Actuarial valuation shows public sector pension fund value has fallen to around 89%

Monday, 16 October 2023

The Policy & Resources Committee has sought advice from the public sector pension scheme’s independent actuaries on a proposal to suspend employer contributions to the scheme for three years.  The advice warns strongly against such action, and that the latest estimate for the scheme (pending the full valuation due at the end of 2023) is that it is currently around 89% funded.

The proposal to stop payments to the scheme for three years comes in the form of an amendment, Amendment 4, led by Deputies Soulsby, St Pier and Kazantseva-Miller.  It is being put forward for this week’s States debate on how to fund essential investment in public infrastructure and return public finances to a sustainable position.

The most recent full valuation for the Fund dates back to 2020 but found the Fund was more than fully funded, at 107%.  However, the latest update shows it has now fallen below 90%.  The States’ agreed policy is that it is required to take action when funding drops below 90%. Therefore, if that deficit persists at the next formal valuation, employer contribution rates would need to increase. This makes withholding of contributions totally untenable.

The advice provided by the scheme actuary says ‘it should be noted that taking a contribution holiday does not alter the cost of providing benefits.  It changes the timing of when contributions are paid but there would not be a saving to the taxpayer from taking the proposed contribution holiday.’ 

The Committee is advising States Members that the clear, professional advice is that withholding the payments is unworkable and irresponsible.  The Committee is committed to continuing to fund the scheme and wishes to reassure the thousands of nurses, teachers and other essential public staff, and the 5,000 retired workers that is the case.

The Committee is reviewing the future of public sector pensions in partnership with unions through the Pensions Consultative Committee, to achieve a long-term solution that is fair to future employees, ensures the States can attract staff and seeks to reduce the financial risk to the States in the future.  It is intending to bring forward a Policy Letter in the first quarter of next year.  However, it is concerned this amendment could derail those discussions, and result in costly and unnecessary industrial unrest.

Deputy Mark Helyar, Treasury lead for the Policy & Resources Committee, said 

“It’s clear Amendment 4 is not a credible or workable solution.  We appreciate that will be disappointing to those members who prepared it.  The Committee had invited them to discuss any proposed amendments as early as possible ahead of the debate this week, but as they chose not to, the Committee was not able to share the latest information on the fund’s valuation.

Even before this clear advice from the actuary, the Committee could not support the amendment.  It is not a sustainable solution, it puts the funding of public sector pensions at risk, and does nothing to stabilise the financial position of the States and could end up costing the taxpayer more.  It is unethical and irresponsible.

This week’s debate is crucial to the future of Guernsey’s public finances, but also to its wider economy and quality of life.  It is important the debate focuses on credible solutions.  This amendment is an example of tinkering with unworkable solutions to try to patch up looming financial problems, and an unwillingness for some members to acknowledge three years of detailed work and expert advice.  The States must bite the bullet and broaden our tax base in a calm and considered way that retains our competitiveness and reduces the tax burden for the poorest in society.”