Ministers' Deputies / Rapporteur Groups
Rapporteur Group on Programme, Budget and Administration
GR-PBA(2008)5 27 June 20081
Information note on pensions
Information document prepared by the Directorate General of Administration and Logistics
For the GR-PBA at its meeting on 3 July 2008
Staff recruited on posts or positions are affiliated to one of the two Pension Schemes, staff recruited before 2003 affiliated to the Old Scheme, staff recruited as from 2003 to the New Scheme. These are defined benefit schemes, staff receiving on retirement a pension of 2% of their final basic salary for each year of service, with a ceiling of 70%. The Statutes of the schemes provide that their cost shall be shared between staff and the Organisation on a 1/3 : 2/3 basis for the Old Scheme and 40% : 60% for the New Scheme. The New Scheme is also less beneficial for staff in that they cannot receive a full pension (70% of last salary) before the age of 63 rather than 60 ( independently of their length of service in the Organisation).
Staff members contribute to the Schemes throughout their career. The level of staff contributions is determined by an actuarial study carried out at the level of the Coordinated Organisations every 5 years. The staff contribution is adjusted to ensure that it covers the appropriate share of the costs of each of the Schemes. Since the inception of the Old Scheme in 1974, staff contributions have been increased progressively from the original 7% of basic salary to 8.9%. The rate of staff contribution is therefore now some 27% higher than when the Scheme was first introduced. Staff contributions to the New Scheme (currently of 9.2%) are adjusted in a similar manner. It should be noted that the rates of staff contributions are similar or higher than in most other international organisations.
Member States’ Contributions
Before 1974, staff contributions, and those of the Organisation, were paid into a Pension Fund throughout the career of staff members and the Fund financed the payment of pension benefits.
When the Old Pension Scheme was introduced in the Coordinated Organisations in 1974, the CCR recommended that the member states’ share of the cost be financed not by means of a pension fund, but on a “pay as you go” basis. This meant that staff continued to pay their contributions during their career, but the member states postponed the payment of their share of the cost until the moment when pension benefits became payable.
Consequently, the member states in 1974 dissolved the then Pension Fund, which was paid over to those states ( including the contributions from staff). After 1974, member states’ contributions for pensions were dramatically reduced, and the saving for the states compared to the previous arrangements continued until 1994.
However, as the Organisation matured, the number of staff receiving pension benefits increased and the contributions member states were required to pay to meet their postponed pension obligations began to increase rapidly. Forward projections showed that such increases would be continual in the future and for this reason the Secretariat proposed that member states should create a Pension Fund to stabilise the level of their contributions for pensions in the medium and long term. As from 1999, this proposal met with the support of the Budget Committee.
Pension Reserve Fund
A Pension Reserve Fund (PRF) was created by the Committee of Ministers by Resolution(2002)53. This was modelled on the arrangements adopted by the Organisation for Economic Cooperation and Development (OECD). After the OECD modified the management arrangements for its fund, the Council of Europe followed suit and adopted a new Statute for the PRF in Resolution(2006)1.
The Statute provides that the PRF shall finance the pension benefits paid through the Pensions Budget. The income of the PRF comprises the contributions of staff plus the contributions of the member states. The member states’ contributions to the PRF are determined by an actuarial study which takes place every three years.
The latest actuarial study took place at the beginning of 2008. This study has fixed the contributions of member states for 2009 at a level some €6M (18.8%) higher than the contributions for 2009 foreseen in the previous actuarial study from 2005. The principal reasons for this increase are as follows:
- the projected real rate of return on the investments of the PRF has been reduced from 6% to 5% following a recommendation of the Management Board of the Fund endorsed by the Committee of Ministers in July 2007. This one-off change alone is responsible for an increase of some €3.4M (9.81%) in the amount of member state contributions.
- the number of staff affiliated to the Pension Schemes has increased from 1 560 to 1 771 ( resulting mainly from the programmes of reinforcement of the Court); in the future the impact on pension liabilities can be immediately incorporated into the total cost of any programme of reinforcement.
Future Evolution of Member States’ Contributions
The next actuarial study will take place in 2011. Member states’ contributions to the PRF might be affected by the possible evolution in the number of posts and positions which the Committee of Ministers creates in the future. However, the increase arising from the modification of the projected real rate of return on the investments of the PRF, reflected in the results of the 2008 study, and which accounts for over half of the increase in contributions, was a one-off event which will not be repeated in future studies.
Thus, in real terms, the contributions to the Pensions Reserve Fund in the years ahead will be :
2009 € 37 655 599
2010 € 38 102 497
2011 € 38 888 360
2012 € 39 325 103
Note 1 This document has been classified restricted at the date of issue; it will be declassified in accordance with Resolution Res(2001)6 on access to Council of Europe documents.