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Inflation – The States Employee Pension Fund – A Huge Risk to the Island’s Finances

The first paper that GPEG released upon launch, in December 2020, was entitled Beware of the Hole! It was intended to inform debate as to the current arrangement and risks in the public sector pensions in the Bailiwick.

In the last 15 months this issue has only worsened. In that first report we noted that in 2019 the pension deficit rose by £152 million. This has continued to rise during 2020 by a further £100 million. The recent rise in inflation will only further increase the pension deficit.

Letting this carry on would be a real failure by the States of Guernsey.

We have performed a detailed review of the impact of the continued rise in inflation and a made a number of achievable recommendations.

Our key findings are:

  • The recent rise in inflation will add hundreds of millions, and maybe billions, to the amounts due to be paid out as pensions to States Employees – dwarfing most other financial numbers on the island.

  • If inflation goes to the projected 7% p.a. (note even higher forecasts now from the Bank of England) and stays there for a year and then, instantly and magically, returns to the States prior prediction of 2.7% p.a. then that alone would add £100m to the payments made to the State’s employees and pensioners. The Guernsey inflation index (RPIX) is already at 4.6%.

  • Every year that passes with higher inflation will merely increase the amounts payable to pensioners – there is no obvious limit to the obligation to fund that.

  • A typical private sector defined contribution pension scheme will generate less than one third the indexed pension that a Guernsey civil servant will get on a similar salary.

Join a community of people who want to do the right thing for Guernsey and become a GPEG member.

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