Introduction of GST is not the only answer to our cash flow problems

We are told repeatedly by Deputy Ferbrache and the P&R Committee that we are running out of money as an island and that introduction of GST is really the only answer.

I beg to differ. Staff costs are the largest cost of the States. Second only to salaries are the costs of the States defined benefit pension scheme. In the private sector, such schemes became unaffordable many years ago and have been replaced by defined contribution pension schemes. If the private sector cannot afford such DB schemes, then why should the Guernsey taxpayer, who does not have the luxury of a DB scheme, have to carry on paying for the luxury of one for public sector employees?

Whilst it is acknowledged that the States have at least reduced, to a certain extent, the future costs of the States’ DB Scheme by changing from final salary to career average salary basis for employees joining since 2015, the total future costs of the current pension scheme are enormous and continue to rise. The current cost to the States by way of employer contribution is 14.1%* of salaries. This compares to typically 5% or less in the private sector for DC schemes. The difference of around 9% is equivalent to approx £20m. a year (my best guess) of savings that the States could make if it had the will to do so. Would we still need GST if we could save this sort of sum every year by closing the DB scheme and replacing it with a DC scheme?

I am sure that Messrs Ferbrache & Castle will respond that for a whole host of reasons this cannot be done in the public sector, but it can.

A very good example is the Guernsey Financial Services Commission. The Commissioners and senior management realised in 2013 that ‘in order to fund essential internal modernisation without significantly raising costs… we took the difficult decision to proceed with the pension scheme closure’ (2013 GFSC Annual Report). After closure they reported that ‘Closing our scheme was unfortunate as our staff no longer have the prospect of a guaranteed retirement income but the Commission does not believe it could afford to sustain a final salary scheme with the associated costs and ever increasing liabilities’ (2014 GFSC annual report). NB. The GFSC employees continue to have a defined contribution pension scheme.

If the GFSC can do it without any material consequences (their staff are in a very mobile employment sector, but did not leave en masse or go on strike), then surely the States as a whole can bite the bullet and take this same action?

* 14.1% as reported on Page 63 of 2022 States Annual Accounts, being the latest set of accounts available. I am not sure where Deputy Ferbrache got the 10.3% figure that he quoted in his article as the employer contribution.

Ian George

PS. I have just been through the 158 pages of the P&R policy letter entitled ‘Funding & Investment Plan’, dated 18 August 2023 that was published recently. There are plenty of suggestions in this letter on how savings could be made in States expenditure in the future. However, there is absolutely zero mention of the public sector pension schemes, suggesting that P&R have zero intention of making any effort to save on these unaffordable costs at any time soon. Why not, given the substantial cost savings that could be achieved?