Grenada Public Service Pension Arrangements

1. Grenada Public ServicePension Arrangements July 2011

2. Agenda • Current Benefits • Data and Assumptions • Existing Liabilities • Post 1983 Officers • Other issues arising

3. 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

4. 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?

5. Post-April 1983 Officers • No Pensions Act pension benefits • NIS pension only • Significantly lower benefits than Pre-April 1983 officers

6. 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

7. 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

8. 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

9. Officers’ Data Ie lots of data records!

10. 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

11. Financial Assumptions

12. Demographic Assumptions • Mortality rates • Withdrawal • Early retirement • Ill-health • Proportion married • Earnings scales • New hires • Admin expenses

13. 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

14. Payments Projection PV = $637 m at 30 Nov 2007 discounting

15. 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

16. 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

17. 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

18. Summary • Total liabilities ~$668 million • Future accruals mainly for un-established post officers

19. 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

20. Pensions Act benefits Note: excludes retired Post 1983 officers

21. 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?

22. Modified Benefits

23. Modified Benefits • Helps meet cost considerations • But, can it be administered? • Harmonisation with NIS presents other issues: • Early retirement benefits • Retirement lump sum availability

24. Un-established Post Benefits

25. 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

26. Other Issues • Funding options • Unfunded or PAYG • Partial/full pre-funding • Retirement age • Leaving service benefits • Officer contributions • Death benefits • Minimum pension

27. 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

28. 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 un-established posts