Although it reported a banner year for earnings in 2011, a Cayman Islands Public Service Pensions Board evaluation noted that massive increases in pension contributions would still be needed to keep the government’s civil service retirement fund afloat over the next decade.
As of 1 January, 2011, the pensions board actuaries noted that the actual cost of the defined benefit portion of the civil service retirement plan would require government to increase employee contributions to the fund from the current 12 per cent salary to 44 per cent of salary.
The retirement plan is for all government workers. Separate plans for members of the Cayman Islands judiciary and elected lawmakers operate under different laws and have different funding requirements.
“The actuary has determined that a continuation of the current level of contributions to the defined benefit plan is projected to result in the depletion of the defined benefit allocated fund by the year 2026,” the board’s evaluation, contained in an annual report, noted.
The defined benefit section of the Public Service Pensions plan for civil service employees provides a monthly pension cheque for government workers. The defined benefit portion of the plan was closed off to civil servants during the year 2000 and all government workers hired after that participate in a defined contribution retirement plan.
The defined contribution plan only allows workers to collect what they have put into the retirement plan, plus investment earnings, during the years they were working. The defined benefit plan pays a monthly stipend for as long as the employee and their spouse may live, no matter what the employee paid into the plan.
The 2026 date may seem far off. However, actuaries identified another, more immediate, problem under the government’s retirement system.
“It is also determined that by the year 2013, it is expected that, under the current scenario [12 per cent contribution rate] the total plan contributions will be insufficient to meet benefit payments and expenses,” the report noted.
The comments are based on an actuarial review of the Public Service Pensions system as of the effective date 1 January, 2011. The completed report was presented to the government’s financial secretary, Kenneth Jefferson, on 19 April, 2012.
Typically, these actuarial evaluations are done every three years. The last such report for the Public Service Pensions Board was done as of the effective date 1 January, 2008.
“As Cabinet has not yet accepted and approved the 2011 or the 2008 reports and the recommended rate of contributions contained therein, both contributions received and contributions receivable in these financial statements are reflective of the 2005 report, which are the last approved rates,” the board report noted.
According to the Public Service Pensions Board annual report for 2010/11, which was audited by the Cayman Islands auditor general’s office, 2011 was a big year for retirement investment earnings. “The fiscal year ending 30 June, 2011, produced an 8.3 per cent year-to-date performance and registered a 24.7 return,” the board stated. “[It is] the highest return over its historical record.”
For the investment fund itself, that means a $59.4 million one-year increase in available assets – a 17 per cent overall increase.
That rise led to a decrease in what’s known as the unfunded liability within the public servants retirement fund. However, that long-term liability was still estimated at $165.8 million over a rolling 20-year period as of January 2011. That liability is not a bill that comes due immediately; rather it is an actuary’s best estimate of what the fund will have to make up over the course of 20 years in order to pay its retirees’ pensions on time.
The unfunded liability only applies to the defined benefit portion of the Public Service Pensions plan, not to the defined contribution section.