CBCS: Pension funds solid, but market risks remain

WILLEMSTAD/GREAT BAY--The Centrale Bank van Curaçao en St. Maarten (CBCS) says pension funds in Curaçao and St. Maarten are in a generally solid position, but they still face risks if financial markets take a serious hit.

In a new 2026 Financial Stability Article titled “Solvency Stress Tests for Pension Funds in Curaçao and St. Maarten,” CBCS tested how pension funds would hold up under different financial shocks. The main conclusion is that the sector currently has a healthy buffer, but that buffer can shrink quickly if interest rates drop sharply, stock markets fall, or global financial markets come under heavy pressure.

CBCS reported that pension fund assets set aside for retirement stood at Cg 9.5 billion at the end of 2024. That amount is equal to 102.1 percent of the combined gross domestic product of Curaçao and St. Maarten, showing how important pension funds are to the financial system of both countries.

The report explains that pension funds must keep enough money available to meet future pension promises. Under CBCS rules, pension funds are expected to maintain a funding ratio of at least 100 percent. In simple terms, that means a fund should have enough assets to cover its pension obligations. CBCS also uses 104 percent as an early warning level. Falling below that level does not automatically mean a fund has failed, but it signals that closer attention is needed.

CBCS tested the pension funds against several possible shocks. These included falling interest rates, lower stock market values, problems at banks, global financial turmoil, and a local economic downturn.

One of the biggest risks identified was interest rate risk. CBCS said pension funds are exposed to this risk because many pension promises are guaranteed. When interest rates fall, the future cost of those promises can increase. In one test, the pension sector stayed above the 104 percent early warning level until a very large interest rate shock of about 350 basis points. But when only future pension obligations were adjusted, the sector fell below the early warning level at a smaller shock of 250 basis points.

CBCS also found that stock market losses can reduce pension fund buffers. Equity investments are the second-largest asset class for the pension sector. According to the report, if equity values fall by about 30 percent, the funding ratio drops below the 104 percent early warning level. CBCS said this shows the importance of spreading investments and managing risk carefully.

The report found less concern when it came to bank default risk. Even in the most severe test, where deposits at banks were reduced by 50 percent, the pension sector stayed above the early warning level. CBCS said this points to a relatively limited impact from this type of risk.

The most serious pressure came from global financial turmoil. In a moderate global stress scenario, the funding ratio dropped below the 104 percent early warning level. In the severe scenario, which included fiscal stress and a loss of investor confidence, the funding ratio fell to just below the 100 percent supervisory threshold. That means a major global market shock could wipe out the sector’s current buffer.

A local economic downturn had a smaller effect. CBCS tested what would happen if local investments, real estate, mortgages and loans lost value. Even under the severe local downturn scenario, the pension sector remained above the 100 percent supervisory threshold, although it fell just below the 104 percent early warning level.

CBCS said the overall message is that pension funds in Curaçao and St. Maarten are not in immediate trouble, but they must continue to be watched closely. The bank said regular stress testing, careful investment management, and better matching between assets and pension promises are important to protect pensioners and support financial stability.

The stress test used data from twelve pension funds as of December 31, 2024. CBCS described the report as a first step toward strengthening how pension fund risks are measured in the monetary union.

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