On the go: Civil servants on the Isle of Man are to be given a choice between an existing defined benefit scheme and a new defined contribution arrangement, the island’s government has announced.
The option will be given to new employees starting from 2022, and the measure is intended to address a “legacy funding gap” that has built up over a number of years.
According to a report prepared for Tynwald in 2018, while total employer and employee contributions to the existing scheme amounted to £65m in 2017-18, predicted to rise to £134m by 2035-36, expenditures were £88.35m and predicted to rise to £206m over the same timeframe.
A subsequent report, prepared for Tynwald in 2019, explained that, if left unchanged, managing the cash flow costs of the existing DB scheme would have required contribution rates to be increased to 38 per cent of pay, and benefits be reduced by 40 per cent to address the funding gap.
“Major changes have already been made to the majority of the island’s public sector pension schemes which have involved cutting future benefits, raising contributions and introducing lower benefit provisions for future new members,” the report noted.
The island’s government debated a number of options to address the legacy funding gap, and opted to create a voluntary DC scheme.
The 2019 report explained that this option would “in the very long term” provide a cash saving, “which will very slowly run off the legacy funding gap over 50-70 years and thereafter”.
A compulsory DC scheme was dismissed because of the considerable cost involved, with the report explaining that “around an additional £2.3bn” would be needed over 70 years, “and pensions expenditure would in fact rise over the next 50 years or so before it began to fall".
Additionally, the government "would still need to contribute up to 15 per cent of salary into an alternative DC scheme, and this cost would be ongoing," the report added.
Closing the existing DB schemes to some or all new members was likewise judged to be prohibitively expensive.
The new voluntary DC scheme will be available to members currently in, or who would ordinarily have joined, the Isle of Man Government Unified Scheme 2011, The Teachers Superannuation Order 2011 and the Police Pension Regulations 1991 and 2010.
The default option for those who do not make an active choice will be to join the relevant DB scheme.
The DC scheme will be available to all new full and part-time employees, and boast a contribution structure of 2:1 (employer to employee), with a maximum level of 15 and 7.5 per cent, respectively.
