Budget transfer from Central Contingencies to Treasury and Resources Department: Public Employees Contributory Retirement Scheme: Pre-1987 Debt

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[THIS DECISION HAS BEEN RESCINDED BY MD-TR-2018-0127] A decision made on 13 october 2017

Decision Reference: MD-TR-2017-0126
Decision Summary Title:	Contingency Funding – PECRS Pre-1987 Debt		Date of Decision Summary:	6th October 2017
Decision Summary Author:	Senior Management Accountant		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	Contingency Funding – PECRS Pre-1987 Debt		Date of Written Report:	2nd October 2017
Written Report Author:	Senior Management Accountant		Written Report : Public or Exempt?	Public
Subject: The allocation of up to £140,000 from Central Contingencies in 2017 to the Treasury and Resources Department for the costs associated with the PECRS Pre- 1987 Debt repayments.
Decision(s): The Treasury and Resources Minister approved the allocation of up to £140,000 in 2017 from Central Contingencies to the Treasury and Resources Department for the costs associated with the PECRS Pre- 1987 Debt repayments.
Reason(s) for Decision: Article 17(2) of the Public Finances (Jersey) Law 2005 states that the Minister for Treasury and Resources is authorised to approve the transfer from contingency expenditure or the insurance fund of amounts not exceeding, in total, the amount available for contingency expenditure in a financial year. The current Contingency Allocation Policy (published as R.110/2017) sets the requirement for all allocations from Contingency over £100,000 to be considered by the Council of Ministers prior to submission to the Minister for approval. This allocation was approved as part of the 2016 year end carry forwards request (MD-TR-2017-0068).
Resource Implications: The Treasury and Resources Department revenue head of expenditure to increase by up to £140,000 in 2017 and Central Contingencies to decrease by the same amount. This decision does not change the total amount of expenditure approved by the States in the Medium Term Financial Plan 2016 to 2019.
Action required: The Head of Decision Support to advise the Finance Manager and the Senior Management Accountant of the Corporate Group that this decision is approved.
Signature:		Position: Senator A J H Maclean Minister for Treasury and Resources
Date Signed:		Date of Decision:

Budget transfer from Central Contingencies to Treasury and Resources Department: Public Employees Contributory Retirement Scheme: Pre-1987 Debt

Treasury and Resources

Ministerial Decision Report

CONTINGENCY FUNDING – PECRS PRE-1987 DEBT

Purpose of Report

To enable the Minister for Treasury and Resources to approve the allocation of up to £140,000 in 2017 from Central Contingencies to the Treasury and Resources Department for the costs associated with the PECRS Pre-1987 Debt repayments.

Background

Pensions expenditure within the States Treasury Department relates to past service liabilities and payments to pensioners under Pre-1967 and Pre-1987 Schemes.

The Pre-1987 Scheme was created in 1987 as a result of changes proposed to Jersey’s public sector pension arrangements. Public Employees Contribution Retirement Scheme (PECRS) took on the liability for paying increases accrued in respect of services prior to 1987. The increase could not be funded by the States and created a liability in pensions. To eliminate that liability the States agreed that from 1 January 2002 the employer’s contribution rate of 15.6% of pensionable earnings would be split into 13.6% to cover the cost of future benefits and 2% would be allocated to paying off the Pre-1987 Debt. It is expected that in this way the debt will be eliminated over an 82 year period.

The PECRS Pre-1987 Debt repayments increase annually by the percentage increase in pensionable earnings of those contributing scheme members who were employed during the whole of the preceding year. The level of debt repayments is variable between years and finalised during the year of payment. This creates volatility in the level of repayments due. Repayments are impacted by the level of pay awards, incremental increases and re-organisations.

Since January 2017 the States of Jersey has been paying monthly debt repayments based on a provisional estimate for the 2016 average salary increase of 2.5%. Following the recent review of the by the Scheme Actuary, it has been highlighted that actual average salary increase has been 3.65%. As a result the States have been underpaying the debt repayments in 2017. The total budget allocated for the PECRS pre-1987 Debt in 2017 is £7,308,012 against an updated forecast of £7,447,920. In 2017 there is budget shortfall of £139,908.

In 2017 the Treasurer of the States established a separate contingency for PECRS Pre-1987 Debt repayments. The purpose of the contingency, created from 2016 carry forwards of £301,600, is to cover PECRS Pre-1987 Debt repayments budget shortfalls in future years. It can provide the required funding of £140,000 in 2017.

Recommendation

The Treasury and Resources Minister is recommended to approve the allocation of up to £140,000 in 2017 from Central Contingencies to the Treasury and Resources Department for the costs associated with the PECRS Pre-1987 Debt repayments.

Reasons for Decision

Article 17(2) of the Public Finances (Jersey) Law 2005 states that the Minister for Treasury and Resources is authorised to approve the transfer from contingency expenditure or the insurance fund of amounts not exceeding, in total, the amount available for contingency expenditure in a financial year.

The current Contingency Allocation Policy (published as R.110/2017) sets the requirement for all allocations from Contingency over £100,000 to be considered by the Council of Ministers prior to submission to the Minister for approval. This allocation was approved as part of the 2016 year end carry forwards request (MD-TR-2017-0068).

5. Resource Implications

The Treasury and Resources Department revenue head of expenditure to increase by up to £140,000 in 2017 and Central Contingencies to decrease by the same amount.

This decision does not change the total amount of expenditure approved by the States in the Medium Term Financial Plan 2016 to 2019.

Report author : Senior Management Accountant - Corporate Group

Document date : 6th October 2017

Quality Assurance / Review: Head of Decision Support

File name and path:

L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2017-0126 - Contingency funding for PECRS Pre-1987 debt repayments

MD sponsor : Director of Financial Planning and Performance

Appendix 1 – Proposed measures to balance the Consolidated Fund (from Addendum and Budget Statement 2015)