The clock is ticking for the Cayman Islands Public Service Pensions Board, as the latest review of the government’s civil service retirement fund recommended massive increases in pension contributions.
According to the board’s annual report for the 2010/11 budget year, the board’s actuaries determined that contributions for the defined benefit part of the plan would have to increase from the current 12 per cent of salary to 44.23 per cent of salary. Actuaries recommended increasing contributions for the defined contributions part of the plan from 12 per cent to 12.4 per cent of salary.
The Public Service Pensions Board was re-established as a statutory authority on 14 April, 1999. Employees who had joined the pensions plan prior to that date (and some prior to 1 January, 2000) were enrolled in the defined benefit part of the plan. Employees who joined the plan after 1 January, 2000, were enrolled in the defined contribution part of the 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 law mandates an actuarial valuation report of the plan every three years. The last one was completed for the effective date of 1 January, 2011, but has not yet been approved by Cabinet.
According to the previous actuarial valuation report, as of 1 January, 2008, showed some 1,018 people receiving benefits under the defined benefits part of the plan, 411 people with deferred vested benefits under the defined benefits part of the plan, and 1,332 active participants in the defined benefits part of the plan.
As of 1 January, 2008, there were no people receiving benefits under the defined contributions part of the plan, 1,158 people with deferred vested benefits under the contributions part of the plan, and 3,313 active participants in the defined contributions part of the plan. Under the public service pensions plan, employees contribute 6 per cent of their salary and employers contribute an additional 6 per cent.
As of 1 January, 2011, the public service pensions plan had a past service liability of $495 million. “Although the fund remains underfunded, the actuaries determined that the liability for inactive members (existing pensioners and beneficiaries, and those with deferred pensions) is sufficiently covered by available assets,” according to the board’s annual report for 2010/2011.
Overall, the fund deficiency as of 1 January, 2011, was $165.9 million. By comparison, as of 1 January, 2008, the fund deficiency was $192.3 million. As of 1 January, 2005, the fund deficiency was $165.7 million.
According to the 2010/11 report, “The actuary has determined that a continuation of the current level of contributions to the defined benefit plan (close to 12 per cent of salaries) is projected to result in the depletion of the defined benefit allocated fund by the year 2026. It is also determined that by the year 2013 it is expected that, under the current scenario, that total plan contributions (including both defined benefit and defined contribution contributions) will be insufficient to meet benefit payments and expenses.”