The Isle of Man government, responsible for several unfunded defined benefit (DB) public schemes, is facing a funding gap of £23.4m in 2017/18, which will rise to £72m in 2035/36.
This is due to the fact the pension funds' expenditure is exceeding income, a problem which has built up over the past decades as public services have grown, wages have increased and the average length of time spent in retirement has increased significantly, according to the minister for policy and reform, Chris Thomas.
The crown dependency proposed to deal with the problem in a number of ways, including introducing a voluntary defined contribution (DC) scheme for public servants, capping pensionable salary and moving to a career average pension scheme design.
According to Mr Thomas, the government has already implemented measures across all of its schemes in recent years, which meant members broadly meet one third of the cost of their scheme and the government the remaining two thirds.
But Sue Ferns, Prospect’s senior deputy general secretary, said the current proposals, presented to parliament last month, could create detriment for savers.
She told Mr Thomas in a letter: "Some of these options seek to deal with this issue through changes that would primarily affect existing scheme members. This [...] is not a sustainable approach.
"These options would undermine the progress that has been made towards putting the public sector pensions on a sustainable footing and would not be consistent with the reforms public sector workers previously voted for."
In the letter, Ms Ferns explained that creating a DC scheme, one of the potential solutions, would make it harder to deal with the legacy funding gap, since "the member contribution is lost and an employer contribution to the defined contribution scheme has to be paid".
Regarding a cap on pensionable salary, she explained if a DC scheme was put in place for earnings above the level of the cap, then all the issues mentioned previously would also apply.
If there is no replacement pension provision for earnings above the cap then, all else being equal, this would simply redistribute the benefits between different groups of scheme members, she added.
Ms Ferns also argued moving to a career average pension scheme would have no impact on the funding gap, "so it is difficult to see why it is being investigated further in this context".
Paul Gibson, managing director of Granite Financial Planning, argued there was a "possibility that UK unfunded schemes may need to take similar action," although it would be less probable given the larger UK population.
He added: "Those in power could ultimately increase income tax rates to fund any shortfall, although other measures may need to be taken as the problem is not one that is going to go away.”
maria.espadinha@ft.com
