Bacon Woodrow & de Souza Ltd July 2011 Grenada Public Service Pension Arrangements

Bacon Woodrow & de Souza Ltd

July 2011

Grenada Public ServicePension Arrangements


Agenda

Current Benefits

Data and Assumptions

Existing Liabilities

Post 1983 Officers

Other issues arising


Current Benefits

Officer Categories

Officers in established postsAppointed before 4 April 1983Appointed on or after 4 April 1983

Officers in un-established posts


Pre-April 1983 Officers

Benefits set out in Pensions Acts Valuable retirement pension

Target 2/3rds final salaryAvailable from as early as age 50 (or

26 years and 8 months’ service)Retirement lump sum benefits Regular pension increasesNon-contributory

NIS in addition Total pension >100% salary?


Post-April 1983 Officers

No Pensions Act pension benefits NIS pension only Significantly lower benefits than

Pre-April 1983 officers


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 salaryNo retirement lump sum

Non-contributory NIS pension in addition


Issues of Note

“Expensive” benefits for pre-April 1983 officers

Inconsistencies between:Pre- and post-April 1983 officersUn-established post officers and post-

April 1983 officers get nothing


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


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 512

Total 8,656

Ie lots of data records!


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


Financial Assumptions

%pa

Discount rate 7.0

Earnings increases 4.0

Pension increases 4.0


Demographic Assumptions

Mortality rates Withdrawal Early retirement Ill-health Proportion married Earnings scales New hires Admin expenses


Demographic Assumptions

Little statistical data available Review experience data provided

(patchy)Withdrawal rates lowEarly retirement rates low

Use to set assumptions where possible - discussed with HR where possible

Otherwise use standard actuarial tables


Payments Projection

PV = $637 mat 30 Nov 2007discounting

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

2008 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058

Pensioners Actives Future


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


Sensitivity of Results

Early Retirements+$97 million if all eligible officers

retire nowCash strain from lump sums

Discount rate -13%/+16% for +1%pa/-1%pa change

Earnings/pension inflation16%/-13% for +1%pa/-1%pa change

Mortality rate+8% for 25% rate reduction


Un-Established officers

Past Service Looked at accrued benefits Short service (higher turnover?) Present value is $31 million as at

30 Nov 2007Future Service 1 year cost $3 million Equivalent to 10.2% of salaries


Summary

Total liabilities ~$668 million Future accruals mainly for un-

established post officers


Post-April 1983 Officers

Pensions Act Benefits Modified Pensions Act Benefits

Higher retirement age (65)Harmonised with NISNo guaranteed pension increases

Different benefitsDefined contribution, cash balance,

career average Un-established post benefits


Pensions Act benefits

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

450,000,000

2008 2013 2018 2023 2028 2033 2038 2043 2048 2053

Future

Past

Note: excludes retired Post 1983 officers


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?


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


Modified Benefits

Helps meet cost considerations But, can it be administered? Harmonisation with NIS presents

other issues:Early retirement benefitsRetirement lump sum availability


Un-established Post Benefits

Past service liability Normal cost

4% pension

increases

No increases

4% pension

increases

No increases

$ million $ million % salaries % salaries

Past service liability for un-established post benefits




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’ service35% pay from GovernmentNIS pension in addition


Other Issues

Funding optionsUnfunded or PAYGPartial/full pre-funding

Retirement age Leaving service benefits Officer contributions Death benefits Minimum pension


Conclusions

Objectives needed for complete advice

Costs are indicative only due to data limitations

Existing liabilitiesAccrued ~$668 million at 30 Nov 2007Future accrual cost ~10.2% of salaries

for un-established officers (mainly)

Exposure to salary inflation, mortality and retirement experience


Conclusions Cont’d

Options for Post-1983 Officers Pensions Act benefits expensive Administration challenges Offset costs by modifying benefits

HarmoniseHigher retirement ageLower pension increasesChange benefits completely, eg as for

un-established posts

Documents

Bacon Woodrow & de Souza Ltd July 2011 Grenada Public Service Pension Arrangements