Public pension liability up 69 per cent

Cayman’s private sector pension
system has been taking some heat in recent days following the complaints
commissioner’s announced review of the apparent failure of government
regulators to police companies who aren’t paying worker retirement benefits.

However, the pension system for
private sector companies isn’t the only retirement savings operation facing
difficulties in the Cayman Islands.

According to documents released as
part of government’s US$312 million bond offering last year, the unfunded
liability in the Public Service Pension Fund – inclusive of the three retirement
plans for government workers – has gone up by some 69 per cent within the past
five years.

An actuarial evaluation done for
January 2005 indicated the public pension system’s unfunded liability,
essentially the gap between available assets and what is owed to civil servants
by the three pension plans government uses, was estimated at US$192.2 million.

A similar evaluation completed for
January 2008 – which has never been released by government – stated that the public
pension system’s unfunded liability had reached US$248.4 million at that time.

Estimates done for the period
ending 1 July, 2009 put the unfunded liability at US$324.8 million, according
to information contained in the bond offering.

The Cayman
Islands government declined to release the January 2008 actuarial
evaluation following a Freedom of Information request made by the Caymanian
Compass last year. The reason stated for deferring the report’s release was
that it would eventually be tabled – made public – in the Legislative Assembly.

To date, the report has not been
made public.

Unfunded liabilities in retirement
systems are not monies that are owed all at once. Typically, pension plans
operate on either a rolling or fixed period of 20 or 30 years during which
actuaries make an educated estimate of what will be owed during that period.

The Cayman
Islands public pension system generally estimates its deficiencies
over a 20-year period.

“Although this amount (referring to
the US$324.8 million) is substantial, the liability is not payable in full, at
once,” the report accompanying the bond offering read.

Also, the unfunded liability in the
public pension plans only includes civil servants who joined the government
prior to 1 January, 2000. Any workers who were hired after that were placed on
a defined contribution plan.

Those government workers on a
defined benefit plan are paid a monthly allotment in pensions based on their
salaries when they worked in government. To arrive at an estimated liability
figure, actuaries have to look at a number of factors including estimated years
on the job and a worker’s life span following retirement.

With the change from defined
benefit to defined contribution plans for civil servants in 2000, the number of
public servants linked to the unfunded liability became finite. In other words,
no other government workers could join the defined benefit system and add to
actuarial deficiencies.

Despite that, the estimated
unfunded liability in the Public Service Pension Fund grew by nearly 70 per
cent from 1 January, 2005 to 1 July, 2009.

In the bond offering memo, it was
stated that government had provided US$26.4 million for the current costs of
providing pension benefits for the civil servant retirement plans.

In addition, government is also
making what are known as ‘past service pension liability’ payments. These go to
pay off unfunded liabilities for government workers who are already in

The amount government contributed
to the past service pension liability dropped from about CI$14 million in the
last budget year to CI$1.9 million in the current year. Those payments will
have to be made up in future budgets.  

“Although this amount is
substantial, the liability is not payable in full, at once.” – bond offering
memo, referring to government’s pension debts

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