

3. Analysis of the contribution rate change 6

3.1. Real Discount Rate (RDR) change effect 7

3.2. General Salary Growth (GSG) change effect 7

3.3. ISP change effect 7

3.4. Update of the Invalidity table effect 7

3.5. Population change effect 7

4. Computation system 7

4.1. Variables used in the assessment 7

4.2. Demographic parameters 8

4.2.1. The reference population 8

4.2.2. Other demographic parameters 9

4.3. Economic parameters 9

4.4. Technical implementation of Annex XII to the Staff Regulations 9

4.5. Independent examination 9

5. Annex I – Computation 11

5.1. Relevant figures for calculating the contribution rate 11

5.2. Summary of main variables 13

5.3. Demographic parameters 14

5.3.1. Reference population 14

5.3.2. Assumed retirement age 18

5.3.3. Invalidity table 19

5.3.4. Life table 20

5.4. Economic parameters 22

5.4.1. Real discount rate (RDR) 22

5.4.2. General salary growth (GSG) 23

5.4.3. Individual Salary Progression (ISP) 24

5.5. Annuities 25

6. Annex II – Independent examination 27

7. Annex III – Minutes of the Article 83 Working Group meeting 29

INTRODUCTION

Article 83a and Annex XII of the Staff Regulations set out rules to guarantee the equilibrium of the PSEO (Pension Scheme of European Officials).

Article 83a point 3 stipulates that on the occasion of the five-yearly actuarial assessment in accordance with Annex XII and in order to ensure the balance of the scheme, the Council shall decide on the rate of contribution and any change to the pensionable age. Point 4 stipulates that each year the Commission shall present to the Council an updated version of the actuarial assessment, in accordance with Article 1(2) of Annex XII.

Finally, Article 83a(5) stipulates that for the purposes of paragraphs 3 and 4 of this Article, the Council is to act by a qualified majority on a proposal from the Commission, as provided for in the first indent of Article 205(2) of the EC Treaty. For the purposes of paragraph 3, the Commission's proposal is to be presented after consultation of the Staff Regulations Committee.

Annex XII lays down rules for implementing Article 83a of the Staff Regulations. In particular, it stipulates that:

- Eurostat is the authority responsible for the technical implementation of this Annex (see Article 13(1)),

- Eurostat will be assisted by one or more qualified independent experts in carrying out the actuarial assessments (see Article 13(2)),

- each year on 1 September, Eurostat is to submit a report on the assessment and updating referred to in Article 1 of the Annex (see Article 13(3)),

- any questions of methodology raised by the implementation of this Annex shall be dealt with by Eurostat in cooperation with national experts from the relevant departments of the Member States and the qualified independent expert or experts (see Article 13 (4.)).

Eurostat has drawn up the present report in accordance with the above stated legal requirements. This report sets out the results of the 2007 update of the 2004 actuarial assessment of the pension scheme of the European civil service, based on the population of European officials as at 31.12.2006.

The present report provides the information needed by the Commission to propose, if necessary, changes to the staff contribution rate and to the pensionable age in order to ensure the balance of the scheme.

For any further information concerning this report, please contact Eurostat in Luxembourg:

Eurostat, Unit D-5 SecretariatBECH - B3/304L-2920 Luxembourgtel: (352) 4301-34191

Contribution rate

The provisional 2007 update of the 2004 actuarial assessment of the Pension Scheme for European Officials (PSEO) indicates that, in order to guarantee the equilibrium of the scheme, the contribution rate necessary to finance one third of the benefits payable would be 10.3% of the basic salary (or invalidity allowance).

According to Article 83a of the Staff Regulations, where it is shown that there is a gap of at least 0.25 points between the rate of contribution currently applied (10.25%) and the rate required to maintain actuarial balance ( 10.3% ), the Council shall consider whether the rate should be adapted, in accordance with arrangements laid down in Annex XII.

Consequently, as the gap is less than 0.25 points, the following contribution rate should be applied from 1 July 2007 :

10.25%

The calculated contribution rate indicated above (10.3%) is one third of the ratio between the total of the service cost (895 million Euros) and the total of annual basic salaries (2.895 million Euros) (see Annex I, tables I and II). This rate is lower (- 0.1%) than the one calculated in 2006 (10.4%). This change is analysed in point 4.

UPDATE OF THE ASSESSMENT OF THE ACTUARIAL BALANCE

The PSEO was assessed on the basis of the method set out in Chapter 2 of Annex XII to the Staff Regulations.

Compared to the 2004 assessment, a few minor changes were introduced in the methodology (some formulae were adapted to take some new categories of the population into account, according to the Staff Regulations in force since 01.05.2004). These changes were already applied in the 2006 assessment.

An updated document concerning the calculation methodology is available at Eurostat and can be obtained on request.

In addition, the following elements have been considered in the 2007 assessment:

- The population of contributing members at 31.12.2006,

- The update of the RDR, GSG, ISP and Invalidity rates.

More detail about these updates are given in Annex I

ANALYSIS OF THE CONTRIBUTION RATE CHANGE

As indicated in point 1, the official's pension contribution rate calculated this year (10.3%) has decreased compared to 2006 (10.4%). This decrease (-0.1%) results from the combined effect of changes in the population structure and the main actuarial assumptions. The separate effects of these changes on the contribution rate is not easy to determine due to their interdependency, although analysis of the actuarial assumptions allows a better understanding of the changes in contribution rate and its sensitivity to the various actuarial assumptions.

Real Discount Rate (RDR) change effect

The RDR decrease (3.4% as against 3.6% used in the 2006 calculation). This decrease has an effect of +0.5% on the official's contribution rate. A lower contribution rate (9.8%) would be obtained if the 2006 RDR (3.6%) were used. This test, this year, confirms that the official's contribution rate sensitivity is about 2.5 times the change in the RDR.

General Salary Growth (GSG) change effect

The GSG increase (0.5% as against 0.3% in the 2006 calculation). This increase has an effect of +0.5% on the official's contribution rate. A lower contribution rate (9.8%) would be obtained if the 2006 GSG were used. This test, this year, confirms that the official's contribution rate sensitivity is about 2.5 times the change in the GSG (similar to the RDR)

ISP change effect

The ISP decreased overall in the 2007 valuation (1.6%) compared to 2006 (1.8%). This decrease is more difficult to determine since the global ISP rate is calculated for publication purposes only. In practice, a different ISP rate by grade, step and years to retirement is applicable to officials and temporary agents of agencies and is used in the calculation.

Update of the Invalidity table effect

The pension contribution rate for 2007 would be 0.5% higher (10.8% instead of the 10.3% calculated in the present assessment) if the former 2004 Invalidity table was used instead of the new 2007 EU Invalidity table. The decrease in the probability of becoming invalid according to this new table leads to a decrease in the contribution rate.

Population change effect

The pension contribution rate for 2007 would be 0.2% lower (10.2% instead of the 10.4% calculated in the 2006 assessment) if the 2006 calculation were repeated exactly but for the population used in the 2007 calculation). The demographic impact can thus be estimated to -0.2%. This effect is mainly explained by the fact that new officials have a lower accrual of pension right (1.9% instead of 2%), are younger, are expected to retire later, etc.

COMPUTATION SYSTEM

Variables used in the assessment

In general, two kinds of variables are used in the actuarial calculation:

Parameters. These are values mainly linked to the application of the Staff Regulations. These values change according to certain conditions related to the individual situation of each official (e.g. the annual accrual rate is 1.9% for staff recruited from 01.05.2004 and 2% for those recruited before this date). These values can be clearly established.

Actuarial assumptions. These are values that are not known and cannot be established exactly, such as the invalidity table, the ISP (individual salary progression) table, the probability of being married at the retirement date, the coefficients for orphans and divorced spouses, etc. The values of these actuarial assumptions were estimated according to general actuarial practices and were discussed with national experts from the relevant departments of the Member States at the yearly meetings of Article 83 Working Group.

A summary of the main variables used (parameters and actuarial assumptions) is given in Annex I, tables III and IV.

Demographic parameters

The reference population

The observed population is made up of contributing members of the PSEO including:

- active officials,

- members whose pension contribution is optional (e.g. officials who have taken leave on personal grounds or parental leave)

- invalids who receive invalidity allowance according to Article 78 of the Staff Regulations,

- beneficiaries of an allowance for termination of service.

44 953 contributing members were recorded at 31.12.2006, which represents a net increase of 4 456 participants compared to previous year (40 497 at 31.12.2005 were used in the 2006 actuarial assessment).

This significant increase of the population is mainly explained by the recruitment of "Contractual Agents" (a new category of population defined in the Staff Regulations) and officials and temporary agents from the new Member States.

There are 6 404 "Contractual Agents" among the contributing members at 31.12.2006, as against 3.550 at 31.12.2005, which represents an increase of 80%. Most of these new contributing members are replacing "Auxiliary staff" (a former non-contributing staff category).

A breakdown of the reference population by type of contributing member and by Institution or Agency is included in Annex I, tables V to VIII.

Other demographic parameters

The invalidity table has been updated according to observed invalidity rates in 2004, 2005 and 2006 (2007 EU-Invalidity table), while the life table (2004 EU Life table) and other demographic assumptions remain unchanged.

Economic parameters

According to Articles 10 and 11 of Annex XII to the Staff Regulations, the Real Discount Rate (RDR) and the General Salary Growth (GSG) are calculated (in the 2007 update) as the average of the corresponding rates for the 12 preceding years (see Annex I, points 5.4.1 and 5.4.2 and Tables XII and XIII for more information).

The value of the real discount rate is 3.4% compared to 3.6% used in the 2006 actuarial assessment. The GSG is equal to 0.5% instead of 0.3% used in 2006. Finally, an updated ISP table has been used, which globally represent a decrease of rates ( 1.6 % instead of 1.8%) (See Annex I, point 5.6).

Technical implementation of Annex XII to the Staff Regulations

Technical questions raised by the implementation of Annex XII are dealt with by Eurostat in cooperation with national experts from the relevant departments of the Member States participating in the Working Group on Article 83 of the Staff Regulations. The minutes of the meeting held in Luxembourg on 26 June 2007 (Doc. 20070626_Art83WG _07) are in Annex III.

Eurostat also exchanges relevant information on actuarial issues with international organisations such as the JPAS (Joint Pensions Administrative Section of the Co-ordinated Organisations), EPO (European Patent Office) and Eurocontrol.

Independent examination

According to Annex XII, Article 13, of the Staff Regulations, Eurostat is assisted by a qualified independent expert (Ernst & Young Actuaires-Conseils, 11, allée de l’Arche, 92037 Paris La Défense cedex) with regard to the methodological implementation and to the definition and calculation of the corresponding actuarial assumptions.

Ernst & Young Actuaires-Conseils then conducted an actuarial examination of the contribution rate calculated by Eurostat. This examination consisted in confirming the relevance and reliability of the actuarial processes and assumptions used in accordance with the methodology described in Annex XII to the Staff Regulations.

For the aspects not described explicitly in this annex, Ernst & Young Actuaires-Conseils has checked their compliance with generally accepted actuarial practices. Concerning actuarial assumptions, Ernst & Young Actuaires-Conseils carried out investigations to ensure that the underlying data provided by Eurostat were used correctly.

An extract of the assessment by Ernst & Young Actuaires-Conseils is included in Annex II.

Annexes to the report on the 2007 update of the 2004 actuarial assessment of the Pension Scheme for European Officials (PSEO)

Annex I Computation

Annex II Independent examination

Annex III Minutes of the Working Group on Article 83 of the Staff Regulations

ANNEX I – COMPUTATION

Relevant figures for calculating the contribution rate

Table I Breakdown of the contribution rate

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Table II Service cost and total amount of annual basic salaries

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Graph I Calculated and applied staff contribution rates from 01.01.2004

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Summary of main variables

The following tables show the values of the main parameters (see Table III) and actuarial assumptions (see Table IV). Please note that these tables only present an overview of the main variables and are not exhaustive. Please refer to the Staff Regulations and its annexes for precise and complete information.

Table III Parameters used in the actuarial assessment

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Table IV Actuarial assumptions

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Demographic parameters

Reference population

Annex XII article 1 of the Staff Regulations stipulates that the actuarial assessment shall be carried out in each year n , on the basis of the population of active members of the PSEO at 31 December of the previous year ( n-1 ). On the other hand article 9 of this Annex says that the population of participants in the scheme shall be collected annually by the Commission using information received from the different institutions and agencies whose staff are members of the scheme.

In accordance with the regulations, the reference population is taken to be the staff at 31st December 2006 of the 30 institutions and agencies (26 were recorded at 31 December 2005) whose officials are members of the PSEO.

Table V Institutions and Agencies in the PSEO

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As approved by the Art83 Working Group at its meeting of 7 June 2004, the term “active members of the PSEO” is considered in the wide sense to be synonymous with “contributing members of the PSEO”. Consequently, the reference population includes not only officials in “active employment” but also officials in one of the other administrative statuses set out in Article 35 of the Staff Regulations, plus invalids who receive an invalidity allowance and beneficiaries of an allowance for termination of service.

Personnel data were collected from the NAP[1] (New Application for Pay), PMO[2] and directly from Institutions and Agencies, and imported into the Eurostat database. The data were checked to guarantee a high level of quality. The actuarial assessment is based on the best output from the Eurostat database at the calculation date.

Table VI Reference population by administrative status

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Table VII Reference population by institution or agency

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Graph II Reference population by age

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Table VIII Change in the population of contributing members as at 31.12.2006 compared to the population as at 31.12.2005

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This increase in the population is mainly explained by the recruitment of "Contractual Agents" (a new category of population defined in the Staff Regulations) and officials and temporary agents from the new Member States.

Assumed retirement age

As stipulated in Article 4 of Annex XII to the Staff Regulations, it is assumed that all retirements will occur at a fixed average age ( r ). The average retirement age may be different by group of staff.

Table IX Assumed retirement age and Barcelona incentive by age group of officials

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Invalidity table

The 2004-EU Invalidity table that has been used in the 2004, 2005 and 2006 valuations of the PSEO was based on observations of the beneficiaries of invalidity pension (a category of population defined in the former Staff Regulations) and the invalidity table used in the Co-ordinated Organisations (OECD, NATO, ESA, etc). This invalidity table was presented to the Art83 Working Group at its 7th June 2004 meeting (see document "20040607 Art83 WG 07 Assumptions EN" available on CIRCA). It was considered at this time to be the best actuarial assumption concerning invalidity, even though it was going to be used to predict the future evolution of beneficiaries of invalidity allowance (a new category of population according to the new Staff Regulation in force from the 1st May 2004).

The main differences between the old and new Staff Regulations are the following:

- new invalids continue to contribute to the pension scheme

- the invalidity allowance is calculated as 70% of the last basic salary, while the invalidity pension, according to the old Staff Regulations, was based on the basic salary which the official would have received in his grade if he had still been in service at the time of payment of the pension (65 years old)

- the invalidity allowance is converted to a retirement pension at the normal age of retirement.

This year, Eurostat decided to check if predictions according to the 2004-EU Invalidity table correspond to invalidity recorded in years 2004 to 2006.

The result of this test is that the 2004-EU Invalidity table overestimates the real invalidity rates among the new category of invalids and consequently the invalidity table should be updated.

The method to update the invalidity table and the result (2007-EU Invalidity table) were presented at the 26 Jun 2007 meeting of the Article 83 Working Group (see "Doc 2007.06.26 Art83_05" available from Eurostat).

The following unisex invalidity table is only used for presentation purposes; it is based in the new 2007-EU Invalidity table by sex that has been used in the present valuation of the pension scheme:

Table X. 2007-EU Invalidity table – Unisex version

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Life table

In accordance with Article 9 of Annex XII to the Staff Regulations, a life table was drawn up based on observation of the population of participants in the scheme, pensioners included.

As was the case for the annuities, the life figures are not presented by sex in order to comply with the Commission policy on equal opportunities, although that information was used in the calculation.

Table XI EU-2004 life table – Unisex version

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Economic parameters

Real discount rate (RDR)

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.

Consequently, real discount rates (RDR) from 1995 until 2006 have to be used in the 2007 assessment of the PSEO.

The Euro zero-coupon yield curve with a maturity of 21 years is no longer produced by the Commission as production of all Euro zero-coupon yield curves has been transferred to the ECB (European Central Bank). Because the ECB has not yet produced the 2006 Euro zero-coupon yield curve with a maturity of 21 years Eurostat estimated it using as input the 30-year Euro area benchmark government yield as produced by the ECB and adjusting the rates to 21 years of maturity. Eurostat used the same methodology when estimating the RDR used in the 2006 pension assessment.

The 12 years moving average of real discount rates (RDR) that has been calculated this time (3.4%), will be used in the final assessment of the PSEO to be published by 1 September, as it is not expected that the ECB will publish the annual average 2006 of the Euro zero-coupon yield curve with a maturity of 21 years by this date.

Compared to the previous exercise, data relating to 1994 were excluded from the moving average while data for 2006 were included.

Table XII Real discount rate (RDR)

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This decrease of the RDR (3.4% in 2006, instead 3.6% in the previous year), combined with the effect of changes on other actuarial assumptions, explains why the pension rate is close to the one calculated in 2006. It should be remembered that the sensitivity of the contribution rate for pension is about 2.5 times the change of the RDR (see the main document, point 3.1).

General salary growth (GSG)

As for the discount rate, Annex XII gives specific rules to calculate the general salary growth. 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) and on the other hand, that the effective annual rate shall be the average of the net SI for the 12 years preceding the current year.

As the net specific indicator obtained in 2005 is 0.2%, the 12-year moving average from 1995 to 2006 is 0.5%. The estimate of the general salary growth (GSG) increases consequently between 2005 and 2006 from 0.3% to 0.5%.

Table XIII General Salary Growth (GSG)

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This increase of the GSG, combined with the effect of changes on other actuarial assumptions, explains why the pension rate is close to the one calculated in 2006. It should be remembered that the sensitivity of the contribution rate for pension is about 2.5 times the change of the GSG (see the main document, point 3.2).

Individual Salary Progression (ISP)

The individual salary progression (ISP) refers to the salary increase due to the career of the EU officials, i.e. promotions and seniority steps.

Furthermore, with the introduction of the new Staff Regulations on 1.5.2004, the career 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.

The 2006 ISP table (rates by grade and step and number of years to retirement) has been updated to be used in the 2007 pension assessment. This update concerns exclusively ISP groups 1 and 2. The fixed ISP concerning groups 3 and 4 (0.4%) and 5 (1%) remains unchanged.

The method to update the table and the results were presented by the last at the 26 Jun 2007 meeting of the Article 83 Working Group (see "Doc 2007.06.26 Art83_05" available from Eurostat).

The following table shows weighted ISP rates for publication purposes as decided at the meeting mentioned above.

Table XIV. Weighted ISP by group of active population and grade

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The change in the global weighted ISP (1.6%) compared to that published last year (1.8%), is explained by the changes of average ISP of groups 1 and 2 and to a large extent by the change in population structure described above, particularly by the decrease of group 1 population and the increase of group 5 population, the last having a fixed ISP of 1%.

Annuities

Articles 6 to 8 of Annex XII to the Staff Regulations refer to the annuities used in the calculation. The values of these annuities according to age are presented below.

In order to comply with Commission policy on equal opportunities, values are not presented by sex. However, Eurostat conducted its analyses taking into account all relevant features of the population, including sex. The figures are aggregated by weighted averages only for presentation in this report.

The table below was calculated using:

- the real discount rate (RDR) from Table XII,

- the general salary growth (GSG) from Table XIII,

- an assumed retirement age ( r ) equal to 64 years of age for officials younger than 35 on the reference date (31/12/2003) and equal to 63 years of age for the others,

where:

x is the age of the official,

y is the age of the official’s spouse,

m = r – x (number of years between the official’s age and the assumed retirement age),

y = x ( 3 according to the sex of the official.

Table XV Annuities according to Articles 6 to 8 of Annex XII to the Staff Regulations

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ANNEX II – INDEPENDENT EXAMINATION

Ernst & Young Actuaires-Conseils conducted an actuarial examination of the contribution rate calculated by Eurostat. This examination consisted in confirming the relevance and reliability of the actuarial processes and assumptions used in accordance with the methodology described in Annex XII to the Staff Regulations. For the elements not described explicitly in this Annex, Ernst & Young Actuaires-Conseils checked their compliance with generally accepted actuarial practices. Regarding the actuarial assumptions, Ernst & Young Actuaires-Conseils carried out investigations to ensure that the underlying data provided by Eurostat were used correctly.

The executive summary from the Ernst & Young report on the actuarial examination is reproduced below:

In accordance with its assignment entrusted by Eurostat, Ernst & Young Actuaires-Conseils, as an independent expert, has conducted an actuarial examination of the 2007 update of the 2004 actuarial assessment of the pension scheme referred to in Article 83a (3) of the new Staff Regulations for which Eurostat endorsed the technical responsibility towards the Commission according to the Annex XII “Rules for implementing Article 83a of the Staff Regulations”. This examination consisted in confirming the relevance and the reliability of the actuarial processes and assumptions used in accordance with the methodology described in Annex XII to evaluate the contribution rate of officials.

For the aspects explicitly mentioned in Annex XII, we did not detect any elements likely to cast doubt that the calculations determined by Eurostat are not compliant with the rules of Annex XII.

For the aspects not described explicitly in Annex XII, we have checked their compliance with the generally accepted actuarial practices and we did not detect any significant difference with the methodology and the assumptions we would have chosen ourselves to perform the calculations.

We draw your attention to the fact that as mentioned in the report prepared by Eurostat, the use of the previous invalidity table instead of the updated table would have had a significant impact leading to a contribution of 10,8%.

We believed it is relevant to apply invalidity statistics that are specific to the EU officials population, even if we recognized that the underlying data for the updated invalidity table are based on limited historic.

We recommend a follow up of the invalidity statistics to eventually amend the invalidity table.

Except the previous comments, Ernst & Young Actuaires-Conseils has no reasons to doubt that the official’s contribution rate (10.3%) calculated by Eurostat and presented in the Eurostat report is a sufficiently accurate estimate of the reality.

The complete Ernst & Young report on the actuarial examination of the contribution rate is available from Eurostat.

ANNEX III – MINUTES OF THE ARTICLE 83 WORKING GROUP MEETING

Luxembourg, June 2007

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Eurostat. Unit D-5

Remuneration and Pensions

Document: | Doc. 20070626 Art83_07 |

Meeting of the Article 83 of the Staff Regulations Working Group

Luxembourg 26th June 2007 at 09:30

Quételet Room

BECH Building / Luxembourg

Minutes of the 26.06.2007 meeting of the Art83 Working Group

LIST OF PARTICIPANTS

Country delegates

ABLINGIENE Aldona Statistics Lithuania LITHUANIA

BOROWSKI Remigiusz Ministry of Social Policy POLAND

DURANTE Carlo Economy and Finance Ministry ITALY

FRANK Tanja Pension and Invalidity Insurance SLOVENIA

HEHN Ludovic Représentation Permanente de la France FRANCE

LORENTZ Kai Statistisches Bundesamt DEUTSCHLAND

PAPPENSCHELLER Thomas Bundeskanzleramt ÖSTERREICH

PUKINSKA Rita Ministry of Welfare LATVIA

REILLY, John Dept. of Finance IRELAND

SAVOLA Risto Ministry of Finance SUOMI/FINLAND

TOMA Cristian Ministry of Labour ROMANIA

WICTOR Jean-Paul Ministère de la Sécurité Sociale, IGSS Luxembourg

Independent experts

LEGRAND Nicolas-Michel Ernst & Young

European Institutions

DEPICKER Sabrina Eurocontrol

ROMANIN Maurizio Eurocontrol

KISIELIAUSKAS Mindaugas EC - ADMIN

ZELENY, Petr EC - ADMIN

VERTESSEN, Luc EC - PMO

ALEXAKIS George EC - ECFIN

STEIMER Patrick EC - ECFIN

PARLASCA Peter EC – ESTAT / C5

LEMAIRE Guy EC – ESTAT / D5

MOSSAY-PIRROTTE Martine EC – ESTAT / D5

GARLAND Chris EC – ESTAT / D5

DE JONG, Shira EC – ESTAT / D5

OLIVARES José Maria EC – ESTAT / D5

ROMAN Jean-Claude EC – ESTAT / D5

VIDAL Paulo CONSEIL

SUMMARY OF ACTIONS

Item 3 Information points

Action 1:

- Eurostat will present an analysis of observed mortality rates among EU officials and, if necessary, a proposed new mortality table in the 2008 meeting of the Art83WG

Action 2:

- Eurostat will provide details of the numbers of individuals in each population category included in the pension liability calculation

- Eurostat will provide a copy of the methodology used in the liability calculation and an explanation of the concepts of pension liability, budget forecast and contribution rate.

Action 3:

- Eurostat, with the assistance of PMO, will provide information on the number of transfers into and out of the PSEO and the application of the transfer coefficients since their introduction in October 2004

- Eurostat will supply a copy of the methodological document to delegates when finalised.

Item 6 Actuarial Assessment of the PSEO: 2007 provisional results

Action 4:

- the results presented to the WG are considered to be final since no remarks or changes were made by delegates

- the results will be included in Eurostat's report on the actuarial assessment of the Pension Scheme to be published by 1 st September

- A copy of the Eurostat report will be uploaded on CIRCA.

- Ernst & Young will draft a report on their assessment of Eurostat's work

ITEMS

Item 1 Chairman’s introduction statement and adoption of the agenda

The chairman welcomed the delegates, thanking them for their participation in the meeting which is a statutory obligation for Eurostat. He introduced the Eurostat team responsible for Article 83 work. He presented the agenda and informed delegates that copies of documents were sent to participants and uploaded on CIRCA. In addition, copies of documents and slides that were going to be presented were also available in the meeting room.

The agenda was adopted.

Item 2 Minutes of the 19.06.2006 meeting of the Art83 Working Group

The minutes were adopted without changes.

Item 3 Information points

Four points for information were introduced:

Mortality table: Eurostat presented the current state of the project in collaboration with JPAS to analyse observed mortality rates among European officials over two consecutive years, with a view to creating an “International officials' life table” in 2008. This table will be compared with the current EU-2004 life table and, depending on the results, could eventually replace it. The results of this work will be presented to the Art83WG meeting in June 2008. The project had been delayed but was progressing, and preliminary work indicated that the EU-2004 table reflected real mortality rates sufficiently accurately.

Action 1:

- Eurostat will present an analysis of observed mortality rates among EU officials and, if necessary, a proposed new mortality table in the 2008 meeting of the Art83WG

Liability of the PSEO: Eurostat presented the provisional calculation of the liability of the Pension Scheme for European Officials (PSEO) at the reference date of 31.12.2006. The provisional total gross liability was compared to the total at the reference date of 31.12.2005 and an explanation of the change in terms of the actuarial assumptions and the population used in the calculation was given. Questions from delegates concerned the number of persons in the various population categories used in the calculation, the difference between the amount allocated for pensions in the 2007 budget and the projected 2008 budget, and the growth in the pensions budget.

Action 2:

- Eurostat will provide details of the numbers of individuals in each population category included in the pension liability calculation

- Eurostat will provide a copy of the methodology used in the liability calculation and an explanation of the concepts of pension liability, budget forecast and contribution rate

Long Term Care Insurance: Eurostat gave an explanation of the current state of the exploratory study into a Long Term Care insurance scheme for European Officials, involving a comparison of costs between a voluntary and a mandatory scheme for a population of European officials projected from 2006 to the year 2086, based on the model already used in the European Patent Office. The study will be finished and presented to DG ADMIN in September 2007.

Transfers of pension rights into/out of the PSEO: Eurostat has prepared a draft methodological document explaining how the published coefficients used for converting pension rights into capital and vice versa when transferring rights into or out of the PSEO, together with the adjustments necessary to align the coefficients with the provisions of Annex XIII of the Staff Regulations (Transitional Measures) and for transfers made before the new Staff Regulations came into force (01.05.04). Eurostat offered to make the draft document available to interested delegates. In answer to a delegate's question, DG PMO replied that a substantial number of transfers take place each year. Eurostat was requested to supply the number of transfers requested in the last couple of years.

Action 3:

- Eurostat, with the assistance of PMO, will provide information on the number of transfers into and out of the PSEO and the application of the transfer coefficients since their introduction in October 2004

- Eurostat will supply a copy of the methodological document to delegates when finalised

Item 4 Actuarial assessment of the PSEO: 2006 Eurostat Report

This final report was published the 1st of September 2006 and a copy was uploaded onto CIRCA. Eurostat's presentation was intended to give the opportunity to participants to ask questions and comment on the final 2006 results, which had been calculated after the 2006 Art83 WG meeting had requested an update of the Individual Salary Progression (ISP) table.The final calculated contribution rate was 10.4% (provisional calculation 10.7%) The report was submitted to the Council in November 2006.

There were no comments from delegates on this item.

Item 5 Actuarial assumptions

Eurostat gave a detailed presentation of the assumptions used for the 2007 actuarial assessment of the PSEO (see Item 6). After a summary of all the actuarial assumptions used in the calculation, details were given of the changes to some assumptions for which an annual update may be necessary or is required.

Discount rate

Concerning the discount rate (RDR), Eurostat informed delegates that the "Euro zero-coupon government bound curve with a maturity of 21 year", whose publication was now the responsibility of the European Central Bank, was not available from August 2005 to December 2006; the nominal rate was estimated by Eurostat (5.6%) using same procedure as for the 2006 actuarial assessment. Consequently, the RDR used in calculation is 3.4% against 3.6% used in 2006.

There were no comments from delegates on this item.

General Salary Growth

The General Salary Growth (GSG) was updated in the standard way according to Annex XII of the Staff Regulations and, at 0.5%, was 0.2% higher than the 2006 value.

There were no comments from delegates on this item.

Individual Salary Progression

The Individual Salary Progression (ISP) table had been updated according to the request made at the 2006 Art83WG meeting. The new table (2007 ISP v1 table) provides ISP rates for each category of the population, each grade and step and the number of years to retirement. Changes in promotion rates and the population structure and a summary version of this complex table were presented by Eurostat to the meeting.

There were no comments from delegates on this item.

Invalidity table

Following the request made at the 2006 Art83WG meeting, Eurostat had analysed the number invalids by age to see if the invalidity table used in previous calculations was in need of updating. (Unlike the mortality table, the invalidity table is not subject to a statutory period of validity). The analysis showed that the table used in the past overestimated the actual number of invalids above the age of 49, and a new 2007 EU-invalidity table had been created and used in the 2007 actuarial assessment.

There were no comments from delegates on this item.

Item 6 Actuarial Assessment of the PSEO: 2007 provisional results

Eurostat presented details and results of the provisional calculated contribution rate for 2007 (10.3%), which was 0.1% lower than the final 2006 calculated contribution rate (10.4%). The small difference was due to the combined effects of the changes in General Salary Growth, Real Discount Rate, ISP rates, the invalidity table and population (see Item 5 above).

Eurostat also informed delegates that according to Annex XII of the Staff Regulations, the current applied contribution pension rate of 10.25% should be maintained since the newly calculated rate was less than 0.25 percentage points bigger than the currently applied rate.

Eurostat informed the meeting that the provisional calculation had been checked by Ernst & Young and that a final calculation could be prepared before the 1st September to take account of any remarks by delegates.

There were no comments or proposed changes from delegates on this item.

Action 4:

- the results presented to the WG are considered to be final since no remarks or changes were made by delegates

- the results will be included in Eurostat's report on the actuarial assessment of the Pension Scheme to be published by 1 st September

- A copy of the Eurostat report will be uploaded on CIRCA.

- Ernst & Young will draft a report on their assessment of Eurostat's work.

Item 7 Miscellaneous

There were no miscellaneous items

[1] The NAP application is a centralised database that has been created to produce the monthly salary and pension forms for all institutions and agencies. This database contains a large part of the personnel data; particularly amounts paid and pension contributions.

[2] PMO use the Sysper database of the Commission to store data about transfers of pension rights of the staff of the Commission and agencies, and data about pensioners.