The government of the Isle of Man has recommended the creation of a voluntary defined contribution scheme for new starters, in order to decrease its current funding gap.

In the Public Sector Pensions – Legacy Funding Update published in February, the Cabinet Office said that the introduction of a voluntary DC scheme would be “attractive” to some new public servants, but highlighted the “significant costs” associated with closing the its defined benefit scheme.

The new scheme is just one of a package of measures the government is exploring in order to close the funding gap, which was estimates at £39m last year.

In July 2018, a motion was approved by the Public Sector Pensions Authority and the Treasury to explore in greater depth the feasibility of alternative options to decrease the funding gap.

Minister for Policy and Reform, Chris Thomas MHK, said that there was “no silver bullet” to fix the issue.

The report said: “It appears to have been generally accepted in the workshops that future changes in the profile of the public service, including fewer people working a full career in the public service, allied with the flexibility and portability of DC schemes, would make a DC option attractive to some new public servants.

“Any new DC scheme should probably be voluntary at present, well researched and set up, should offer all of the facilities and options that a comparable UK DC scheme offers and should be well communicated to new public servants as a viable alternative to the current DB schemes on joining the public service.”

It added that contributions should be at a “comparable level” to current DB schemes, in order to achieve similar retirement benefits.

However, the government emphasised the need to take a “measured approach” to its implementation, as well as the need to investigate cost issues further due to the adverse effect it would have on contributions to the existing DB scheme.

The government estimates its pension reserves to be depleted by 2021-22.

Other initiatives the government has been considering is capping benefits for the higher paid, and moving scheme pension ages in line with the state pension age, however both are unlikely to produce any short-term savings, and limited long-term savings.

The Cabinet Office said it has also explored various borrowing options as well as moving to Career Average Revalued Earnings schemes.

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