Statement by Beryl Isaac, Chairman, Government Pension Engagement Committee to “Update and Clarify the Issue of Pension Restoration and Reform.”
Good evening ladies and gentlemen, the Government Pension Engagement Committee (GPEC) finds it necessary to update the nation and government employees in particular at this time, on the issues of pension restoration and reform and more specifically, the issue of gratuity.
We wish to assure you that government values and recognises the work of all public officers and has, as a matter of policy, made every effort to improve the pay, benefits and working conditions for its employees. Government however can only do so within the limits of what the economy can afford.
Our country has just emerged from a successful structural adjustment programme with the help of the international community and the sacrifices of our people. Government was able to achieve this success without the loss of a single job in the public service, unlike in the private sector and in other countries like Barbados, where hundreds of workers were retrenched and private companies carried out their own structural adjustments. Recall what happened in our local banking, telecommunications, construction and hotel sectors where hundreds of workers were sent home.
In recognition of the sacrifices made by all workers, government took the following policy measures to assist working people and their families:
- Removed personal income tax on retrenchment pay.
- Removed income tax on pensions including NIS pensions.
- Lowered the income tax from 15% to 10% on earnings between $36,000 and $60,000 per annum, thereby easing the pressure on lower income workers.
- Increased the social wage by boosting spending on house repair assistance to the lowest paid workers and the rural poor.
- Increased SEED payments to the elderly.
- Increased spending to help needy students.
- To date, Government has awarded scholarships to the value of $48.49 million.
In addition, government took several measures specific to public officers, namely:
- It paid all of the retroactive pay and increments in addition to salary increases, amounting to over $110 million dollars between 2013 -2018. Note that in the case of Barbados, public officers there had their salary frozen for 10 years and only received an increase of 5% after the general elections.
- In January 2018, government increased the pay of workers in the public service by 3% and an additional 4% will be paid in January 2019. Government’s current annual wage bill for public officers is $278.7 million which will climb to $287.6 million in 2019.
- Government brought on to the permanent staff, 300 plus teachers and 139 nurses, which has significantly increased the cost of the annual wage bill.
It is against this backdrop that government formulated and announced its intention to restore and reform pensions to public officers. Therefore, government did not appeal the judgement in the Hermilyn Armstrong case. It accepted the judgement of the High Court and paid Mrs Armstrong her pension and attendant benefits as directed by the Court.
Government paid those workers, who like Mrs Armstrong joined the Service between 4 April 1983 and 22 February 1985. Only 2 months ago, Government paid out over $7 million to those persons. Thus, Government has met all of its legal obligations on the matter of Pension restoration.
Now where are we on the pension reform? It is very important to be clear that workers joining the public service on or after 22 February 1985 are only legally entitled to the contributory pension from the NIS and no other.
Notwithstanding, the Prime Minister declared that his Government was committed to enhancing the NIS pension for those public officers and the following agreement was reached with the public sector unions and staff associations:
- Any worker who joined the public service between 4 April 1983, which was subsequently changed to 22 February 1985, and 31 December 2018, and is permanent in an established post, who meets the relevant criteria, Government guarantees that the pensionable benefits, inclusive of the NIS, shall be 70% of his or her last salary.
- Government will endeavour to establish a new contributory pension plan for those workers (Established and Un-established) who will join the service after 31 December 2018.
EXPLAINING THE ISSUE OF GRATUITY
In the Memorandum of Understanding, it was agreed that Government will restore and reform pensions. After much discussion, Government proposed to pay 98% of a worker’s pension monthly and 2% pre-paid pension as gratuity. The 2% pre-paid pension (commonly referred to as a gratuity) is repayable over 12.5 years.
Of course, the worker always has the option to receive his or her full pension monthly. In such a case, no gratuity is paid.
Gratuity is not a payment from the employer in addition to pension. Gratuity is an advanced payment on pension. It is equivalent to and the same as a salary advance. Under the 1958 pension formula, a worker had the option to receive an advance payment on his or her pension of 25% thus reducing his or her monthly pension payment to 75%.
For example, if a public officer’s pension worked out to be $2,000 a month, and he or she took a gratuity of 25%, his or her pension will be reduced to $1,500 a month. The gratuity (prepayment of a pension) will then be $500 per month X 12 months X 12.5 years, which is equal to $75,000 payable at the time of retirement. Preliminary costings have shown that if Government were to agree to the demands of the unions and associations, this will add upwards of $21 million annually to the payroll, bringing the cost of pensions to approximately $74 million annually. This provision of the 1958 Pension Act must be reformed as the state cannot finance this cost. Also, this cost seriously breaches the Fiscal Responsibility Act. Any pension plan must have 2 basic features – it must be sustainable and affordable.
Let us be clear, the gratuity payment of $75,000 in the above example, has to be repaid by the retiree through monthly deductions of $500 for 12.5 years from his or her pension. This is why when a gratuity is paid, the monthly pension of the worker is reduced. What the Government is proposing is to pay 98% of a worker’s monthly pension and 2% as gratuity. In other words, the public officer will receive a monthly pension of $1,960 while under the unions’ demand, that pension will be reduced to $1,500 per month. After 12.5 years, having repaid Government the gratuity, the worker will revert to his/her full pension.
AGE OF RETIREMENT HAS TO BE REFORMED
The other dispute arising during these negotiations, is the question of when pensions should be paid. All over the world, the age of retirement has been increasing – in Barbados, Trinidad and Tobago and Jamaica, the pensionable age is 65; Dominica is 62.
Grenada is one of the few countries where the retirement age remains 60 years. Several actuarial reports have pointed to the need to increase this age to at least 65 years. In the reform of our pensions, the State cannot afford to pay pensions to anyone under the age of 60 years.
For purposes of the reform, Government proposes to maintain that a public officer can retire after 26 and 2/3 years but will receive his or her pension at age 60 or the age prescribed in law. Government proposes further that at the point of retirement, it can afford to make a prepayment of 2% of a worker’s pensionable entitlement as gratuity.
In the context of Grenada’s current economic position, this is what is affordable and sustainable and falls within the fiscal expenditure rules. The consequence of breaching these rules will be very grave for Grenada and will result in the loss of significant amounts of concessionary loans and grants. The national economy will then be reversed, affecting growth and employment and ultimately threatening the employment of the said public officers.
The Government Pension Engagement Committee wishes to remind the leadership of the public sector unions that their respective collective agreements and the Labour Relations Act, set out clear procedures for the resolution of disputes. To take irregular industrial actions without following the procedures laid down are indeed unlawful and a breach of good industrial relations practice.
Government appeals to public officers and their respective unions and associations to be understanding and responsible. We call on the union leaders who walked off the negotiating table on 3 October 2018 to return. We can only resolve this problem through constructive dialogue. We look forward to reaching a comprehensive agreement in the interest of our Public Officers, and our beloved country.
8 November 2018.
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