One major defect that has led auditors in the Cayman Islands to disclaim government’s entire public sector financial statements for three consecutive years involves a failure to produce estimates for what is known as post-retirement healthcare liability.
Finance Minister Marco Archer said last week that the government is obligated to provide civil service retirees, veterans and seamen a certain level of healthcare benefits during their later years when they are no longer working. The liability figure represents what government is expected to pay over a 20-year period for these healthcare services, which include, to some extent, payment amounts to current civil servants whose retirements are expected during the period.
The last known evaluation of post-retirement healthcare costs, which was done in 2004, estimated the liabilities at US$798 million. Mr. Archer stressed last week during a statement in the Legislative Assembly that those costs are estimated over a 20-year period and are not something Cayman’s government must pay in the short term.
Yearly costs for retirees’ healthcare are included in each government ministry or portfolio’s annual budget.
Without the figures for the healthcare liability, Auditor General Alastair Swarbrick’s office cannot determine the extent of the obligation due to retirees over the 20-year period. Mr. Archer said that situation is about to change.
The finance minister confirmed Friday that government has now received a recent valuation of the healthcare liabilities which he intends to make public in the next few weeks.
“[The figure is] derived by computing the value of healthcare costs over the period of [the retirees’] life expectancy,” Mr. Archer said. “The total amount is represented at today’s value.
“It is important that the public understands that post-retirement healthcare liability figure that is given is not an amount that the government is obligated to pay immediately.”
Mr. Archer said proposed changes to the Cayman Islands retirement age, expected to take place in 2016, will push the mandatory retirement age for civil servants from 60 to 65, which would “significantly reduce the post-retirement healthcare liability amount.”
The Cayman Islands is required to publish reports on all contingent and actual liabilities – including those in the public pensions and healthcare systems – under the Framework for Fiscal Responsibility agreement with the United Kingdom government.
In addition, the framework requires Cayman’s government to state what it is going to do to address the projected shortfalls.
“Government will publish its proposals to address the results of the assessments no later than the budget following the receipt of the actuarial assessment,” the U.K. framework proposal reads. For instance, if an actuarial evaluation were to be completed as of Jan. 1, 2015, the local government would have to include proposals to address it in the 2015/16 budget, which is due on June 30, 2015.
The pensions’ liability figure is already included in the annual government budget. However, healthcare liabilities, which haven’t been calculated in a decade, are not.
If included in the spending plan, those figures would have a major impact on the Cayman Islands government net worth, dropping it into negative territory, depending on which calculations were used.