This content has been automatically generated from the original PDF and some formatting may have been lost. Let us know if you find any major problems.
Text in this format is not official and should not be relied upon to extract citations or propose amendments. Please see the PDF for the official version of the document.
STATES OF JERSEY
PENSION SCHEMES: DEALING WITH THE PAST SERVICE LIABILITY (P.110/2009) – COMMENTS
Presented to the States on 3rd November 2009 by the Minister for Treasury and Resources
STATES GREFFE
2009 Price code: C P.110 Com.
COMMENTS
This Proposition will increase the 2009 States' contribution to PECRS and JTSF from £6.7 million to in the region of £19 million, an increase of £12.3 million, with similar increased costs being incurred for the next 19 years. Whilst the current arrangements and those proposed by Senator Shenton both pay off the debt over a period, because Senator Shenton is proposing a much shorter payback period, the annual amount is naturally significantly higher. These increased costs would have to be met from either a reduction in services or an increase in taxation of £12.3 million. The size of the pre- 87 debt is already known and acknowledged, and the increased costs of early repayment could only be warranted if there were significant actuarial or legal reasons which justified a shorter period of repayment of the debt.
This proposition will have no impact on the benefits paid to members of the scheme. The proposition will result in extra costs for the States of Jersey over the next 20 years but will not reduce or enhance benefits paid to scheme members.
Senator Shenton poses questions which suggest that he is uncomfortable with the generational burden created by the debt arrangements. The States actuary comments on this as follows: "In many ways the changed incidence of cost in respect of the debt can be looked at as correcting a lack of pre-funding of increases for a former generation, whilst the change to pre-funding of future increases can be looked at as ensuring that the same doesn't happen again. It is the current generation that is picking up the lion's share of that cost and adopting a shorter period for the Pre-1987 Debt would increase that burden". In other words, the current generation is already suffering costs that were built up by a former generation.
The report states that the length of time agreed (82 years) is unacceptably long and out of step with the U.K. The States actuary comments: "The new funding regime does not apply to public sector schemes in the U.K. and, indeed, most of the larger U.K. public sector schemes are unfunded and operate on a pay as you go basis". The PECRS is therefore in a significantly better funding position than its U.K. counterparts at present by virtue of the States having agreed this scheme for repayment of the debt.
Senator Shenton further states: "In the U.K. employers must agree plans to fill pension scheme deficits within 10 years if possible, not 82 years". The States actuary comments on this as follows: "The comment referring to the 10 years is not correct. This refers to a trigger point' that the U.K. Pensions Regulator uses for managing its own workload – generally it will not ask for further information about a scheme's funding plan where a number of criteria are satisfied. One of these criteria is that the deficit recovery period is less than 10 years. The Pension Regulator has been at pains to point out that this not a limit or a target, and that longer recovery periods may be justified. This has been emphasised by a recent statement issued by the Pensions Regulator." The States actuary goes on to say that "The debt mechanism appears to be designed to ensure that the liabilities are properly funded."
In summary the debt arrangement as it currently stands provides for an affordable negotiated settlement of the debt of a previous generation over a justifiable timescale and is way ahead of many other similar U.K. central government schemes. Accordingly this proposition is not required. Moreover, accepting this proposition would result in an extra cost of £12.3 million per annum increasing each year over the next 20 years.
Further details on the origin and history of the pre-1987 debt are laid out in the Appendix to this comment – Paper on the PECRS past service liability by Richard Raggett, Secretary to the Committee of Management, prepared for and approved by the Committee of Management, September 2009.
APPENDIX