The Civil Service Pension Scheme in Montserrat:

Plan of Action for Reform

by

James E. Duggan

and

Derek Osborne

for

Caribbean Regional Technical Assistance Centre

December 2009

1

TABLE OF CONTENTS

Preface ............................................................................................................................................ 2

Executive Summary ...................................................................................................................... 3

Recommended Steps to Reform ................................................................................................... 4

I. Overview ............................................................................................................................ 5

II. Proposed Changes to CSP ................................................................................................ 5

1. Reduced Maximum CSP-SS Replacement Rate ................................................................. 7

2. Reduced Annual Benefit Accrual Rates ............................................................................. 8

3. Increased Period for Averaging Earnings for Benefit Computation from 1 to 3 Years ..... 8

4. Benefit/Lump Sum Option at Age of Retirement ............................................................... 8

5. Normal and Early Retirement Age ..................................................................................... 9

6. Early Exit Benefit and Return to Service .......................................................................... 11

7. Cost of Living Adjustment................................................................................................ 11

8. Survivor Benefit Option .................................................................................................... 11

III. Impact on CSP Costs of Proposed Changes ................................................................. 12

IV. Non-Established (NE) Workers ..................................................................................... 15

2

PREFACE

During the week of November 16-21, a CARTAC mission visited Montserrat to provide

expert guidance on implementation of Civil Service Pension (CSP) reforms that were

recommended in a December 2008 CARTAC report and subsequently accepted by the

Government of Montserrat (GoM). The report recommended that GoM enact as soon as

possible parametric reforms that synchronize CSP with Social Security while, at the same

time, plan for structural reform. An actuarial assessment of those recommendations,

sponsored by CARTAC, was completed by Derek Osborne prior to the visit. Mr. Osborne,

Actuary, and James Duggan, Pension Consultant, were hired by CARTAC for the November

mission.

On November 16, the mission met with Mr. John Skerritt, Finance Secretary, Ministry of

Finance, who reviewed the current status of pension reform in Montserrat. Mr. Skerritt

indicated that GoM would like pension reform to be completed by June, 2010. He asked that

the mission compose an explicit plan of action to brief the ministers and the team from DFID

during the week of November 16. The mission developed a specific set of parameter changes

to CSP, which would render it supplemental to Social Security; and would put it on a fiscally

sustainable path. The mission presented these changes along with estimates of cost saving

and illustrations of prototypical individual cases to Mr. Skerritt, Colin Riley, Minister of

Education & Health, Easton Farrell, Minister of Agriculture and Housing, Angela

Greenaway, Director of Economic Development, and Roger Clarke, Programme Manager,

Overseas Territories, Department for International Development. The mission recommended

against structural reform as an immediate alternative to parametric reform as that would

likely delay implementation of reform, result in additional cost in the near term, and produce

similar long-run cost saving as the proposed parametric reforms. The ministers and DFID

indicated that they were in agreement and satisfied with the recommendations of the mission.

The mission met with the Honorable James Wood, Attorney General to begin planning the

legislative phase of the reform process. The Attorney General agreed that, for parametric

reform, the June, 2010 target date is feasible. The mission members will be kept informed of

legislative activity on pension reform and will review draft legislation.

The mission also met with Governor Peter Andrew Waterworth and described the status of

the reform process. Mr. Waterworth stressed the urgency of completing pension reform in a

timely manner.

The mission also met with the senior members of the human resources team to share reform

proposals. The team was comprised of Clemens Fergus, Assistant Secretary, Administration,

Hildred Wade, Executive Officer, Administration, Joyclyn Hogan, Assistant Secretary,

Public Sector Reform Unit.

3

EXECUTIVE SUMMARY

Montserrat’s Civil Service Pension (CSP) scheme represents a large and growing burden on

government resources. CSP is a noncontributory scheme that operates in parallel with the

contributory Social Security (SS) scheme in covering public employees under two pension plans.

Combined benefits from the two plans could eventually result in replacement rates of

127 percent for retired public servants. Absent reform, CSP will continue to place significant

pressure on the government’s budget even if the size of the current workforce does not change.

A December, 2008 CARTAC report recommended that the Government of Montserrat (GoM)

enact as soon as possible parametric reforms that synchronize CSP with SS. Synchronization

would set a maximum combined CSP-SS replacement rate of less than 100 percent. Other

changes such as an increase in the retirement age were also recommended. These changes would

lead to substantially reduced long-term GoM expenditures on pension benefits and would result

in near-term savings to the extent that they can be applied to current workers.

GoM agreed with the report’s recommendations and requested that CARTAC sponsor an

actuarial evaluation of recommendations in the CARTAC report followed by a technical mission

to Montserrat to present results of the report and to provide expert guidance on implementing

reform. A draft of the evaluation has been completed and the technical mission occurred during

the week of November 16-November 20, 2009.

The mission developed details for implementing pension reform over the next six months as

described in this report. Details include procedures for synchronizing CSP and SS benefits that

will result in a combined replacement rate that is much lower than 100 percent; lower benefit

accrual rates; a longer period for averaging benefits for benefit computation; restricting the

lump-sum benefit option to no younger than retirement age; phasing in a higher retirement age to

coincide with the SS retirement age. The proposal also includes three new benefit options: an

early-exit benefit, a regular cost of living adjustment to post-retirement benefits, and a survivor

benefit option.

The report also discusses options for extending CSP coverage to Non-Established (NE) workers.

Recently retired NE workers could be offered a flat monthly benefit with the amount determined

by taking into account any benefits from SS and Social Welfare. Many current NE workers

could be re-classified as Established Workers and thereby made pensionable under CSP.

Finally, the report provides estimates of the cost of the modified CSP. Long-run costs under the

modified scheme are less than half the costs of the current scheme as a percent of pensionable

emoluments.

4

Recommended Steps to Reform

Render Decisions on Recommended Changes (Complete by end of 2009)

Possible Final Actuarial Assessment (Complete by January 15, 2010)

Necessary only if final parameter changes differ significantly from

recommendations

Draft Legislation (Complete by March 15, 2010)

CARTAC Review of Draft Legislation (Complete by end of March 2010)

Enact Legislation (June, 2010)

GENERAL NOTES TO LEGISLATION DRAFTER

Changes being contemplated in this report and based on discussions with the authorities

during the October mission relate only to the Civil Service Pension (CSP) scheme and not

to Social Security. Hence, changes to the Pensions Act are required but no changes to the

Social Security Act are necessary.

The reforms to CSP described below are expected to apply to Established Workers, Police,

and Non-established workers in one unified Pensions Act. In the case of police, some

exceptions that are contained in the Police Act would be carried over to a redraft of the

Pensions Act. In particular, a survivor pension is granted if death occurs when discharging

police duties. In addition, some allowances are included in the calculation of pensions.

In the case of Non-established workers, the draft legislation should incorporate full-time

Non-established workers as equivalent to established workers for the purpose of pension

eligibility and pension amounts going forward. As at the end of the mission, it remained to

be decided if or how past service would be credited for Non-established workers.

5

I. Overview

Civil servants in Montserrat are covered under two pension schemes: Social Security (SS) and

the Civil Service Pension (CSP) scheme. The two schemes operate in parallel, resulting in

combined pension benefits that, for full career workers, are excessive and place a large,

unsustainable burden on government finances. SS benefits replace up to 60 percent of final

salary for a 40-year worker. CSP can add another 67 percent for a total replacement rate of 127

percent.

A December, 2008 CARTAC report recommended that the Government of Montserrat (GoM)

enact as soon as possible parametric reforms that synchronize CSP with SS. Synchronization

would set a maximum combined CSP-SS replacement rate of less than 100 percent. Other

changes such as an increase in the retirement age were also recommended. These changes would

lead to substantially reduced long-term GoM expenditures on pension benefits and would result

in near-term (beyond the first 8 to 10 years) savings to the extent that they can be applied to

current workers.1

GoM agreed with the report’s recommendations and requested that CARTAC sponsor an

actuarial evaluation of recommendations in the CARTAC report followed by a technical mission

to Montserrat to present results of the report and to provide further guidance on implementing

reform. With a draft of the evaluation having already been completed and forwarded to the

authorities, the technical mission occurred during the week of November 16-November 20, 2009.

The mission summarized results of the report for GoM officials and developed details of the

steps to follow to implement the reform in a timely fashion (within the next six months). The

implementation details were presented to GoM officials as well as a representative from the

Department for International Development, United Kingdom.

The reforms outlined below apply generally to established workers, police officers, and non-

established workers with certain exceptions for the latter two as noted above.

II. Proposed Changes to CSP

From the outset it was agreed that only current and future workers would potentially be subject

to changed pension arrangements. Thus current pensioners would not be affected. Moreover,

changes should be phased in so that the closer a worker is to retirement age the lesser the impact

he or she would experience from reform.

Table 1 summarizes proposed changes to CSP. The second column of the table shows parameter

values of the current CSP. The last column shows proposed changes to those parameters. The

changes would be phased in by year of birth as described below.

1The 2008 CARTAC report also recommended that consideration be given in the longer term to establishing a new

type of pension plan for civil servants to replace CSP. The new plan would have a defined contribution (DC)

structure in which workers and GoM would contribute a regular a fixed percentage of salaries to an investment

fund. Because this option will not be pursued at this time, it is not discussed in this document.

6

Table 1Features of Current and Proposed Civil Service Pension Schemes

Current Proposed

Plan Features Scheme Scheme

Benefit Modifications

Potential Maximum CSP-SS

Replacement Rate 127% 85%

Benefit Accruals

Years prior to July 2010 2% -Years after June 2010 - 1%

Maximum accrual 66.7% 85% - %[(CS+SS benefits)/AS]

Salary for Computing Benefits final salary average of highest three yearsof salary (AS)

Age of Retirement Changes

Retirement Age1,2

Nature of Retirement mandatory voluntary

Normal Retirement Age 55 65Years of service requirement 20 10Benefit lifetime pension or convert 25% lifetime pension or convert 25%

to lump sum with 75% lifetime to lump sum with 75% lifetime

Early Retirement Options

35 years of service NA any ageBenefit full, unreduced benefit

10 to 34 years of service any age with 20 years 60 to 64Benefit immediate 25% lump sum with same as for normal retirement but

75% beginning at 55 reduced 5%/year each year age isless than 65

New Benefit Provisions

Early Exit Benefit NA lump sum of 4% per year ofservice or accrued benefit startingafter age 59 with benefit reduced

5%/year under age 65

Years of service requirement NA 10 yrs

Cost of Living Adjustment ad hoc annual adjustments of price inflationup to a max of 4.5%

Survivor Benefit Option NA joint&survivor

1The retirement age provisions will be phased in by year of birth over birth years 1961 to 1975 as shown in Table 4.

2Under current law, the lump-sum conversion factor is 12.5 regardless of age. The proposed scheme will use conversion

factors based on age at retirement and prevailing interest rates.

7

Benefit Modifications

1. Reduced Maximum CSP-SS Replacement Rate

Under current law, CSP and SS operate in parallel which means that retirement benefits from one

program are unaffected by benefits from the other. Combined benefits can be greater than the

value of previous earnings for long-career workers. Under the proposal, CSP benefits would

depend on the value of SS benefits when a retiree is receiving benefits from both programs: CSP

benefits could not exceed the difference between 85 percent of average pensionable emoluments

and the SS benefit.

The constraint on CSP benefits operates only when a retiree is receiving benefits from CSP and

SS simultaneously. A worker may choose to claim benefits from the two programs at different

ages, thereby deferring application of the benefit constraint. From the date when benefits are

received from both CSP and SS, the CSP benefit would be as follows:

CSP Benefit = min[CSP benefit,(85% of average pensionable emoluments)-SS benefit].

Average pensionable emoluments = ⅓ × (sum of highest three regular annual personal

emoluments).

The 85 percent cap is intended to be effective immediately for all current and future workers.

The Social Security Board will need to provide benefit amounts to GoM as soon as a claim is

made for Social Security benefits. A few examples are shown in Table 2.

Table 2

Illustrative Examples of Benefit Computation Under Modified CSP

Age Worker Years of ModifiedYear of Receives Service at CSP SS CSP+SS CAP= CSP

Birth CSP & SS Retirement FAS Benefit Benefit Benefit .85 ×FAS Benefit

1960 60 30 $61,000 $30,500 $25,485 $55,985 $51,850 $26,365

20 $50,020 $15,006 $22,909 $37,915 $42,517 $15,006

1965 60 30 $83,000 $37,350 $34,250 $71,600 $70,550 $36,300

20 $68,060 $17,015 $22,392 $39,407 $57,851 $17,015

1975 60 30 $137,000 $47,950 $46,030 $93,980 $116,450 $47,950

20 $112,340 $16,851 $33,065 $49,916 $95,489 $16,851

Notes: FAS=final average salary, assumed to be $50,000 in 2008 for a worker with 30 years of service (based on

actual data for 2008) with increases of 3% per year between 2008 and the year the worker turns age 60. FAS is

lower for workers with 20 years of service (assumed to be 82% of FAS for workers with 30 years of service). The

The Social Security earnings ceiling is assumed to be $48,000 in 2010 with increases of 3% per year.

Rationale: There is general agreement among financial experts that most retirees need roughly 70

to 80 percent of previous earnings in order to maintain the standard of living to which they may

have become accustomed. The need is less than 100 percent because retirees no longer need to

save for retirement and can use their additional free time to provide themselves services that they

8

had previously purchased. The 85 percent cap in the proposal is somewhat more generous than

the 70 to 80 percent rule.

2. Reduced Annual Benefit Accrual Rates

Under current law, benefits accrue for a maximum of 33⅓ years at 2 percent per year leading to a

maximum accrual of 66⅔. The proposed plan sets the annual accrual at 1 percent per year for all

future work years for all workers. Past work years (prior to July 2010) accrue at 2 percent per

year up to 66⅔. Individuals who have reached that ceiling may earn additional accruals at 1

percent per year above 66⅔ until they are eligible for Social Security at age 60.

Rationale: The lower accrual rate is intended to be roughly consistent with the combined

replacement rate cap of 85 percent. Higher accrual rates would result in workers reaching the

cap at an early point in their career, creating a disincentive to continued work.

3. Increased Period for Averaging Earnings for Benefit Computation from 1 to 3 Years

CSP benefits are currently based on personal emoluments in the year preceding retirement. The

proposal would base benefits on the average of the highest three highest years of personal

emoluments.

Rationale: A longer averaging period reduces the incentive to inflate earnings in the last work

year, slightly reduces initial benefits to help finance other provisions of the plan, and mitigates

the advantage that short averaging periods give to workers with the most rapidly rising earnings

profiles.

4. Benefit/Lump Sum Option at Age of Retirement

CSP currently offers workers the option to exchange a 25 percent reduction in their retirement

benefit for a lump sum (gratuity) payment. The exchange can take place at retirement age or at

any age after the worker has 20 years of service. If the worker is younger than 55 the lump sum

(gratuity) payment is immediate and the reduced pension is deferred until age 55. The proposal

retains the 25 percent lump sum option at retirement age (using an appropriate conversion factor

based on a pensioner’s age at retirement), while eliminating the option to receive an immediate

lump sum prior to retirement age.

Rationale: The lump sum option provides retirees some flexibility over the form of their

retirement income. Restricting this option to retirement age preserves pension benefits (annuity

or lump sum) for the purpose for which they are intended: an adequate income to sustain

purchasing power during retirement years. In addition, the proposal includes a new early exit

benefit option.

9

Age of Retirement Modifications

5. Normal and Early Retirement Age

CSP now has a mandatory retirement age of 55. A worker is eligible for a retirement benefit at

that age with 10 or more years of service. Workers with 20 years of service but having not yet

reached age 55, may opt for a deferred retirement benefit and an immediate lump sum.

The proposal would increase the normal retirement age to 65 for new hires and current workers

under age 35 while phasing-in higher retirement ages for current workers over the age of 35.

Proposed age and years of service requirements for new hires and current workers under the age

of 35 are summarized in Table 3. The proposed phase-in of these requirements by year of birth

is shown below in Table 3.

Table 3

Age and Years of Service

Requirements for Retirement for NewHires and Workers Under 35 in 2010

Type of Years ofRetirement Age Service Benefit

Normal 65+ 10 Full

Early Any 35 Full

Early 60-64 10 to 34 Reduced

Workers would be eligible to receive an unreduced retirement benefit at age 65 with ten years of

service and at any age with 35 years of service. For workers with between 10 and 34 years of

service, the earliest age of retirement, or early retirement age would be 60 with a benefit reduced

5% per year for each year that a worker is under the age of 65.

Age of retirement age would not be mandatory. Workers could work past age 65 and may

continue to accrue retirement benefits subject to the 85 percent cap described above.

Workers who exit the civil service prior to meeting the age and service requirements for an

immediate retirement benefit may be eligible for a deferred benefit at the time that they satisfy

the requirements in the table above. The deferred benefit will be computed in the same way as

for immediate retirement as described above. Workers may instead opt for the early exit benefit

described below.

The age and years of service requirements for benefit eligibility by birth year are shown in Table

4.

10

Table 4

Age and Years of ServiceRequirements by Year of Birth

Normal Early Retirement*

Age in Retirement Years of

Birth Year 2010 Age Age Service

Before 1960 50+ 55 55 or 20

1961 49 60 55 or 25

1962 48 60 55 or 25

1963 47 60 55 or 25

1964 46 61 56 or 27

1965 45 61 56 or 27

1966 44 61 56 or 27

1967 43 62 57 or 29

1968 42 62 57 or 29

1969 41 62 57 or 29

1970 40 63 58 or 31

1971 39 63 58 or 31

1972 38 63 58 or 31

1973 37 64 59 or 33

1974 36 64 59 or 33

1975 35 64 59 or 33

After 1975 < 35 65 60 or 35

*If retirement is taken prior to completing the years of

service requirement then benefits will be reduced 5%

for each year below the normal retirement age.

Rationale: The current mandatory retirement age of 55 is ten years lower than the normal

retirement age that is being phased in for Social Security and below that of most public pension

schemes (Civil Service and Social Security) in other countries. The higher voluntary retirement

age will facilitate retirement planning for civil servants and align better with increases in life

expectancy. Voluntary retirement is superior to mandatory retirement for both workers and

employers. Flexibility in ending employment relationships is important to an efficiently

operating labor market.

11

New Benefit Provisions

6. Early Exit Benefit and Return to Service

Under CSP, workers under age 55 without 20 years of service do not qualify for a benefit. The

proposal would offer workers with ten or more years of service the option of taking a deferred

pension starting at the earliest retirement age (and subject to the age and service year

requirements described above) or an immediate lump sum payment equal to 4 percent of salary

times the number of years of service.

Workers who choose the lump sum payment and later return to the civil service would be

required to return the lump sum, with interest, in order for prior years of service to count toward

a retirement benefit. Credit toward pensions could then be given for the earlier years, provided

that the worker returns to the civil service for a period of five years. Otherwise, credit for a

retirement benefit will begin with the return to service.

Rationale: Workers may wish to leave the civil service prior to satisfying the age and service

requirements but opt to remain in order to accrue additional pension credits. While this may

work in the employer’s favor in certain cases, it interferes with labor mobility. The early exit

benefit provides workers with an immediate benefit for years of service and may facilitate

efficient job search.

7. Cost of Living Adjustment

The Pensions Act does not call for post-retirement pension adjustments though such adjustments

have been made on an ad hoc basis. The proposal recommends regular annual adjustments to

post-retirement benefits. The adjustments would be based on a moving average of price inflation

over the preceding three years. In addition, the adjustment could not exceed 4.5 percent in any

year.

Rationale: The purpose of a pension is to allow workers to continue to consume after they have

stopped working. Post-retirement pensions should be linked automatically to inflation in order to

maintain the purchasing power of benefits and improve predictability of pension obligations.

8. Survivor Benefit Option

Currently, CSP does not offer survivor benefits. Instead, the pension ceases immediately upon

death of the worker-beneficiary. The proposal would allow workers the choice of a full life

annuity (that is, a regular pension that lasts for the life of the worker) or a reduced annuity with a

survivor benefit. The choice would be made at the time of retirement. If the worker were to

choose the survivor option then a pension would be payable to a surviving spouse until his or her

death. The values of the reduced annuity and survivor annuity will depend on the age of the

spouse at the time of retirement and prevailing interest rates. The amounts would be determined

based on standard life tables and would be presented and explained fully to workers at the time

of retirement.

12

Rationale: A survivor benefit option allows workers greater flexibility in satisfying their

retirement income needs. The option would not add cost to the pension scheme as the reduced

annuity combined with a survivor benefit would be actuarially equivalent to the full life annuity.

III. Impact on CSP Costs of Proposed Changes

The changes proposed above will affect pension calculations for existing active civil servants

who retire after the effective date as well as for future hires. Current pensioners will not be

affected and current workers approaching retirement age would experience little impact.

Active Pensionable Officers. The potential effects on active workers of proposed changes to

CSP are illustrated in Figures 1 to 4. Currently, the GoM has 559 active pensionable officers.

Under current CSP rules those officers would retire at age 55 after June 2010; under the

proposed rules, retirement will occur at later ages and most workers will remain in active status

longer. As a result, the number of active officers in future years will be larger under the

proposed rules than under current rules, as illustrated in Figure 1. Similarly, the number of

pensioners that will come from the current group of active officers will be lower in future years

under the proposed rules (Figure 2). The smaller number of pensioners in current payment status

is one of two key components that lead to a reduction in future annual pension costs.

The second component that reduces future pension costs is a lower average replacement rate

(lower benefits). Figure 3 shows for three different groups of pensionable officers the change in

projected average replacement rates due to the proposed rules.2 For all three groups the reduction

in replacement rates is significant.

The consequence of a smaller number of pensioners and lower replacement rates leads to a

substantial reduction in pension costs for currently active workers over the projection period

(Figure 4). As indicated in the figure, there is little difference in costs during the first ten years

following changes to CSP. This is due to the fact that the initial group of pensioners under the

proposed rules can retire at age 55 but cannot claim Social Security benefits until age 60. As a

consequence, that group will not be immediately affected by the 85 percent cap. Nevertheless,

over a 60-year period, pension payments for current actives will be 46% lower under the

proposed rules than under current CSP rules.

2Group 1 comprises persons aged 50 and over or those with 20 or more years of service, Group 2 includes persons

between ages 35 and 50 and Group 3 those under age 35.

13

0

100

200

300

400

500

600

2010 2020 2030 2040 2050 2060

Figure 1

Number of Current Active Officers Who Remain

Active in Future Years

Current Rules

Proposed Rules

0

50

100

150

200

250

300

350

2010 2020 2030 2040 2050 2060

Figure 2

Number of Current Active Workers Who

Become Pensioners in Future Years

Current Rules

Proposed Rules

0%

10%

20%

30%

40%

50%

60%

70%

GROUP 1 GROUP 2 GROUP 3

Figure 3

Average Replacement Rates Under Current andProposed Rules

Existing Rules Proposed Rules0

5

10

15

20

25

2010 2020 2030 2040 2050 2060

Figure 4

Total Pension & Gratuity Payments, 2010 to 2060(millions of dollars)

Current Rules

Proposed Rules

Pensionable Officers and Future Hires. In the future CSP will also include future hires. Figure

5 shows projected costs for the current and proposed CSP as a percent of pensionable

emoluments when all future pension payments are accounted for. Under the current scheme,

costs continue to rise to about 45 percent of pensionable emoluments. Under the proposed

scheme, costs decline over most of the projection period to less than half that of the current

scheme. Projected pension payments under the current and proposed schemes, as well as the

projected savings that will be generated as a result of the changes, are illustrated in Table 5.

14

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2010 2020 2030 2040 2050 2060

Figure 5

Projected Costs of CSP Under Current and Proposed Rules

(percent of pensionable emoluments)

Current

Proposed

Table 5Projected Savings Under the Proposed Rules for CSP

(millions of dollars)

Years

Plan Rules 2010-19 2020-29 2030-39 2040-49 2050-59

Current $93.2 $147.9 $191.6 $263.1 $334.2

Proposed $91.9 $115.9 $132.7 $141.4 $169.1

Savings -$1.4 -$32.0 -$58.9 -$121.7 -$165.1

Even with the revised rules, pension costs exceed 20% of payroll for most of the 50-year

projection period. This is due to the manner in which pensions are financed. With no prefunding,

the pensions of former workers are part of current expenditure. Therefore, for most of the next 50

years, the largest portion of pension payments will be to former and current workers. After this

period, however, the full fiscal benefits of the proposed changes will be realized.

Figures 6 and 7 illustrate the share of projected pension costs for current pensioners, current

actives and future hires for a CSP with unchanged rules and after the proposed changes are

implemented.

15

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2010 2020 2030 2040 2050 2060

Figure 6Projected Cost of CSP Under Current Rules(percentage of pensionable emoluments)

Current Actives Current Pensioners Future Hires

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2010 2020 2030 2040 2050 2060

Figure 7Projected Cost of CSP Under Proposed Rules

(percentage of pensionable emoluments)

Current Actives Current Pensioners Future Hires

As shown, total costs will be much lower under the proposed rules due to reduced pensions to

current active workers (blue section) and future hires (green section).

IV. Non-Established (NE) Workers

Former NE Workers. GoM is considering making some former NE workers pensionable,

possibly including those who retired as far back as 2000. Because NE workers have a retirement

age of 60, the average age of retired NE workers is quite likely in the 70’s.

Retired NE workers received a lump sum payment based on the number of years of service when

they retired. They should also be receiving a pension from Social Security of at least $300 per

month. If these retirees are to be considered for a retroactive pension to be paid from the

Consolidated Fund, then a simple approach should be considered that would award each worker

a flat monthly benefit. The flat amount should take into account amounts already being received

from Social Security pensions and Social Welfare. The cost to the Consolidated Fund would

simply be the product of the number of NE retirees and the flat benefit. For example, if there

were 50 former NE workers and the flat benefit were determined to be $300 each per month then

the annual expenditure for these former NE workers would be $180,000.

Current NE Workers. There are currently 157 NE workers, almost 30 percent of the number of

Established Workers. Their years of service and average salaries by age group are shown in

Table 6. NE workers generally have relatively low average salaries and most (85%) have less

than 15 years of service. The majority (84%) are full-time workers. NE workers with 15 or

fewer years of service have an average salary of just over $21,000 while Established Workers

with the comparable years of service have an average salary of almost $37,000.

It seems likely that many of the current NE workers who are under age 55, perform full-time

duties, and have served in the same post for many years, may be soon re-categorized as

Established Officers by GoM. In that case, they will become pensionable under the CSP Plan

with retroactive pensionable service and the projected costs of CSP would be correspondingly

higher than what is shown in the previous section. For those who remain categorized as NE

workers, however, provisions for a CS pension are being considered.

16

Once the employment characteristics of the remaining NE Workers are identified, it would be

possible to provide pensions for these workers under the revised Pensions Act. Such a change

would require the suspension of the lump sum payment now paid to NE workers at retirement

age.

While there may be justification for a slightly lower annual accrual rate of say 0.75% for

remaining NE Workers, the fact that the salary of NE workers is linked to the part-time or casual

status, any pension paid to them will be linked to their annual salaries. Therefore the same 1%

accrual rate is reasonable for NE workers.

Table 6

Number and Average Salary of Current Non-Established Workers

Ages 0 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 Total

15-19 7 - - - - - - - - 7 23,377

20-24 1 - - - - - - - - 1 25,480

25-29 7 5 2 - - - - - - 14 23,912

30-34 3 3 - - - - - - - 6 24,223

35-39 2 5 7 - 3 - - - - 17 26,878

40-44 10 4 6 1 1 - - - - 22 22,991

45-49 3 4 9 2 2 - 1 - - 21 21,090

50-54 6 8 7 - 2 2 1 - - 26 21,491

55-59 1 7 4 - 2 - - 2 2 18 27,738

60-64 2 1 3 2 - - - - - 8 28,523

65-69 3 2 - - - - - - - 5 16,353

70-74 - 1 1 - - - - - - 2 10,267

75-79 - 1 - - - - - - - 1 11,411

80-84 - 1 - - - - - - - 1 37,544

Unknown 6 2 - - - - - - - 8 20,091

Total 51 44 39 5 10 2 2 2 2 157 23,395

Source: Government of Montserrat.

Years of ServiceAverage

Salary

(p.a.)