An actuarial valuation has found that the States' public sector pension scheme is only facing a funding deficit of £91m., a considerably lower amount than the more than £1bn. deficit shown in the 2017 States accounts.
The new valuation found that the overall value of the Superannuation Fund (the pension scheme), as of 31 December 2016, was £1,301m., with the liabilities being £1,392m., just £91m. more.
This current position of 93.5% funded compares to 93.4% in 2013 and 92.7% in 2010.
An actuarial valuation compares the value of a pension scheme’s assets with a funding target that calculates benefits that are likely to be paid from the scheme in the future in respect of benefits already accrued by members. It uses information about the specific scheme, with the actuary making relevant assumptions about factors which have an influence on the scheme’s future finances.
These include investment returns, inflation, pay increases, pension increases, when members will retire and how long members will live.
Deputy Gavin St Pier, President of the Policy & Resources Committee, said the reason for the discrepancy between this method and the requirements of Financial Reporting Standard (FRS) 102 that were used to calculate the figure used in the States Accounts.
"FRS 102 uses a set of generic, and very conservative, assumptions to calculate thefunding picture. FRS 102, previously FRS 17, allows for companies to be compared on a like-for-like basis in terms of pension liabilities. As such, its relevance for a government is extremely limited," he said.
"The actuarial valuation of our public sector pension scheme is just that; a valuation of our scheme. It looks at relevant projections linked to our scheme; it looks at our investment strategy; it adopts assumptions relevant to our workforce. As such, it is the most accurate information available to the States of Guernsey to determine the funding position and future funding needs to ensure we can meet the liabilities of our scheme."
He said P&R had for some time been concerned about the FRS 102 calculations, and whether they do not give a true representative of the funding for the pension fund. FRS 102 prescribes an assumption of future investment reutrn as the yeild on high quality corporate bonds, where as this new, actuarial, valuation, uses an assumption of inflation plus 2.5%.
The two bases result in material defences in the calculations of liabilities and therefore, the net funding position of the scheme. The States of Guernsey's Superannuation Fund is actively invested with a target rate of return of 4% above inflation, with actual returns averaging 6.5% above.
"While we are committed to adopting International Public Sector Accounting Standards, FRS 102 results in a funding deficit that is misleading and has the potential to cause significant concern amongst the community," Deputy St Pier added.
"Let’s be clear, this valuation is good news. There has been a further small but steady improvement in the States of Guernsey’s public sector pension liabilities. The changes made to the public sector pension scheme in 2016 remove a number of risks from the employer and place the scheme on a more sustainable footing long term."
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