Parliament has amended the Public Service Pensions Act by confirming the definition of ‘credited rate of return’, so that it complies with the one that has been used by the administrator of the Public Service Pension Board since the Act entered into force on 8 Aug. 2019.
The definition used since 2019 was issued by Cabinet but not detailed in the legislation.
Deputy Governor Franz Manderson brought the amendment bill before parliament “to provide clarity and make slight revisions” to the act.
The act itself, he said, had brought several very meaningful improvements to the public service pension plan, including a change to the definition of the credited rate of return.
That is the rate at which interest is applied to individual pension plan member accounts.
Before the act came into force, this rate was calculated on an annual basis by using the average of the rates or return received on investment for the previous three years, net of expenses.
Once the annual rate was calculated, a full year’s interest was added to the accounts balances, Manderson explained.
The Public Service Pensions Act changed the calculation period from annually to quarterly, which meant that accounts were credited on a quarterly basis.
This created smoother returns and addressed the effects of market volatility, Manderson said.
He said the latest amendments, which inserted the definition previously issued by Cabinet, were “to confirm the definition of the credited rate of return and to validate all of the work that has been done to date”.
The calculation method uses the net returns of the 11 quarters immediately preceding a calendar quarter. In other words, it uses a three-year window to smooth out market volatility but applies returns quarterly.
Deputy Opposition Leader Joey Hew supported the change, stating the previous administration had received in-depth explanations on the issue.
He said the quarterly calculation would “lower the exposure of the pension and, in fact, in most cases have a better rate of return”.
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