Resolving the government’s public sector pension deficit is unarguably the most important thing the next administration needs to address.
If we do nothing, then by 2020-21 the Pension Reserve will be empty and the Island will need to take £50 million from general revenue just to pay pensions in that year alone. This figure rises to £63 million in 2021-22 and will keep on rising.
The current government’s plan is to keep drawing down on other reserves and hope that economic growth will pull us out of this situation.
Total “Net” government expenditure is around £565 million so this means by 2020 Economic growth needs to increase Government income by around 10% to prevent cuts or taking money from general reserves. Clearly this is not realistic.
The pension scheme needs more money in, and less money out, which means increasing contributions and decreasing benefits. Current workers are already accepting these changes but it won’t’ be enough by itself. Some of the cost must surely fall onto those already taking pensions, as well as the taxpayer – we’re all going to have to share some of this burden together.
To address the long term deficit and make pensions sustainable changes need to be made:
- The current scheme needs to be closed, freezing and protecting current benefits.
- Transfer all workers to a new defined contribution scheme.
This is a complex process, and I’ve written about how this might be achieved on my website.