Thursday 07 June 2018
The public sector pension scheme is 93.5% funded, according to the latest periodic actuarial valuation.
An actuarial valuation compares the value of a pension scheme's assets with a funding target that calculates benefits that are likely to be paid from the scheme in the future in respect of benefits already accrued by members. It uses information about the specific scheme, with the actuary making relevant assumptions about factors which have an influence on the scheme's future finances. These include investment returns, inflation, pay increases, pension increases, when members will retire and how long members will live. The States has an actuarial valuation undertaken of the public sector scheme periodically not least to ensure that appropriate employer and employee contributions are made into the scheme.
The actuarial valuation found that the overall value of the Superannuation Fund as at 31st December 2016 was £1,301m, with the liabilities of the Public Sector Pension Scheme (Combined Pool and Guernsey Electricity Limited Actuarial Account) to be £1,392m. There are no changes recommended to the employers' contribution rates.
Based on the actuarial valuation, the public sector pension scheme has a funding deficit of £91m. This deficit is considerably lower than the £1bn-plus figure shown in the States' Accounts.
Deputy Gavin St Pier, President of the Policy & Resources Committee, said the reason for this discrepancy is the requirements of Financial Reporting Standard (FRS) 102 that was used to calculate the figure used in the States Accounts.
'FRS 102 uses a set of generic, and very conservative, assumptions to calculate the funding picture. FRS 102, previously FRS 17, allows for companies to be compared on a like-for-like basis in terms of pension liabilities. As such, its relevance for a government is extremely limited.
'The actuarial valuation of our public sector pension scheme is just that; a valuation of our scheme. It looks at relevant projections linked to our scheme; it looks at our investment strategy; it adopts assumptions relevant to our workforce. As such, it is the most accurate information available to the States of Guernsey to determine the funding position and future funding needs to ensure we can meet the liabilities of our scheme.
'The Policy & Resources Committee has for some time been concerned that the FRS 102 calculations, which incur a cost to the taxpayer to produce, do not give a true representation of the funding level of Guernsey's Superannuation Fund. FRS 102 prescribes an assumption of future investment return as the yield on high quality corporate bonds (0.8% below inflation for the 2017 calculation), whereas the Actuarial Valuation uses an assumption of inflation plus 2.5% (which is in line with that used when determining the revised pension arrangements). The two bases result in material differences in the calculation of liabilities and the resultant net funding position of the scheme. The Superannuation Fund is actively invested with a target rate of return of 4% above inflation (actual returns over the past five years have averaged 6.5% above inflation).
'While we are committed to adopting International Public Sector Accounting Standards, FRS 102 results in a funding deficit that is misleading and has the potential to cause significant concern amongst the community.
'Let's be clear, this valuation is good news. There has been a further small but steady improvement in the States of Guernsey's public sector pension liabilities. The current funding position of 93.5%, based on the actuarial valuation, is manageable and has improved from 93.4% assessed in the last valuation in 2013 and 92.7% in 2010. The changes made to the public sector pension scheme in 2016 remove a number of risks from the employer and place the scheme on a more sustainable footing long term.'