Jersey has gone through a bit of bad press in the past twelve months- if you read Private Eye you might reckon Terry Le Sueur, former Finance Minister and current First (prime) Minister, the epitome of offshore chicanery.
I spent a little time in Jersey and got to know Terry, a nice man who walked through the streets of St Helier carrying his files in Marks and Spencer bags- very grounded and funny in a dry way- not the offshore mogul at all.
One afternoon, over a cup of tea in York Place, Terry told me his pension story.
I should explain first that the States of Jersey employs, or has employed, just about everyone on the island who has obtained “qualies” (residency). Consequently just about every Jersey resident has a claim on the States Pension Fund.
The States Pension is more than usually encumbered by the usual problems that beset final salary plans, diminished returns and the prospect of limitless liabilities (people don’t die on Jersey, they gently fade away). Jersey doesn’t subscribe to the usual pension rules, it never had a Minimum Funding Requirement. Terry could see the unusually large Jersey tide changing and as an accountant the thought of having to apply Internatioanl Accounting Standard 19 to the States Pension was not appealing.
Terry decided to grasp the nettle and sort things out. The States of Jersey is dominated by powerful vested interests- principally the entire poplulation represented by voiciferous and strike-happy unions. The chances of agreeing a cut in benefits was remote and the chances of upping member contributions remoter still.
The Pension was in defecit and everyone knew it. Terry took advice from ageing pensions lothario Ron Amy. Between thrm they hatched a wonderful plan. Over 84 years they would pay off the defecit, they would increase the States’ contribution to 16% of States employees’ payroll and keep it there. In return , the members would agree to give up a guarantee on their pensions. Actuarialy speaking it all added up and the Unions bought the plan without demur. They got a big hike in States contributions and a funding rate guaranteed almost into the 22nd Century.
Even better the Jersey population signed up.
The States of Jersey Pension Plan is now the only UK local authority pension plan cateforised as “Defined Contribution”. This is important to Terry and Ron as it releases the States from having to account for the Scheme under IAS19. Despite this, the lucky members retiring today are getting their defined benefit paid in full. Assuming Ron’s assumptions worked out , so would all other members.
I left Jersey in April 2007 by which time the States, released from their guarantees, had abandoned a bond-based strategy and had upped the equity holding in their fund by 30% to the general acclaim of all. The defecit had subsided and all in the new potato patch was rosey. I don’t know how the States Pension Fund has done s since and rather suspect that the fund has returned to its former defecit.
Nonetheless the obligations of the States remain unchanged- 100% of nothing. The people of Jersey can smile beneficially as they pay their 16% of payroll knowing that it’s their children or grandchildren who will be the first to see reduced pensions. Nobody seems to be particularly bothered by priority orders (who gets the full pension, who gets the defecit).
Gordon Brown may look at Terry and Ron’s bold move with a degree of Schadenfreude. In hindsite, the time for Gordon’s Governement to have taken on the Unions over the Public Sector Pension Schemes was four of five years ago. Could the Jersey solution have worked on the mainland? Could Gordon have argued that the massive expenditure in the public sector at least bought the Union’s support to convert the Local Government Pension Scheme to something like Jersey’s?
But we’ll have to wait a few years before we have the chance to try again.