Gov’t pensions cost more

The costs of administering retirement
plans for Cayman Islands civil servants are
more than double – and in some cases more than triple – what private sector
entities pay for the management of their pension schemes.

The data for those comparisons
comes from information provided by the Public Service Pensions Board, as well
as the two largest private sector pension plans operating in the Islands; the Chamber of Commerce plan and the Silver
Thatch pension plan.

According to the figures provided,
the plans administered by the Public Service Pensions Board had fewer
participants and cost more to operate during 2009 than both of the private
sector plans combined.

The Cayman Islands’ financial
secretary’s office confirmed that annual administrative costs for pension plans
at 30 June, 2009, were US$4.2 million. The Public Service Pensions plan listed
just more than 8,300 participants – which would bring the annual administrative
spending per plan participant to just more than US$500.

The Chamber plan – with more than
18,000 participants – put its total administrative costs for 2009 at US$1.2
million, or less than US$70 per plan participant.

The Silver Thatch pension plan has
nearly 14,000 participants and cost about US$1.6 million to administer in 2009,
meaning it spent about $116 per plan participant.

One reason for the increased
administrative costs is that the government retirement funds employ about three
times the number of people as their private sector counterparts.

According to the financial
secretary’s office, the Public Service Pensions Board employed 26 people as of
30 June, 2009 – the end of the government’s budget year for 2008/09.

During 2009, Silver Thatch employed
seven people to administer its Cayman Islands fund; the Chamber fund employs
eight people.

One fund manager estimated that the
government could reduce the unfunded liability in its plan by CI$40 million to
CI$70 million over a decade simply by cutting personnel costs.

There are significant differences
between the two private sector plans and the government plans.

Despite its smaller number of
participants, the Public Service Pensions plan manages two separate types of
retirement systems – defined benefit investment accounts for those civil
servants who joined the retirement fund prior to April 1999, and defined
contribution investments for those who joined after that date.

The Public Service Pensions also
manage a greater asset value in their retirement plans – nearly US$300 million –
than the two private sector funds. They also have significant unfunded
liabilities – estimated at some $325 million as of 30 June, 2009.  

Neither of the private sector plans
have a defined benefit plan in the Cayman Islands.
The total asset value of the Chamber pension plan was estimated recently at
US$219; the value of Silver Thatch assets was just shy of US$200 million in
2009.

Lack of transparency

The recently-completed Miller
Commission Report, which looked at the state of public finances in the Cayman
Islands, made specific reference to the Public Service Pension plans and the
growing unfunded liability from the defined benefit portion of the plan.

“The current position with regard
to the three pension plans (including the civil servants plan, the judicial
plan and the Legislative Assembly members plan) is a matter which should be of
considerable concern to government,” the report stated.

However, information about the
plans is scant. The last annual report from the fund was published in 2004, but
the Miller report noted audited financial statements had been deleted from its
on-line file. The review also stated that no information about the funds’ investment
performance was publicly available.

“In short, we find a surprising
lack of transparency in the government’s pension programmes,” the report
stated.

The last actuarial valuation of the
funds was carried out in mid-2006, according to the Miller report – the full
actuarial report has never been made public. A recent government bond offering
identified the fund’s estimated unfunded liability at $325 million, based on an
actuarial estimate.

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