What pensions at CERN tomorrow?
By approving last December a first package of measures aiming to restore the balance of our Pension Fund, CERN Council has clearly taken its responsibilities seriously in the face of a now enormous deficit: 1.7 thousand million Swiss francs at the end of 2010. Even if not everything can be resolved with a wave of a magic wand – this package will need to be applied for 30 years to restore the balance of our Fund – we must recognize that a major step has at last been taken after many years of beating about the bush by our decision-makers. Another achievement, and an important one at that, is that a consensus has been reached, after a long search, between the different parties in this package: Member States, Management, current retired and active staff members. They have also agreed that a second package should be presented in June 2011 concerning the new conditions for future staff members1 and the transitory measures - concerning the annual adjustment of pension only – for future retirees2. So, where are we at with the second part of the pensions issue?
Pensions at CERN in 2010
First, what were the terms of the agreement reached at the end of 2010 between the three parties represented?
- An increase in the contribution rate (from 30.88% to 34%) shared out between employee3 and employer, in accordance with the longstanding ratio of 1/3-2/3.
- A freeze on retirement pensions4, as long as the individual loss in purchasing power does not exceed the upper limit of 8%.
- A supplementary annual payment by the employers (CERN: 60 million CHF, ESO: 3 million CHF), as long as full funding has not been reached.
There is little doubt that the third element is connected to the historic responsibility of Council in the pensions issue, the aim of the injected annual amounts is to reach full funding in 20, or even 30 years. It should also be understood that the effort requested of the pensioners is comparable to that requested of the active staff, and that the transitory measures mentioned above aim to treat all staff members fairly: the more a staff member will have contributed at the new rate of 34%, the less his pension will be frozen. In other words, the more he will have participated in restoring the balance of the Pension Fund with a higher contribution rate, the better his pension will be indexed to the cost of living in Geneva. This is an intelligible objective and one we have supported since the beginning, since it made a smooth transition possible, avoiding the regrettable threshold effect. Quite the opposite of the decision taken in 1987 by CERN Council and still perceived today as an injustice by the staff: following a proposal formulated in-meeting of the said Council session, it decided to increase the official full retirement age from 60 to 65 with no transitory measures. This decision has left its mark and we have learned a lesson. We will be doubly alert over the coming weeks when the transitory measures for the annual adaptation of the pensions for future pensioners will be defined5.
These measures should be approved in June 2011, at the same time as the new conditions for future staff members6. In 2010 this subject was for a long time a stumbling block in our discussions with the Management and the Member States. Their proposals would have given CERN the worst defined-benefits pension system of all International Organizations (IO). Fortunately, our counterproposal in the autumn broke the deadlock and our governing bodies decided to postpone the decisions by six months by putting them in the second package. But now time is running out and the concertation process is still far from reaching a conclusion, and this is worrying. We cannot accept the injustice of making the future generations pay heavily for the current deficit caused by a lax attitude in the past. For a better understanding, we will now examine the essential elements of a pension fund.
New conditions: act on which parameters?
New fund
The first question is whether to create a new fund for future staff members. This idea was rapidly abandoned by Council due to the exorbitant cost of restoring the balance of our current fund which would then need to be closed. Our future colleagues will therefore join our own Pension Fund, which is reassuring news.
Defined-benefits/Defined-contributions
In a defined-benefits scheme, the staff member knows the level of his pension (for example, 2% of pension rights per year of service) without knowing the evolution of the contribution rate that will be applied throughout his career. In a defined-contributions scheme, the reverse is true, and all the risk of an insufficient pension rests on the shoulders of the employee. This is unacceptable for us.
Contribution rate
In a defined-benefits scheme, this is the main lever that makes it possible to adapt income to the evolution of commitments. At CERN the contribution rate has thus risen from 21% to 34% in three decades. Many believe that going beyond this would be unacceptable.
Employee/employer share of contribution rate
More or less everywhere, the historic ratio of 1/3-2/3 applies. For some time now we have observed a change in this ratio to 40%-60%, hence a tendency to shift the commitment from the employer to the employee. This change is foreseen at CERN, along with a decrease in the contribution rate from 34% to 28%. The employer participation would thus be reduced by 25%, while that of the employee would remain unchanged.
Accumulation rate of pension rights
This corresponds to the pension rights per year of service and amounts to 2% in all the schemes studied. It is difficult to accept in these conditions a decrease in this rate at CERN to 1.75%. And, moreover, how can you justify the fact that employee pension rights are reduced while his contribution is not?
Number of years needed to reach maximum pension
Set at 70% of the last salary in all systems studied, the maximum pension does not seem to be under attack. However, the number of years needed to reach it is inversely proportional to the accumulation rate mentioned above. By lowering this rate, the number of years needed to reach the maximum pension is increased. With a rate of 2%, the number of years is 35. With 1.75%, it increases to 40 years. Recruited at an average age of 32, a CERN staff member would reach maximum pension at 72… you might as well say that he will never see that and will have to be satisfied with a reduced pension…
Age limit
… because nothing can justify an increase in the retirement age. The unfair decision in 1987 mentioned above anticipated by several decades the evolution of the age limit observed in other IO. Why increase this limit from 65 to 67 at CERN, when many other IO set it at around the age of 63? To be the only IO to have done it?
Reduction factors on pensions in the event of early retirement
Reduction factors on pensions in the event of early retirement would apply not only before 65, but before 67, thus worsening the situation for new recruits even further.
Basis for pension calculation
And to crown it all, it is also foreseen that CERN will be an exception amongst IO by calculating pensions not on the last salary, but on the average of the salaries of the last five years. This would be another victory for mediocrity in the area of pensions in our Organization.
All these elements thus constitute an all-out attempt to considerably reduce the level of pensions at CERN. And it would fall on the young generation, our future colleagues, to pay such a heavy price. This is unacceptable, especially when we consider the recent evolution of the pension schemes of other IO.
Recent evolution in international organizations
With a view to proposing new pension conditions "The Management has already collected the necessary data from other international organizations..."7. Indeed, what could be more logical for an international organization such as CERN than to focus on comparing with its peers? Especially as IO do not live on an island, isolated from the reality of an evolving world: they have also suffered a deterioration of the pension conditions offered to employees.
Moreover, this is what is reflected in the table below8 which presents the changes to the main elements of a pension that have taken place in the world of IO since 2009.
* DB: Defined Benefits (Prestation définie) / DC: Defined Contributions (Cotisation définie).
** COL: Cost of living (Coût de la vie).
What lessons can be drawn from this comparison?
First of all, of all of these elements, the conditions currently offered by CERN are inferior or, at best, equal to those of other IO, even when compared to the conditions recently introduced in other IO.
In other words, CERN is already only moderately competitive. Nothing justifies therefore a further deterioration of the conditions currently offered, unless CERN wants to further reduce its attractiveness on the employment market. That would mean killing CERN slowly but surely by compromising with the level of excellence of its staff, which we are strongly against.
However, what is presented in the last row of the table is what has been proposed, which means that all pension conditions would be systematically reduced to the detriment of the employee and to the advantage of the employer. This would be a scandal, especially in light of what our Member States accepted in the recent reforms implemented in other IO, where only two or three conditions were altered each time (on black background in the table).
Tomorrow’s pension is a major issue of today
We remind you, above all, that an agreement on this second package is needed for the first to be ratified once and for all. For all that, for the employee a pension is nothing other than a deferred salary. And because it is paid at a time of life when we are at our most fragile – old age – it is therefore an essential employment condition. By adopting this second package on pensions, the real stakes for CERN, in its role as employer, are to strengthen its ability to attract the best candidates on the very competitive employment market in order to maintain the level of excellence of its staff in the short, medium, and long term. This is the price to pay to give the Organization a chance to maintain its high rank in science and state-of-the-art technology . Already last year, the five-yearly review revealed the low level of CERN salaries, so let us not worsen even more CERN’s attractiveness which has already reached a critical low point. We cannot accept to be once more treated less well than all other international organizations. Enough of CERN being considered as a second-rate international organization. When all is said and done, in this pensions issue the future of our Organization is at stake, and this is a subject that we all must feel strongly about.
1. Staff members recruited from 01/01/2012
2. Staff retiring from 01/01/2012
3. Staff members recruited on 31/12/2011 at the latest
4. Beneficiary of a pension on 31/12/2011 at the latest
5. Staff retiring from 01/01/2012
6. Staff members recruited from 01/01/2012
7. Proposal by the Management concerning the set of measures aiming to restore the full funding of the CERN Pension Fund (CERN/FC/5498 – CERN/2947 – Dec. 2010)
8. Table drawn up with the collaboration of Staff Associations of other International Organizations
