Pension reform options to be discussed

In the coming months, Government intends to hold discussions with government employees, unions and other stakeholders to arrive at consensus on how to go forward with the reform of the Public Service Pension System (PSPS).

As he presented the 2018 Budget last week, Minister of Finance Camillo Gonsalves said the current system for payments of pensions poses significant risk for both the Government and public service workers.

Gonsalves said the Government will therefore pursue the matter of pension reform with increased vigour in this financial year, paying careful attention to the six reform options that came out of the 2013 actuarial analysis of the PSPS.

The objective of the actuarial analysis was to present alternative reform options for the PSPS, with the goal of reducing Government’s long-term financial cost, reducing the combined pensions from the public service and the NIS, and ensuring the sustainability and reasonableness of retirement benefits in the interest of all stakeholders.

The options are as follows: Option 1 – Change the NIS pension to a maximum of 30 per cent of Annual Insurable Earnings (AIE) for pensionable civil servants, but no less than the NIS benefits accrued as of the transition date. No change to the PSPP; Option 2 – Reduce the future benefit accrual rate for the PSPP from 2 per cent to 1 per cent per year. Employees due to retire within the transition period will be grandfathered and not affected by this change; Option 3 – Increase normal retirement age for civil servants in line with the increase for NIS; Option 4 – Introduce mandatory employee contributions of 5 per cent of salary; Option 5 – Close the PSPP to new entrants after the transition year; Option 6 – Change the salary amount to be used in calculating pensions to the final five-year average, in all cases.

The Minister said these are not stand-alone options, but can be further refined or expanded by combining one or more, or amending certain aspects of each option.