Further work is taking place to look at ’cashflow management systems’ as the government gets to grips with the public sector pensions liability.

Earlier this month, the central government pension liability was revealed to be £3.823 billion an £832 million increase on last year’s figure of £2.991 billion. In 2013, it was £2.1bn.

Although the size of the liability appears huge, this is not the major problem for government, as it will never be called in all at once.

The bigger problem is cash flow - with more benefits being paid out than contributions are being paid in.

Employee contributions to the government unified schemes and the teachers, police and judiciary pensions schemes totalled £18.7m in 2016-17 and the employer’s contribution was £38.9m. But benefits paid out totalled £88m.

Legacy funding

In a written response to a question from Rob Callister (Onchan), calling for a statement on the pensions liability, Treasury Minister Alfred Cannan said: ’In addition to the sustainability changes being implemented for schemes, further work is also being undertaken by the PSPA (Public Sector Pensions Authority) and Treasury to look at cashflow management issues and options - the legacy funding issue - with a view to a report coming before Tynwald early in 2018.

In February this year, Tynwald voted in favour of changes that will mean all future benefits being reduced by 6% from April this year.

New members have been paying 2.5% more in contributions from April this year while current members will see that 2.5% increase phased in over three years from April next year.

Sustainable

The aim was to put public sector pensions onto a more sustainable footing.

But it did not tackle the legacy funding gap, referred to by Mr Cannan, which related to pension payments to public sector workers who have already retired, and which is expected to spiral from £44.9m this year to £96.4m in 2034-35.

In his written answer, Mr Cannan also said the year on year increase in the pension liability was 27.8%.

’The scheme actuary has calculated the pension liability based on a series of financial assumptions,’ he said.

’The key financial assumption which determines the pension liability is the "real discount rate (in excess of consumer price index)", which is applied to future scheme liabilities, based on anticipated levels of future market returns.

’This figure reduced down to 0.2% from the discount rate assumed as at March 31, 2016.

’The movement in this figure is purely as a result of financial market conditions as at the balance sheet date, and in particular a fall in corporate bond yields as at the balance sheet date, together with a rise in expected future inflation.

’The liability position is very sensitive to significant movements to the financial assumptions, and the real discount rate in particular.’

A different methodology was used for evaluating the ’formal statutory triennial valuation of the Isle of Man’s unfunded public sector pension schemes’, Mr Cannan added.