1. Bacon Woodrow & de Souza Ltd July 2011 Grenada Public Service Pension Arrangements

2. Bacon Woodrow & de Souza Ltd Agenda  Current Benefits  Data and Assumptions  Existing Liabilities  Post 1983 Officers  Other issues arising

3. Bacon Woodrow & de Souza Ltd Current Benefits Officer Categories  Officers in established posts  Appointed before 4 April 1983  Appointed on or after 4 April 1983  Officers in un-established posts

4. Bacon Woodrow & de Souza Ltd Pre-April 1983 Officers  Benefits set out in Pensions Acts  Valuable retirement pension  Target 2/3rds final salary  Available from as early as age 50 (or 26 years and 8 months’ service)  Retirement lump sum benefits  Regular pension increases  Non-contributory  NIS in addition  Total pension >100% salary?

5. Bacon Woodrow & de Souza Ltd Post-April 1983 Officers  No Pensions Act pension benefits  NIS pension only  Significantly lower benefits than Pre- April 1983 officers

6. Bacon Woodrow & de Souza Ltd Un-established post Officers  Pension payable at Government discretion  Irrespective of date of appointment  Minimum 15 years’ service  Lower pension benefit  Pension = 1% x service x salary  No retirement lump sum  Non-contributory  NIS pension in addition

7. Bacon Woodrow & de Souza Ltd Issues of Note  “Expensive” benefits for pre-April 1983 officers  Inconsistencies between:  Pre- and post-April 1983 officers  Un-established post officers and post-April 1983 officers get nothing

8. Bacon Woodrow & de Souza Ltd Our Terms of Reference  Quantify existing liabilities  Look at pension scheme options for public officers including Post-April 1983 officers  Advise on financial aspects of possible new pension designs

9. Bacon Woodrow & de Souza Ltd Officers’ Data Number of records Pre April 1983 Public Officers955 Post April 1983 Public Officers3,658 Un-established Post Officers2,292 Retired Public Officers1,239 Ex-gratia pensions512 Total8,656 Ie lots of data records!

10. Bacon Woodrow & de Souza Ltd Data Issues  Results reliant on and findings limited by data accuracy  Data items missing  Only provided with basic salary  “Completed” data set using estimates  Results qualified  Treat with caution  Indicative only

11. Bacon Woodrow & de Souza Ltd Financial Assumptions %pa Discount rate7.0 Earnings increases4.0 Pension increases4.0

12. Bacon Woodrow & de Souza Ltd Demographic Assumptions  Mortality rates  Withdrawal  Early retirement  Ill-health  Proportion married  Earnings scales  New hires  Admin expenses

13. Bacon Woodrow & de Souza Ltd Demographic Assumptions  Little statistical data available  Review experience data provided (patchy)  Withdrawal rates low  Early retirement rates low  Use to set assumptions where possible - discussed with HR where possible  Otherwise use standard actuarial tables

14. Bacon Woodrow & de Souza Ltd Payments Projection PV = $637 m at 30 Nov 2007 discounting

15. Bacon Woodrow & de Souza Ltd Present Value of Liabilities Present value of liabilities = $637 million  If $637 million invested income and capital will exactly pay for pension benefits as they fall due  All assumptions exactly borne out in practice  $196 million of liability is for future pension increases

16. Bacon Woodrow & de Souza Ltd Sensitivity of Results  Early Retirements  +$97 million if all eligible officers retire now  Cash strain from lump sums  Discount rate  -13%/+16% for +1%pa/-1%pa change  Earnings/pension inflation  16%/-13% for +1%pa/-1%pa change  Mortality rate  +8% for 25% rate reduction

17. Bacon Woodrow & de Souza Ltd Un-Established officers Past Service  Looked at accrued benefits  Short service (higher turnover?)  Present value is $31 million as at 30 Nov 2007 Future Service  1 year cost $3 million  Equivalent to 10.2% of salaries

18. Bacon Woodrow & de Souza Ltd Summary  Total liabilities ~$668 million  Future accruals mainly for un-established post officers

19. Bacon Woodrow & de Souza Ltd Post-April 1983 Officers  Pensions Act Benefits  Modified Pensions Act Benefits  Higher retirement age (65)  Harmonised with NIS  No guaranteed pension increases  Different benefits  Defined contribution, cash balance, career average  Un-established post benefits

20. Bacon Woodrow & de Souza Ltd Pensions Act benefits Note: excludes retired Post 1983 officers

21. Bacon Woodrow & de Souza Ltd Post 1983 Pensions Act Benefits  Present value of past service liabilities is $377 million  Future accrual cost of 25.6% of salaries (~$27.7 million next year) Could costs be managed by modifying benefits?

22. Bacon Woodrow & de Souza Ltd Modified Benefits Past service liabilityNormal cost 4% pension increases No increases 4% pension increases No increases $ million % salaries Past service liability for targeted Pensions Act benefits 37726525.618.0 - retirement age of 6525519317.213.0 - inclusive of NIS pension88635.84.2 - retirement age of 65 and inclusive of NIS pension 71554.93.8

23. Bacon Woodrow & de Souza Ltd Modified Benefits  Helps meet cost considerations  But, can it be administered?  Harmonisation with NIS presents other issues:  Early retirement benefits  Retirement lump sum availability

24. Bacon Woodrow & de Souza Ltd Un-established Post Benefits Past service liabilityNormal cost 4% pension increases No increases 4% pension increases No increases $ million % salaries Past service liability for un- established post benefits - retirement age of 601469710.16.7 - retirement age of 6597686.64.7

25. Bacon Woodrow & de Souza Ltd Advantages  Easier to administer  Consistent with un-established officers  Fit to cost constraints by changing pension increases, contributions, early retirement etc  Reasonable target pension when added to NIS, eg if 35 years’ service  35% pay from Government  NIS pension in addition

26. Bacon Woodrow & de Souza Ltd Other Issues  Funding options  Unfunded or PAYG  Partial/full pre-funding  Retirement age  Leaving service benefits  Officer contributions  Death benefits  Minimum pension

27. Bacon Woodrow & de Souza Ltd Conclusions  Objectives needed for complete advice  Costs are indicative only due to data limitations  Existing liabilities  Accrued ~$668 million at 30 Nov 2007  Future accrual cost ~10.2% of salaries for un-established officers (mainly)  Exposure to salary inflation, mortality and retirement experience

28. Bacon Woodrow & de Souza Ltd Conclusions Cont’d  Options for Post-1983 Officers  Pensions Act benefits expensive  Administration challenges  Offset costs by modifying benefits  Harmonise  Higher retirement age  Lower pension increases  Change benefits completely, eg as for un- established posts