Debate Begins on Pension Bill

Photo: Rudranath Fraser Minister of Finance and the Public Service, Hon. Audley Shaw, addresses the House of Representatives yesterday (March 15) about the reform of the public-sector pension scheme.

Story Highlights

  • Debate on a Bill to reform arrangements of the public-sector pension scheme began in the House of Representatives today (March 15).
  • In his opening remarks, Minister of Finance and the Public Service, Hon. Audley Shaw, said over the years the cost of public-sector pension has been increasing and is likely to continue as pensioners live longer.
  • The Minister said public-sector reform is aimed at making the system more affordable and sustainable for the Government, while providing adequate pension benefits.

Debate on a Bill to reform arrangements of the public-sector pension scheme began in the House of Representatives yesterday (March 15).

The Bills are the Pensions (Public Service) Act, 2016 and The Constitution (Amendment) (Established Fund) (Payment of Pension) Act, 2016.

In his opening remarks, Minister of Finance and the Public Service, Hon. Audley Shaw, said over the years the cost of public-sector pension has been increasing and is likely to continue as pensioners live longer.

He said the current public-sector pension arrangement is unsustainable, as only a small portion of public-sector workers make contributions.

“When I was Minister first time around, the cost of pension in the Budget used to be in the region of $16 billion to $20 billion. Right now it is $32 billion, so over a relatively few short years, you have seen a pretty remarkable increase in the size of the pension as a cost on the national Budget,” Mr. Shaw said.

The Minister said public-sector reform is aimed at making the system more affordable and sustainable for the Government, while providing adequate pension benefits.

With regards to the Pensions (Public Service) Act, Mr. Shaw said the Bill was tabled in Parliament in July 2016. However, subsequent to the tabling, the Government has heard the concerns raised by the trade union groups and has met with different groups in the sector in order to settle some issues.

Mr. Shaw said consequent to those meetings, several amendments will be made to the provisions of the legislation.

He highlighted that concern was raised for civil servants who are not accustomed to having pension contributions being deducted from their salary.

The Minister noted that Clauses 10 and 11 outline the employees’ contribution and also the Government’s contribution as the employer, and has the employees’ contribution at five per cent of salary.

“We will be proposing to phase in the contribution rate of five per cent, rather than seeking to implement five per cent, April 1. We are proposing that those groups which are at zero (contribution), that there will be a programme of phasing in the payment over (a period of time). We feel it will be a bit rough and difficult to just slap a five per cent immediately on the teachers,” Mr. Shaw said.

The Minister also mentioned Clauses 14 and 15, which contain provisions relating to early retirement and normal retirement. Currently, the Bill provides for the imposition of a penalty of one per cent for each year of early retirement prior to the normal retirement age from his or her pension.

Mr. Shaw said the Government is proposing to amend this provision to remove the penalty for early retirement.

“We are inserting a sunset clause for the early retirement programme which the Government will embark on in the course of the reform programme,” he noted.

The Bill establishes a defined benefit contributory scheme where all pensionable officers will contribute five per cent of salary, while at the same time establishing a segregated fund.

Clause five of the Bill provides for the payment of pension, gratuity and allowance out of the Consolidated Fund and out of the segregated fund, once it is established.

Clause eight provides for the establishment of a Board of Trustees, which will have overall fiduciary responsibility for the Fund’s management and control.

In addition, Clause 12 of the Bill contains provisions describing circumstances when employees are entitled to refund of contribution. There is also a provision for the periodic review of the legislation.

The Constitution (Amendment) (Established Fund) (Payment of Pension) Act seeks to amend the Constitution to provide for the payment of pensions, gratuities and allowances out of the pension fund.

Currently, the Constitution only allows for pensions, gratuities and other allowances granted in respect of the public service to be charged on, and paid out of the Consolidated Fund.

Meanwhile, Mr. Shaw said even though the reforms will not completely eliminate the cost to the Government, it would reduce the burden.

“It should be noted that the intention of the reform is not a panacea, but the intention is to review the reformed system after a specified period. The reform of the public-sector pension arrangement is critical, as one of the objectives of the reform is to address the increasing burden that pension has on the Government’s Budget,” he said.

The Minister argued that the longer the reform process is delayed, the greater the liabilities that the Government will accrue and the worse off it will eventually be for the new pensioners, if the Government cannot finance payment of pensions.

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