Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation Report 31 December 2010

Information about the publication of Ministerial Decisions

A formal published “Ministerial Decision” is required as a record of the decision of a Minister (or an Assistant Minister where they have delegated authority) as they exercise their responsibilities and powers.

Ministers are elected by the States Assembly and have legal responsibilities and powers as “corporation sole” under the States of Jersey Law 2005 by virtue of their office and in their areas of responsibility, including entering into agreements, and under any legislation conferring on them powers.

An accurate record of “Ministerial Decisions” is vital to effective governance, including:

demonstrating that good governance, and clear lines of accountability and authority, are in place around decisions-making – including the reasons and basis on which a decision is made, and the action required to implement a decision
providing a record of decisions and actions that will be available for examination by States Members, and Panels and Committees of the States Assembly; the public, organisations, and the media; and as a historical record and point of reference for the conduct of public affairs

Ministers are individually accountable to the States Assembly, including for the actions of the departments and agencies which discharge their responsibilities.

The Freedom of Information Law (Jersey) Law 2011 is used as a guide when determining what information is be published. While there is a presumption toward publication to support of transparency and accountability, detailed information may not be published if, for example, it would constitute a breach of data protection, or disclosure would prejudice commercial interest.

A decision made 9 July 2012:

Decision Reference: MD-C-2012-0071
Decision Summary Title :	Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation Report as at 31 December 2010		Date of Decision Summary:	9th July 2012
Decision Summary Author:	Project Director - Pensions		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation Report as at 31 December 2010		Date of Written Report:	9th July 2012
Written Report Author:	Project Director - Pensions		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation Report as at 31 December 2010
Decision(s): The Chief Minister agreed to present to the States the Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation as at 31 December 2010.
Reason(s) for Decision: Under article 3 (3) of the Public Employees (Retirement) (Jersey) Law, 1967, an actuary, appointed by the Committee of Management of the Public Employees’ Contributory Retirement Scheme (PECRS) has to regularly review the operation of the fund and make a report to that Committee (who will then pass a copy to the Chief Minister) on the financial condition of the fund and the adequacy or otherwise of the contributions payable to support the pensions and other benefits payable under the Scheme. A copy of every report produced under article 3 (3) must be laid before the States as soon as may be after it is made (Article 3 (5) of the Law). The report was signed by the Scheme Actuary on 23rd May 2012 and the Chief Minister is now able to lay the report before the States.
Resource Implications: There are no resource implications.
Action required: is requested to arrange with the States Greffe for the Report to be presented to the States at the earliest possible date.
Signature:		Position: Senator I.J. Gorst Chief Minister
Date Signed:		Date of Decision (If different from Date Signed):

Public Employees Contributory Retirement Scheme (PECRS) Actuarial Valuation Report 31 December 2010

Report of the Chief Minister

Article 3(3) of the Public Employees (Retirement) (Jersey) Law 1967 (L.11/67) requires the appointment of an Actuary to review the operation of the Public Employees’ Contributory Retirement Scheme. Under Regulation 6(1) of the Public Employees (Contributory Retirement Scheme) (General) (Jersey) Regulations 1989 (R & O 7956) the Scheme’s Committee of Management has obtained a report from the Actuary for the period to 31 December 2010.
In accordance with Regulation 6(2) of the Public Employees (Contributory Retirement Scheme) (General) (Jersey) Regulations 1989, this accompanying report from the Chief Minister presents to the States the Actuary’s report.
The Scheme’s Committee of Management and the States Employment Board have formally accepted the report, which was signed by the Scheme’s Actuary on 23 May 2012.
In particular, the Actuary has concluded that the Scheme has a slight surplus of £40.6m based on the provisions of the Scheme at the valuation date.

Dealing with the surplus

The treatment of the surplus disclosed at 31 December 2010 is covered by Regulation 6(3)(a), (b) and (c) of the Public Employees (Contributory Retirement Scheme) (General) (Jersey) Regulations 1989.
Members of the States Assembly may remember that the 2007 valuation disclosed a deficiency of £63.2m. As there was no agreement between the Chief Minister and the Joint Negotiating Group (JNG) on how to deal with the deficiency the default position applied and all future pension increases were decreased by 0.3% per annum.

Where a surplus is disclosed at a valuation, the Regulations governing the Scheme require the Committee of Management to restore any previous reduction or cancellation of increase in pension or deferred pension which has taken effect in the previous six years. In accordance with the Regulations, the Committee of Management will therefore apply the surplus as follows:

a) Firstly, full reimbursement will be made to those surviving members who have suffered a reduction in pension increases paid from the Scheme during 2011 and 2012, excluding those members under the 1967 Regulations and the Former Hospital Scheme Regulations who received a top-up payment from their former employer.

b) Secondly, the benefits for all current deferred pensioners and pensioners will be restored to the amount that would have applied had the pension increases granted on 1 January 2011 and 1 January 2012 been equal to the full increase of the Jersey Cost of Living Index (i.e. assuming the 0.3% p.a. reduction in pension increases had not applied).

c) Finally, a reduction of less than 0.3% p.a. will be applied to future increases in pensions and deferred pensions due on or after 1 January 2013 such that the balance of the surplus is utilised.

In order to utilise the surplus based on the approach set out above, the Scheme Actuary has calculated that all future increases to pensions and deferred pensions due on or after 1 January 2013 should be based on the annual increase in the Jersey Cost of Living less 0.15% per annum.

Notes on the Valuation

9. Overall Approach

The overall approach adopted for the 2010 valuation was the same as for the 2007 valuation. In particular, the Actuary continued to use best estimate assumptions whereby the future outcome is just as likely to be better or worse than assumed.

Scheme Experience

The Actuary has calculated that over the 3 years since the previous valuation, Scheme experience has been unfavourable, creating an increase in the deficiency of £46m.

Employers’ rate for new entrants

The global employer’ contribution rate that would be required to finance benefits for future new entrants (the “new entrant” rate) is 14.5% of members’ salaries.

The new entrant rate of 14.5% of members’ salaries exceeds the employers’ contribution rate of 13.6% of salaries provided for in the Regulations. This means that on the assumptions adopted, the continued admission of new entrants can be expected to result in a strain on the finances of the Scheme.

Review of assumptions

At each valuation the Actuary reviews the assumptions to be used to ensure that financial assumptions are based on market conditions at the valuation date and that the demographic assumptions take into account Scheme experience over the three year valuation period and any industry developments, for example on mortality expectations.

Impact of changes to the assumptions

Changes to the assumptions for the 2010 valuation compared with those of the 2007 valuation had a favourable impact of £87m. When combined with adverse Scheme experience of £46m, the valuation resulted in a surplus of £40.6m as noted. The most notable elements were:

a) Changes to the discount rate assumptions including an increase in expected returns on Scheme assets and an increase in the proportion of assets allocated to growth, the latter in response to a recommendation from Martin Slack of Lane, Clark and Peacock in his independent Review of PECRS, and which aligned the valuation assumption with the Scheme’s investment strategy. Favourable impact: £160m

b) Change in Jersey inflation assumption: adverse impact: £46m

c) Change in assumed post retirement mortality rates: adverse impact: £62m

d) Change in salary increases relative to inflation: favourable impact: £13m

Actuarial Reports

The 2010 actuarial valuation was signed by the Scheme Actuary on 23rd May 2010. A copy of every report, signed by the Scheme Actuary, must be laid before the States by the Chief Minister as soon as possible.