Published 11th May 2016, 11:17am
On 9th May 2016, the Cayman Compass published an article entitled “Possible 2024 ‘depletion’ of gov’t retirement fund.” The article discusses funding levels of pension plans administered by the Public Service Pensions Board (the PSPB), and the above-mentioned article concentrates on the Public Service Pensions Plan (the Plan), whose members include Civil Servants and employees of participating Statutory Authorities and Government Companies. The PSPB, in addition to the Plan, also administers the Parliamentary Pensions Plan and the Judiciary Pensions Plan (collectively, the Plans).
The PSPB would like to provide its Members with information with respect to how this important funding matter continues to be addressed.
Every three (3) years the PSPB is required by law to carry out a valuation of the Plans. The valuations are conducted by the PSPB’s actuaries, Mercer. The findings of these valuations are presented to the Government for consideration prior to being Tabled for approval in the Legislative Assembly.
For the main Plan, a deficit currently exists. This deficit was stated in the most recently Tabled 2014/15 Annual Report and Financial Statements of the PSPB at approximately $226 million or $166 million (using a 7% or 8% valuation interest rate, respectively). The deficit is not payable immediately, but will fall due over time.
At present, the Government makes pension contributions for Civil Servants at a rate of 12% of salary to fund the standard or ‘normal’ cost of pensions, and the Government also makes further payments (i.e. in addition to the 12% contribution level), towards the deficit. As is typical of these types of funding arrangements, payment levels are consistently reviewed.
Further to this point, as assisted by Mercer, the PSPB has developed a funding proposal for Government’s consideration. This proposal, once approved, is expected to service the deficit not only for the main Public Service Pensions Plan, but also for the Parliamentary Pensions Plan, based on a 20-year payment schedule. The Judiciary Pensions Plan is currently in a surplus position: its assets are greater than its liabilities.
As a point of interest, Mercer has noted that “most public service pension plans around the world are completely unfunded – that is, no assets have been set aside and benefits are paid entirely from government revenues.” In contrast to other jurisdictions, the Government had the foresight to establish the PSPB in 1992 to administer the Plans and their assets, which now stand at over $500 million to be used for the payment of pension benefits.
The PSPB looks forward to Government’s consideration of the proposed funding proposal and fully anticipates their continued cooperation to ensure the long term stability of the Plans.