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THE PENSIONS ACT ‘2011’: An unsustainable Act in disguise!

by Man from Baker Hill

In the year 2009, the Government of Montserrat paid over $15 million in pensions to retired civil servants and politicians. Since 2001 the government paid about $100 million in pensions (retirement income) to retired civil servants and legislators. Not one of those retired civil servants or legislators contributed as much as one dollar to their pension fund. And not one dollar of income tax was deducted from that $100 million paid to retired civil servants. Could Montserrat sustain that level of pension payments with a mere population of 5000 people? Should civil servants contribute towards their Public Service Pension Plan? Will the new Public Service pension plan ever be sustainable?

The explanatory memorandum to the new Pension Bill of 2011 declared that the new public service pension plan is more sustainable than the one it replaced. But is that so?  I listened to the legislators as the Bill was debated in the Legislative Council and every one of them believed it to be sustainable; so much so, that they all applauded it. But the more I listened the more I recognized that the essence of pension reform was totally above our Legislators’ heads. And what a horrible shame that is!

Is the new public service pension plan really sustainable? A pension Plan is sustainable when it can support itself with sufficient funds.  Funds come from contributions coupled with investment income. So if the civil servants are not contributing to the plan or if government is not putting funds annually into the plan, the New Pension Bill will not make public service pension plan sustainable. Incorporating the public service pension plan with the Social Security fund will not make it sustainable either. So what’s their story?

We have long gone past the era when pensions are paid directly from general revenue. As mentioned above pensions are funded by contributions. Therefore, in order for the public service pension plan to be sustainable, our government must find more efficient ways to guarantee pension payments and not continue to pay pensions out of the general revenue.

The new ‘Pensions Bill 2011’ was an opportunity for the government to meaningfully reform the Public Service Pension in order to make it sustainable. But the main problem with the Pension Bill is that our politicians are beneficiaries of a non-contributory pension plan and their greed and selfishness get in the way of creating a sustainable public service pension plan.  They too, do not want to contribute to their pensions and they too, do not want to pay tax on their pensions.

It seems to me that Montserrat lost sight of the purpose for pension reform. Somehow we gave faulty terms of reference to the pension consultants, who in turn gave Montserrat false hope causing the Legislators to pass a ‘Bill’ for another unsustainable public service pension plan.

In fact, the new Pensions Bill is a masquerade. It is a political charade. I am absolutely certain that within 5 years, Montserrat will have to revisit the ‘2011 Pension Bill’; because in 5 years time the British will have realized that they contributed another $100 million to pay pensions for retired civil servants and politicians of Montserrat. And that is preposterous. Especially when they are pulling out all the stops to ensure that their public service pensions are self sustainable.

So what is my story? What is the solution? Ha! Before I give my solution, here is my story and the history of my involvement with the public service pension and social security.

As early as 1986 I sat in a meeting in which some senior civil servants told the Director of Social Security Fund (SSF) that they will not join the fund. Even as I write this article, I can recall many of the questions raised and the answers given at that 1986 meeting.   After the meeting I made several suggestions to the Director that would have made the transition to the SSF easy for the civil servants.  One of those suggestions was that the government should give a one off salary increase equal to the maximum SSF contribution. It would have worked.

After the meeting, I contacted a very senior civil servant from the BVI and discussed how their civil servants pensions were impacted by their Social Security legislation. I also obtained a copy of the British Virgin Islands (BVI) Social Security Act and compared it with the Montserrat SSF Act. Needless to say, I was impressed with the way the BVI handled their situation. I immediately shared my knowledge and understanding with Mr. K Osborne the Director of Montserrat SSF.

And there is more, much more.

In 1992, May 1, I published an article in the Montserrat Reporter captioned ‘New Pension Plan for politicians.    In the article I explained that by the year 2007, Montserrat would not be able to afford non-contributory pension to politicians, teachers, police and civil servants and that they would have to contribute to the SSF. In the same article I asked,’ would the SSF be able to cope with the demand on it in the year 2007’. You now know the rest of the story. In 2006 the civil servants had to join the SSF. They bled the fund. And in 2010, Premier Reuben Meade reduced the poor man’s SSF old age pension in order to accommodate politicians and civil servants double pensions and, as they say, to save the fund.

And there is still more, much more.

Sometime after the millennium bug it seemed as if the British Government started to grumble about the sustainability of the Public Service Pension and its increasing cost to UK taxpayers.

And guess what?  The president of the civil service union, Honourable E. Taylor Farrell immediately sought my advice, which I gave freely.  I recommended and explained to him that a stand alone public service pension plan would be required to ensure that those adversely affected by the pending decision, would have an opportunity to get a gratuity.  I even brought to Montserrat a pension consultant from Barbados who held discussions with the Union executive at Cavalla Hill.  I subsequently presented the union with proposals for a sustainable pension plan.

And there is more yet.

In 2004 I wrote to Governor Deborah Barnes Jones explaining that pensions were sophisticated matters and that the civil servants should seek professional help with their pension scheme.  As a consequence of that letter, CM John Osborne summoned me to a meeting with his cabinet.  I defended myself well; so much so that the CM asked me for advice on how best to deal with the public service pension matter. In response to the CM’s request for advice, I recommended that the government seek the assistance of professional pension consultants.

And here we are, 25 years after the introduction of the SSF and 60 years after the original Pensions Act, worst off than ever and still very ignorant about pensions. But, as if greed is the only objective, unprincipled we rape the Social Security Fund and the Treasury, filling up the pockets of politicians and retired civil servants with pension money. We lavished ourselves to the tune of over $200 million since 1986.  Pockets full of money and grinning from ear to ear, we rip-off ourselves and believe that we are ‘having a big one’ on the British taxpayers.

Now, here again is the solution for a sustainable public service pension scheme that would have worked in 1986, in 1992 or in 2004; and it will also work in 2012, or in five years time 2016.

Firstly make the Social Security Act the primary Legislation for all retirement incomes, and ensure that all employer, employee and self employed persons contribute to the SSF. Secondly, freeze all accrued public service pension benefits at their current value, guaranteeing that none lose their accrued benefits. And lastly, pass legislation for an Occupational Pension Law that allows every employer / employee to participate in a stand alone pension scheme. That’s all!

One day in the distant future the public service pension scheme will become sustainable. On that day all employment related pension payments will come from an occupational pension scheme and or the Social Security Fund. Also, on that day the Montserrat government will cease to pay pensions out of recurring revenue and its pension expense will be limited to a monthly contribution as any other employer.

Montserratians, pay keen attention to UK government’s stance towards its own public servants and pension reform. Montserrat must adjust to changing circumstances. If our politicians and civil servants want pensions in addition to SSF age benefit, then they must make appropriate contributions to that pension scheme. We must take steps to stop their free ride. We must say NO to non-contributory and non-taxable pensions.

So without any more ado, I beg the British Government to intervene. Please stop the haemorrhage of your taxpayer’s money to the pensions of Montserrat’s politicians and civil servants before it aggregates to an embarrassing $500 million by 2020.  Please help us! Develop for Montserrat a comprehensive Pensions Bill that includes legislation for occupational pensions. And let us get it right this time; let us create a model Pension Bill for sustainable pension plans.

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A Moment with the Registrar of Lands

by Man from Baker Hill

In the year 2009, the Government of Montserrat paid over $15 million in pensions to retired civil servants and politicians. Since 2001 the government paid about $100 million in pensions (retirement income) to retired civil servants and legislators. Not one of those retired civil servants or legislators contributed as much as one dollar to their pension fund. And not one dollar of income tax was deducted from that $100 million paid to retired civil servants. Could Montserrat sustain that level of pension payments with a mere population of 5000 people? Should civil servants contribute towards their Public Service Pension Plan? Will the new Public Service pension plan ever be sustainable?

The explanatory memorandum to the new Pension Bill of 2011 declared that the new public service pension plan is more sustainable than the one it replaced. But is that so?  I listened to the legislators as the Bill was debated in the Legislative Council and every one of them believed it to be sustainable; so much so, that they all applauded it. But the more I listened the more I recognized that the essence of pension reform was totally above our Legislators’ heads. And what a horrible shame that is!

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Is the new public service pension plan really sustainable? A pension Plan is sustainable when it can support itself with sufficient funds.  Funds come from contributions coupled with investment income. So if the civil servants are not contributing to the plan or if government is not putting funds annually into the plan, the New Pension Bill will not make public service pension plan sustainable. Incorporating the public service pension plan with the Social Security fund will not make it sustainable either. So what’s their story?

We have long gone past the era when pensions are paid directly from general revenue. As mentioned above pensions are funded by contributions. Therefore, in order for the public service pension plan to be sustainable, our government must find more efficient ways to guarantee pension payments and not continue to pay pensions out of the general revenue.

The new ‘Pensions Bill 2011’ was an opportunity for the government to meaningfully reform the Public Service Pension in order to make it sustainable. But the main problem with the Pension Bill is that our politicians are beneficiaries of a non-contributory pension plan and their greed and selfishness get in the way of creating a sustainable public service pension plan.  They too, do not want to contribute to their pensions and they too, do not want to pay tax on their pensions.

It seems to me that Montserrat lost sight of the purpose for pension reform. Somehow we gave faulty terms of reference to the pension consultants, who in turn gave Montserrat false hope causing the Legislators to pass a ‘Bill’ for another unsustainable public service pension plan.

In fact, the new Pensions Bill is a masquerade. It is a political charade. I am absolutely certain that within 5 years, Montserrat will have to revisit the ‘2011 Pension Bill’; because in 5 years time the British will have realized that they contributed another $100 million to pay pensions for retired civil servants and politicians of Montserrat. And that is preposterous. Especially when they are pulling out all the stops to ensure that their public service pensions are self sustainable.

So what is my story? What is the solution? Ha! Before I give my solution, here is my story and the history of my involvement with the public service pension and social security.

As early as 1986 I sat in a meeting in which some senior civil servants told the Director of Social Security Fund (SSF) that they will not join the fund. Even as I write this article, I can recall many of the questions raised and the answers given at that 1986 meeting.   After the meeting I made several suggestions to the Director that would have made the transition to the SSF easy for the civil servants.  One of those suggestions was that the government should give a one off salary increase equal to the maximum SSF contribution. It would have worked.

After the meeting, I contacted a very senior civil servant from the BVI and discussed how their civil servants pensions were impacted by their Social Security legislation. I also obtained a copy of the British Virgin Islands (BVI) Social Security Act and compared it with the Montserrat SSF Act. Needless to say, I was impressed with the way the BVI handled their situation. I immediately shared my knowledge and understanding with Mr. K Osborne the Director of Montserrat SSF.

And there is more, much more.

In 1992, May 1, I published an article in the Montserrat Reporter captioned ‘New Pension Plan for politicians.    In the article I explained that by the year 2007, Montserrat would not be able to afford non-contributory pension to politicians, teachers, police and civil servants and that they would have to contribute to the SSF. In the same article I asked,’ would the SSF be able to cope with the demand on it in the year 2007’. You now know the rest of the story. In 2006 the civil servants had to join the SSF. They bled the fund. And in 2010, Premier Reuben Meade reduced the poor man’s SSF old age pension in order to accommodate politicians and civil servants double pensions and, as they say, to save the fund.

And there is still more, much more.

Sometime after the millennium bug it seemed as if the British Government started to grumble about the sustainability of the Public Service Pension and its increasing cost to UK taxpayers.

And guess what?  The president of the civil service union, Honourable E. Taylor Farrell immediately sought my advice, which I gave freely.  I recommended and explained to him that a stand alone public service pension plan would be required to ensure that those adversely affected by the pending decision, would have an opportunity to get a gratuity.  I even brought to Montserrat a pension consultant from Barbados who held discussions with the Union executive at Cavalla Hill.  I subsequently presented the union with proposals for a sustainable pension plan.

And there is more yet.

In 2004 I wrote to Governor Deborah Barnes Jones explaining that pensions were sophisticated matters and that the civil servants should seek professional help with their pension scheme.  As a consequence of that letter, CM John Osborne summoned me to a meeting with his cabinet.  I defended myself well; so much so that the CM asked me for advice on how best to deal with the public service pension matter. In response to the CM’s request for advice, I recommended that the government seek the assistance of professional pension consultants.

And here we are, 25 years after the introduction of the SSF and 60 years after the original Pensions Act, worst off than ever and still very ignorant about pensions. But, as if greed is the only objective, unprincipled we rape the Social Security Fund and the Treasury, filling up the pockets of politicians and retired civil servants with pension money. We lavished ourselves to the tune of over $200 million since 1986.  Pockets full of money and grinning from ear to ear, we rip-off ourselves and believe that we are ‘having a big one’ on the British taxpayers.

Now, here again is the solution for a sustainable public service pension scheme that would have worked in 1986, in 1992 or in 2004; and it will also work in 2012, or in five years time 2016.

Firstly make the Social Security Act the primary Legislation for all retirement incomes, and ensure that all employer, employee and self employed persons contribute to the SSF. Secondly, freeze all accrued public service pension benefits at their current value, guaranteeing that none lose their accrued benefits. And lastly, pass legislation for an Occupational Pension Law that allows every employer / employee to participate in a stand alone pension scheme. That’s all!

One day in the distant future the public service pension scheme will become sustainable. On that day all employment related pension payments will come from an occupational pension scheme and or the Social Security Fund. Also, on that day the Montserrat government will cease to pay pensions out of recurring revenue and its pension expense will be limited to a monthly contribution as any other employer.

Montserratians, pay keen attention to UK government’s stance towards its own public servants and pension reform. Montserrat must adjust to changing circumstances. If our politicians and civil servants want pensions in addition to SSF age benefit, then they must make appropriate contributions to that pension scheme. We must take steps to stop their free ride. We must say NO to non-contributory and non-taxable pensions.

So without any more ado, I beg the British Government to intervene. Please stop the haemorrhage of your taxpayer’s money to the pensions of Montserrat’s politicians and civil servants before it aggregates to an embarrassing $500 million by 2020.  Please help us! Develop for Montserrat a comprehensive Pensions Bill that includes legislation for occupational pensions. And let us get it right this time; let us create a model Pension Bill for sustainable pension plans.