RSEA concerned about the potential effects of P&R’s direction of travel

The rules of the scheme are approved from time to time by the States of Deliberation and are available for all to see. It is, therefore, regrettable that several commentators persist in referring to the scheme as one for civil servants alone, when its terms apply to almost all employees within the public sector, albeit with agreed variants for certain groups.

It is worth repeating what Deputy Bob Murray, a member of the Policy & Resources Committee, told a meeting of the Institute of Directors on Friday 13 October, that they might be surprised to find out that 31% of pensions in payment from the scheme are less than £5,000 a year and 80% are less than £20,000 a year. ‘Not’, he said, ‘a huge bounty’.

Earlier this week, in response to RSEA members’ concerns, the association wrote to States members ahead of their consideration of a proposed amendment to the Policy & Resources Committee’s Funding and Investment Plan, which would have had a significant impact upon the financial health of the superannuation fund which funds those pensions. The main thrust of that letter was to alert our elected representatives to the proposal for the States to take what is loosely referred to as a ‘pension holiday’ for three years from 1 January 2024 by reducing the employer’s contribution rate to zero for that period.

The triennial actuarial valuation of the superannuation fund at the end of 2020 (debated by the States in July 2022) had shown a 107% funding level, more than enough to meet long-term accrued pension and future service liabilities at that time.

Following advice from the actuary, the Policy & Resources Committee recommended (and the States approved) that the overall employer contribution could be reduced to save the States approximately £8m. per annum from general revenue expenditure while still retaining a surplus. In offering its advice, the actuary had also warned that volatility in investment returns and external factors could easily affect future balances in the fund.

An interim valuation at the end of August 2023 has assessed the superannuation fund as being 89% funded, although this remains subject to the outcome of a full valuation at the end of 2023. Together with many others, the RSEA had pointed out that the proposed amendment, if successful, would have potentially compromised the resilience of the superannuation fund but would not have diminished the liability of the States to meet its contractual obligations, and would likely require corrective action before too long.

For some of those our association represents, however, that outcome was perceived as serving to promote a regrettable level of future income uncertainty as they strive to make responsible provision for their retirement.

As many readers of the Guernsey Press will be only too aware, there have been a number of columnists and commentators who regularly take advantage of their media voice by seeking to push the States towards a significant worsening of the pension offer to future public sector workers. Such arguments often seem to be accompanied by misleading or unsubstantiated phrases such as ‘gold-plated pensions’ and ‘unaffordability’ with some seeming to suggest that there should be no such scheme at all for civil servants. More considered assessments suggest that the core plank of any reform would be to move from current good practice in the form of a defined benefit pension and instead to introduce defined contribution savings schemes. However, as far as the RSEA is aware, no large-scale UK public sector employer has gone down this road. Nor have the other Crown Dependencies. Unsurprisingly, this is no accident.

Despite all that, Policy & Resources has indicated publicly on several occasions that it is its intention to bring proposals to the States during the first quarter of 2024 in which it will recommend replacing the current DB scheme with a new DC arrangement for most new employees. Importantly, in acknowledging ongoing and worrying recruitment and retention problems, especially in the education and health sectors, it has also indicated that it would propose a ‘carve out’ protection for those coming from the UK with existing DB arrangements.

Pension experts retained by the larger UK public sector professional associations report negative short-term cost consequences for an employer who seeks to persuade or to coerce employees into DC schemes.

The most trumpeted benefit to the employer is the shift of risk to individual employees, although of course, for the States of Guernsey, it would still be the taxpayer underwriting the financial risk of those poorly-paid States workers who may fall below the income support level, either during their working lives, or in retirement.

Advocates of DC schemes point out that the administration of any new scheme would be passed to private sector providers, and that associated costs would be borne by scheme members. Upon reaching retirement, the cost of such financial advice as might be required to responsibly plan subsequent income, for example through the purchase of annuities, would also fall upon the individual employee.

Thus far, the level of consultation with representatives from current scheme members in the Pensions Consultative Committee around these matters has been decidedly sub-optimal. No written proposals have yet emerged, and the worrying devil is highly likely to be in the detail. Will there be compensatory payments as offered by some UK private sector employers? Will there be death-in-service arrangements? Will local employees without a DB contribution history be treated less favourably than incomers doing the same job? In what may well be a complicated array of proposals and rule changes, we expect that many other elements will require detailed scrutiny and thorough cross-party discussion before scheme member representatives are able to submit a letter of comment for States members to consider before the matter goes before the Assembly.

Some readers might wonder why retired people should care about such future matters. In simple terms, it is because those who have served our community, and who understand what that means in practice, really do continue to care about the nature and quality of our public services in the years ahead, not least because our own family members will be amongst those directly impacted if the Bailiwick fails to attract the right calibre of staff to run and maintain our essential services.

The RSEA is concerned about the potential effects of P&R’s direction of travel, and we believe that the majority of local voters should be concerned too.

SEAN MCMANUS

President, Retired States Employees’ Association