Public Sector Pension Reform Scrutiny Report: Ministerial Response

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A decision made on 7 December 2015:

Decision Reference: MD-TR-2015-0125
Decision Summary Title:	Minister’s Response to Corporate Services Scrutiny Panel Report on the Public Sector Pension Reform 2015		Date of Decision Summary:	17 November 2015
Decision Summary Author:	Head of Decision Support		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	Minister’s Response to Corporate Services Scrutiny Panel Report on the Public Sector Pension Reform 2015		Date of Written Report:	17 November 2015
Written Report Author:	Head of Decision Support		Written Report : Public or Exempt?	Public
Subject: Minister’s Response to Corporate Services Scrutiny Panel Report on the Public Sector Pension Reform 2015
Decision(s): The Minister approved the response to the Report of the Corporate Services Scrutiny Panel and requested that it be presented to the States.
Reason(s) for Decision: The Minister wishes to ensure that all States Members are able to have access to his response to the Report of the Corporate Services Scrutiny Panel.
Resource Implications: There are no financial or manpower implications as a direct result of this decision.
Action required: Head of Decision Support to request the Greffier of the States to arrange for the attached response to the Report of the Corporate Services Scrutiny Panel to be presented to the States at the earliest opportunity.
Signature:		Position: Senator A J H Maclean, Minister for Treasury and Resources
Date Signed:		Date of Decision:

Public Sector Pension Reform Scrutiny Report

Ministerial Response: S.R.8 /2015 Ministerial Response to be presented to States by: 29th December 2015

Review title: Public Sector Pension Reform 2015 (Phase 2)

Scrutiny Panel: Corporate Services

Minister’s Introduction:

The States agreed to make sustainable public finances a priority as part of the Strategic Plan in April 2015. The final-salary public service pension scheme is unsustainable in its current form. It is funded on a “best-estimate” basis and the contributions are insufficient to fund the benefits being promised to new and existing employees. The proposed Career Average Revalued Earnings (CARE) Scheme was developed to provide a sustainable, affordable and fair scheme for the long term. The CARE Scheme has been costed using “prudent” assumptions and for the first time will fix the maximum that the States can be asked to pay to the pension scheme at an employer contribution cost cap of 16.5% of pensionable earnings.

It is reassuring the Corporate Services Scrutiny Panel have reviewed the proposals and concluded that the rationale for a move from a final salary scheme to a CARE Scheme is compelling and that the risk-sharing arrangements provide a robust mechanism for controlling the cost of pension provision to the employer. The second phase of the Panel’s review and support of the Regulations is welcomed.

The Panel have requested that the long term sustainability study of the Fund is presented to the States Assembly before the end of this term of office. This will be delivered by the completion and lodging in the States Assembly the next Actuarial Valuation Report which will include an assessment of any long term trends that may impact on sustainability of the Scheme.

Findings:

Findings

Comments

The Panel, in agreement with its advisors, question whether the cap of 16.5% is affordable in the long term.

Funding for the current level of employer contributions is included within base budgets and any additional employer contributions up to 2019 are included within the MTFP 2016-2019 agreed by the States in October 2015. The phasing of the employer contribution rate increase for existing employees over the period 2019 to 2021 enables costs to be managed and the contribution cost cap provides certainty that can be incorporated into longer term financial plans.

A greater concern would be if we had not made these changes – there is currently insufficient funding going into the Scheme to fund the benefits being promised and there is no formal employer cost cap within the current regulations.

The employer cost cap will provide certainty to the States and is set as a percentage of pensionable earnings. Therefore, if the States employs less people in the future the cost of providing pensions will be less.

Recommendations:

Recommendations

Accept/

Reject

Comments

Target date of action/

completion

The Panel request a long term sustainability study of the fund is presented to the States Assembly by the end of this term of office.

T&R

The Scheme is required to undergo an actuarial valuation every 3 years. This provides an assessment of the funding position of the Scheme. The Public Employees (Pension Scheme) (Funding & Valuation) (Jersey) Regulations agreed by the States in November 2015 include a new requirement for actuarial valuation reports to contain an assessment of whether any change in funding level is due to long term trends of a demographic, investment or other nature. In this way actuarial valuations, in future, will contain an assessment of long term sustainability of the Fund.

The next actuarial valuation is to be undertaken at the end of December 2016. Under the Regulations agreed by the States there is a requirement that valuations must be presented within 15 months and so the outcome of the 2016 actuarial valuation, which will include an assessment of any long term trends and affordability of the benefit package, will be presented to the States Assembly within this term of office.

This recommendation will be met by the presentation of the 2016 actuarial valuation report to the States in early 2018.

March 2018

Minister’s Conclusion:

The second phase of the Corporate Services Scrutiny Panel’s review of the Public Sector Pension Reform provides a welcome review of the detailed Regulations for the CARE pension scheme for public sector employees. It is reassuring that Scrutiny’s advisor has concluded that the Regulations are consistent with the benefit structure expected at the time of the first phase of the review in 2014.

It is also reassuring that Scrutiny’s advisor has concluded during their reviews that the rationale for a move from a final salary scheme to a CARE Scheme is compelling and that the risk-sharing arrangements provide a robust mechanism for controlling the cost of pension provision to the employer.

The Panel’s recommendation for a long term sustainability study will be achieved by the completion and lodging of the next actuarial valuation report which under the Public Employee (Pensions Scheme) (Funding & Valuation) (Jersey) Regulations is required to contain an assessment of any long term trends of a demographic, investment or other nature which may impact on the sustainability of the Scheme.