Taxpayers could be saved £9m. annually

Policy & Resources has proposed a reduction in the employer contribution rate for most public sector employees, including nurses, teachers, police officers and civil servants, from 14.1% to 10.3% from 1 August.

This follows the latest valuation by actuary BWCI, which shows the superannuation fund to have had an overall value of £1.615bn at the end of 2020. This represents a surplus of £115m., compared to a deficit at the end of 2016 of £91m.

This has come about largely because final salary schemes were replaced with career average schemes in 2015, which made them more sustainable and reduced risk to the employer.

The surplus is large enough that a reduction in contributions to 7.1% could be sustained over the next 15 years, representing an annual saving to the taxpayer of more than £17m.

However, this is not being recommended by P&R because ‘this surplus should instead be retained within the fund to help protect against future adverse experience and reduce the risk of having to pay significantly higher contribution rates at future valuations’.

The BWCI report was delayed by Covid and therefore studied the situation at the end of 2020, rather than 2019. One of the assumptions it made was that Guernsey’s future RPIX figure would be 3.2% per year, whereas the actual rate for the calendar year of 2021 was 4.6%, partly caused by fuel price inflation following Russia’s invasion of Ukraine.

Although the report was prepared prior to these events, it does make clear that volatility is likely.

‘The primary reason for the potential volatility in the funding position is that the Policy & Resources Committee’s investment policy involves a deliberate mismatch between the fund’s assets and liabilities, in the expectation that this will result in higher investment returns over the long term,’ the report says.

It goes on to model climate change scenarios which show reductions in the surplus of between £49m., if the targets of the Paris Agreement are met, and £212m. if they are not.

However, a healthier financial position is revealed in the short term.

‘The Policy & Resources Committee has advised us that the assets have returned 10.3% over the year to 31 December 2021, which will have improved the funding position,’ it says.

It has not yet been decided at which States meeting the policy letter will be debated.

As well as the £9m. annual reduction, P&R will propose new guidelines to set employer contributions at the level deemed necessary after each valuation, with no adjustment being made to correct surpluses or deficits, unless they exceed a set boundary.

The next formal valuation is due to take place as at 31 December 2023 but funding updates are provided to P&R annually.