The Public Employees Contributory Retirement Scheme. Projected funding deficit

1240/5(1809)

QUESTION TO BE ASKED OF THE PRESIDENT OF THE POLICY AND RESOURCES COMMITTEE ON TUESDAY 18th MARCH 2003, BY SENATOR LEONARD NORMAN

Question

1. W h at, if any, is the current and projected funding deficit of the Public Employees Contributory Retirement Scheme?
2. If t here is a current or projected deficit, how is it to befunded?
3. W  hatassumptions are madewhen calculating the surplus or deficit in terms of investment returns from the fund,longevity of members and the rateof inflation?
4. W h at are the current employee's and employer's contributions as a percentage of total States payroll costs and as pure annualcashamounts?
5. D o es the Committee consider the schemeto be sustainable in its current format, given its defined benefits, and if the answerisinthenegative, what action does the Committee plan to take?
6. H o w isthe Committee currently able to take informed decisions regarding thescheme when the last available valuation is five yearsoutof date, and the next available valuation will be atleasttwoyearsout of date?

Answer

1. T h e lastpublished valuation wasat31stDecember 1998, when a funding deficit of £22.2 million was shown.As this was a relatively small deficit itwasagreedtocarry it forwarduntil the next triennial valuation as at 31st December 2001. The results of that valuation have not yet been finalised, but preliminary indications are that itis likely to reveal a significant deficit.
2. O f fi c ers of the StatesHumanResourcesDepartmentand the Treasury have already meton a number of occasions with the Actuaries to consider a variety of ways ofaddressingthe likely deficit, including a possible new scheme for future employees. Once proposals have been approved by the Policy and Resources Committee they will be put to the PECRS Joint Negotiating Group which consists of representatives of current employeesand pensioners underthescheme. A paper on this subject is to be considered bythePolicy and ResourcesCommittee'sHumanResourcesSub-Committeeon 21st March, 2003.
3. T h e current assumptionwhich the Actuaries adopt regarding investment returns onthe fund is that they will exceed inflation by3.75 per cent perannumaveraged over the longterm future.

W  it h regard to longevity, the Actuaries base their assumptions on the mortality experience of the scheme

membership, but prudent allowances are made for future improvements in longevity. The longevity assumptions are reassessed by the Actuaries at each triennial valuation to ensure that they reflect the most up to date experience of the scheme.

T h e r ate of inflation is not considered to have a significant impact on the results of a valuation because it

is the difference between the projected investment returns and projected inflation which is of key importance. Having said that, it is worth noting that allowance is made for inflation in Jersey to exceed inflation in the UK.

4. I n 2002, the employees' contribution to the scheme was slightly under £8 million, which was approximately 3.2per cent of total States' payroll costs. In the same year,theemployer's contribution was just over £22.2 million, which was approximately8.9per cent of total States' payroll costs.

5. T h e Committee believes that if agreement can be reached with the Joint Negotiating Group and Committee of Management of PECRS on ways of addressing the likely deficit, the scheme can be sustainable for the foreseeable future. It is importanttonote that this is not a schemewhere the States meets the balanceof costs. Anincrease in the employer's contribution ratecan only comeabout with the approval of the States. In this respect the scheme is different from defined benefitsschemes generally. In the finalanalysis,iftheStatesandthe Committee ofManagementarenot able to agreeonwaysof addressing a deficit, pensions in payment are reduced accordinglyto dispose of the deficit.
6. A s I said inmyanswer to question(a),wehave already received preliminary results for the fundasat December2001. Those results are subject to further discussion with theActuariesbefore being finally published. However, I understand that the Actuariesin formulating their advice take into account changes in financial marketssince the due date of the valuation.