Civil service pension changes delayed while Minister tells rest of us to work longer

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While residents are being told we will have to work longer to get our state pension, plans to tackle the huge public sector pension deficit have been delayed – and some proposals abandoned altogether.

Treasury Minister Eddie Teare this week announced he would be seeking Tynwald support for a package of measures aimed at reforming the ‘unsustainable’ state pension and welfare system.

These include a new £180-a-week flat rate pension, phasing out the Manx pension supplement, raising the retirement age, a £25,000 cap on benefits and replacing working age benefits with a single Manx benefit.

Mr Teare said steps had to be taken now as the National Insurance Fund - out of which the state pension and many benefits are paid - will run out by 2047.

Meanwhile, however, plans to reform public sector pensions – which have liabilities totalling £3bn and a funding gap of £30m and rising – have been delayed.

Members of the government’s unified pension scheme have now been informed by the Public Sector Pensions Authority’s pensions committee that the July timescale for reaching agreement on reforms is ‘unrealistic’ and is being put back until the end of the year.

And two key proposals have been removed altogether, with the approval of Council of Ministers – raising the normal minimum retirement age from 55 to 58 and taxing lump sums above £200,000.

The committee, which is made up of employer and staff side representatives, justified this by saying the cost savings were ‘only marginal compared to their contentiousness and potential to obstruct progress towards a more sustainable scheme’.

It says other measures such as increasing employee and employers’ contribution rates will do more to tackle the shortfall.

But this will be greeted with dismay by many non civil servants who under proposals being put to Tynwald this month will be told that retirement should last no more than a third of the individual’s working life.

We will have to pay National Insurance contributions for 45 years, instead of the current 30 - and 10 years longer than the 35 proposed in the UK – to claim the state pension. Retirement age will be linked to life expectancy. Someone born today may have work until they are 74.

Michael MHK Alfred Cannan said: ‘I just can’t support the idea of Isle of Man workers being asked to work a decade longer than their counterparts in the UK to qualify for the full state pension.

‘We’ve got ourselves into a real pickle here. We’ve got a reciprocal agreement with the UK and it would have been easy to simply follow George Osborne’s reforms.

‘There are significant cash flow issues for public sector pensions. I’m very disappointed to find out to two key measures have been dropped. Why have we not had significant changes brought forward?’

A report to Tynwald by the public sector pensions joint working group last December revealed that projected shortfall between contributions and payments is 23 per cent of pay.

It warned that the public sector employees pensions reserve fund is expected to be exhausted by 2025, by which time pension expenditure will have risen to £150m a year.

Some 60 per of last financial year’s pension expenditure of £89m had to be met from the reserve, and consequently the taxpayer - money that could have been used for public services.

The report recommended increasing employee contributions by 3 per cent, phased in over three years - and a doubling of Tynwald member contributions from 5 to 10 per cent.

Unions have accused the government of breaking an undertaking made when the unified pension scheme was introduced in 2012, not to increase member contributions before 2020. Policy and Reform Minister John Shimmin, vice chairman of the PSPA, has insisted there had been no intention to deceive or introduce a scheme not considered affordable from day one.

Following a request by the staff side on the PSPA’s pensions committee, an independent actuary has been brought in to validate the figures used in the working group report.

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