simon sutcliffe`s presentation

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Grenada Public Service
Pension Arrangements
July 2011
Bacon Woodrow & de Souza Ltd
Agenda
 Current Benefits
 Data and Assumptions
 Existing Liabilities
 Post 1983 Officers
 Other issues arising
Bacon Woodrow & de Souza Ltd
Current Benefits
Officer Categories
 Officers in established posts
 Appointed
before 4 April 1983
 Appointed on or after 4 April 1983
 Officers in un-established posts
Bacon Woodrow & de Souza Ltd
Pre-April 1983 Officers
 Benefits set out in Pensions Acts
 Valuable retirement pension
 Target
2/3rds final salary
 Available from as early as age 50 (or 26
years and 8 months’ service)
 Retirement lump sum benefits
 Regular pension increases
 Non-contributory
 NIS in addition
 Total pension >100% salary?
Bacon Woodrow & de Souza Ltd
Post-April 1983 Officers
 No Pensions Act pension benefits
 NIS pension only
 Significantly lower benefits than PreApril 1983 officers
Bacon Woodrow & de Souza Ltd
Un-established post Officers
 Pension payable at Government
discretion
 Irrespective of date of appointment
 Minimum 15 years’ service
 Lower pension benefit
 Pension
= 1% x service x salary
 No retirement lump sum
 Non-contributory
 NIS pension in addition
Bacon Woodrow & de Souza Ltd
Issues of Note
 “Expensive” benefits for pre-April 1983
officers
 Inconsistencies between:
 Pre-
and post-April 1983 officers
 Un-established post officers and post-April
1983 officers get nothing
Bacon Woodrow & de Souza Ltd
Our Terms of Reference
 Quantify existing liabilities
 Look at pension scheme options for
public officers including Post-April 1983
officers
 Advise on financial aspects of possible
new pension designs
Bacon Woodrow & de Souza Ltd
Officers’ Data
Number of records
Pre April 1983 Public Officers
955
Post April 1983 Public Officers
3,658
Un-established Post Officers
2,292
Retired Public Officers
1,239
Ex-gratia pensions
Total
512
8,656
Ie lots of data records!
Bacon Woodrow & de Souza Ltd
Data Issues
 Results reliant on and findings limited by
data accuracy
 Data items missing
 Only provided with basic salary
 “Completed” data set using estimates
 Results qualified
 Treat
with caution
 Indicative only
Bacon Woodrow & de Souza Ltd
Financial Assumptions
Discount rate
%pa
7.0
Earnings increases
4.0
Pension increases
4.0
Bacon Woodrow & de Souza Ltd
Demographic Assumptions








Mortality rates
Withdrawal
Early retirement
Ill-health
Proportion married
Earnings scales
New hires
Admin expenses
Bacon Woodrow & de Souza Ltd
Demographic Assumptions
 Little statistical data available
 Review experience data provided (patchy)
 Withdrawal
rates low
 Early retirement rates low
 Use to set assumptions where possible discussed with HR where possible
 Otherwise use standard actuarial tables
Bacon Woodrow & de Souza Ltd
Payments Projection
70,000,000
60,000,000
50,000,000
PV = $637 m
at 30 Nov 2007
40,000,000
30,000,000
discounting
20,000,000
10,000,000
2008
2013
2018
2023
2028
Pensioners
2033
Actives
2038
2043
2048
2053
2058
Future
Bacon Woodrow & de Souza Ltd
Present Value of Liabilities
Present value of liabilities = $637 million
 If $637 million invested income and
capital will exactly pay for pension
benefits as they fall due
 All assumptions exactly borne out in
practice
 $196 million of liability is for future
pension increases
Bacon Woodrow & de Souza Ltd
Sensitivity of Results
 Early Retirements
 +$97
million if all eligible officers retire now
 Cash strain from lump sums
 Discount rate
 -13%/+16%
for +1%pa/-1%pa change
 Earnings/pension inflation
 16%/-13%
for +1%pa/-1%pa change
 Mortality rate
 +8%
for 25% rate reduction
Bacon Woodrow & de Souza Ltd
Un-Established officers
Past Service
 Looked at accrued benefits
 Short service (higher turnover?)
 Present value is $31 million as at 30 Nov
2007
Future Service
 1 year cost $3 million
 Equivalent to 10.2% of salaries
Bacon Woodrow & de Souza Ltd
Summary
 Total liabilities ~$668 million
 Future accruals mainly for un-established
post officers
Bacon Woodrow & de Souza Ltd
Post-April 1983 Officers
 Pensions Act Benefits
 Modified Pensions Act Benefits
 Higher
retirement age (65)
 Harmonised with NIS
 No guaranteed pension increases
 Different benefits
 Defined
contribution, cash balance, career
average
 Un-established post benefits
Bacon Woodrow & de Souza Ltd
Pensions Act benefits
4 50 ,0 0 0 ,0 0 0
4 0 0 ,0 0 0 ,0 0 0
3 50 ,0 0 0 ,0 0 0
3 0 0 ,0 0 0 ,0 0 0
2 50 ,0 0 0 ,0 0 0
Future
Past
2 0 0 ,0 0 0 ,0 0 0
150 ,0 0 0 ,0 0 0
10 0 ,0 0 0 ,0 0 0
50 ,0 0 0 ,0 0 0
0
2008
2 0 13
2 0 18
2023
2028
2033
2038
2043
2048
2 0 53
Note: excludes retired Post 1983 officers
Bacon Woodrow & de Souza Ltd
Post 1983 Pensions Act Benefits
 Present value of past service liabilities is
$377 million
 Future accrual cost of 25.6% of salaries
(~$27.7 million next year)
Could costs be managed by modifying
benefits?
Bacon Woodrow & de Souza Ltd
Modified Benefits
Past service liability
Normal cost
4% pension
increases
No
increases
4% pension
increases
No
increases
$ million
$ million
% salaries
% salaries
Past service liability for
targeted Pensions Act benefits
377
265
25.6
18.0
- retirement age of 65
255
193
17.2
13.0
- inclusive of NIS pension
88
63
5.8
4.2
- retirement age of 65 and
inclusive of NIS pension
71
55
4.9
3.8
Bacon Woodrow & de Souza Ltd
Modified Benefits
 Helps meet cost considerations
 But, can it be administered?
 Harmonisation with NIS presents other
issues:
 Early
retirement benefits
 Retirement lump sum availability
Bacon Woodrow & de Souza Ltd
Un-established Post Benefits
Past service liability
Normal cost
4% pension
increases
No
increases
4% pension
increases
No
increases
$ million
$ million
% salaries
% salaries
- retirement age of 60
146
97
10.1
6.7
- retirement age of 65
97
68
6.6
4.7
Past service liability for unestablished post benefits
Bacon Woodrow & de Souza Ltd
Advantages
 Easier to administer
 Consistent with un-established officers
 Fit to cost constraints by changing
pension increases, contributions, early
retirement etc
 Reasonable target pension when added
to NIS, eg if 35 years’ service
 35%
pay from Government
 NIS pension in addition
Bacon Woodrow & de Souza Ltd
Other Issues
 Funding options
 Unfunded
or PAYG
 Partial/full pre-funding
 Retirement age
 Leaving service benefits
 Officer contributions
 Death benefits
 Minimum pension
Bacon Woodrow & de Souza Ltd
Conclusions
 Objectives needed for complete advice
 Costs are indicative only due to data
limitations
 Existing liabilities
 Accrued
~$668 million at 30 Nov 2007
 Future accrual cost ~10.2% of salaries for
un-established officers (mainly)
 Exposure to salary inflation, mortality
and retirement experience
Bacon Woodrow & de Souza Ltd
Conclusions Cont’d
 Options for Post-1983 Officers
 Pensions Act benefits expensive
 Administration challenges
 Offset costs by modifying benefits
 Harmonise
 Higher
retirement age
 Lower pension increases
 Change benefits completely, eg as for unestablished posts
Bacon Woodrow & de Souza Ltd
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