Finance Minister Roy McTaggart may be correct in saying Cayman’s unfunded pension liabilities are “not a reason for immediate concern”.
That does not necessarily mean there is – again using his words – “no cause for alarm”.
In our view, government’s failure to spend the recommended $18.4 million annually that it will take to address the shortfall over the next 20 years is a cause for grave concern, if not outright alarm.
And it begs the question: Why?
Government has the figures at its disposal: To address the $197.2 public pension shortfall, it must spend more than $18.4 million annually over the next two decades. If the government does not, it will be faced with even steeper obligations. Worst-case scenario, it will be unable to honour its commitment to pensioners who retired under the previous defined-benefit plan.
To argue that because government is currently able to make monthly pension payments there is no cause to worry is to miss the bigger picture. Skimping on payments now only leads to bigger payments in the future. (In 2016, consultants advised government to spend about $16 million annually over 20 years to eliminate the unfunded liability. In 2020, another valuation will again revise the estimates.) But as the Compass reported this week, government spent only $10 million last year to fund past service liabilities – a little over half of what is required.
This year’s budget included $11.1 million for the payments, boosted by $4 million in supplemental spending approved by legislators last month.
Financial Secretary Kenneth Jefferson told the Compass that lawmakers could allocate even more money before year’s end if they record a greater-than-expected surplus, bringing it closer to the $18.4 million target. We do not see the logic of taking such a piecemeal approach.
Why not budget for the full payment at the outset, and do away with all this uncertainty?
Even more concerning, if not alarming, is the fact that this particular IOU is not government’s only unfunded liability. In fact, it almost pales in comparison to astronomical anticipated healthcare liabilities for current and retired civil servants – estimated at $1.7 billion over 20 years (in current dollars) in 2017.
Last spring, Financial Secretary Jefferson warned the Public Accounts Committee that, left unchecked, the healthcare obligation could reach hundreds of millions of dollars per year, overwhelming the government’s budget.
Still, our leaders have been unable to make even the most modest changes to prevent careening off this projected fiscal cliff.
If anything, we would take comfort in seeing our elected officials express a bit of alarm when discussing these issues, if only to signal that they understand the gravity of the situation.
Better yet, we wish they would act to address these looming obligations instead of kicking the can down the road.