FINANCIAL REPORT AND ACCOUNTS 2011 - States Assembly

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THE ANNUAL REPORTSUMMARY OF CURRENT POSITIONVALUATION OF PENSION SCHEMESWhy do the valuations differ?Prior to 1987, pension increases in retirement have been provided by employers rather than the PECRS.However, as part of a restructure of the scheme, it was agreed that the scheme would take on the liability topay pension increases, with employers repaying the ‘pre-1987 debt’ over a period of 82 years. This liability isrecognised on the Balance Sheet, as detailed in Note 21.Under the prescribed method for calculating an FRS17 Valuation, the commitment of the employers to repaythis debt is disregarded. However, under an Actuarial Valuation, the ability of the employer and employeecontributions to continue to support the benefits is taken into consideration, including the employer’scommitment to repay the pre-1987 debt.The Actuarial Valuation also takes into account the total value of benefits expected to be earned in the future,and the corresponding contributions that will be made both by the States and employees. The FRS 17considers only those benefits currently earned, and also disregards future contributions expected to be paid.The FRS17 valuation also uses highly conservative investment assumptions based on the current rateof return of high-quality corporate bonds; yet this does not reflect the returns expected from the actualasset classes in which pension schemes invest. The Actuarial Valuation uses a long-term estimate of theexpected investment returns available from the scheme’s actual investments, and therefore provides a moreappropriate assessment of the long-term sustainability of the fund.To illustrate these differences, the table below provides a reconciliation between the most recent ActuarialValuation of the PECRS in 2010, and the corresponding FRS 17 Valuation:Assets LiabilitiesSurplus/(Deficit)£m £m £mActuarial Valuation 31/12/10 1,859 1,818 41Removal of Pre-87 Debt (204) – (204)Impact of Future benefits/contributions (387) (416) 29Difference in Discount Rate – 364 (364)Other Differences (2) 26 (28)FRS 17 Valuation 31/12/10 1,266 1,792 (526)What valuation method gives the most appropriate assessment of the long-term sustainabilityof pension schemes?The Actuarial Valuation provides the most appropriate assessment of the long-term sustainability ofa pension scheme. It reviews the financial conditions of the scheme and reports on the ability of employerand employee contributions to adequately support the scheme’s benefits.34
THE ANNUAL REPORTOUTLINE OF KEY OBJECTIVES, STRATEGIES, CHALLENGES AND OPPORTUNITIESVALUATION OF PENSION SCHEMESHowever, in assessing the long-term sustainability of public sector pension schemes it is important to lookbeyond the headline Actuarial Valuation to establish whether there are structural issues in pension provisionthat may need addressing.Increasing longevity and changes to the way people live and work mean that there is a need to review publicsector pension provision in Jersey. There is also a need to regard the outcome of the Hutton Report in orderto facilitate the movement of staff to and from the UK.A Technical Working Group, comprising representatives from the PECRS Committee of Management andTreasury, has been established to develop proposals for further consideration on changes to public sectorpension schemes. The group will aim to ensure that these schemes are affordable and sustainable for thelong term and assess the potential impact of possible changes to benefits and contribution rates.2.7.52.8 Outline of Key Objectives, Strategies, Challenges and OpportunitiesJersey is facing a range of issues, including difficult economic conditions and an ageing and growingpopulation. The States Strategic Plan considers these issues, and sets out in detail the States Objectives andStrategies, and is available on the States Website:http://www.gov.je/Government/PlanningPerformance/StrategicPlanning/Pages/StrategicPlan.aspxThe Strategic Plan sets the main aim of the States as ‘Working together to meet the needs of our community’.Specifically, by working openly and inclusively with all sectors of our community the States will:• Get people into work• Manage Population growth and migration• Reform Health and Social Services• House our community• Promote Family and Community Values• Reform government and the public service• Develop long term planning.The Strategic Plan goes on to outline Priorities that support these aims, and Key Performance Indicators thatcan be used to measure progress against these priorities.The financial implications of these matters will be covered more fully in the States of Jersey Medium TermFinancial Plan and Budget.35
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States of Jersey TreasuryCyril Le M
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FINANCIAL REPORT AND ACCOUNTS 2011 - States Assembly

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