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A study comparing four offshore finance centres, including Jersey, has concluded that there may be a case for lifting the effective age of retirement in the island to help retain key talent and ease the pressure on public finances.
The first Island Index Report has been produced by professional services firm PwC and is designed to “gauge how prepared Jersey, Guernsey, Malta and the Isle of Man are for the disruptions ahead”.
These include faltering productivity growth in financial services and the impacts of climate change, geopolitical instability, technology disruption and ageing populations.
The pension age in Jersey is between 60 and 67, depending on date of birth and gender.
The report concludes that economic projections suggest that Jersey, Guernsey and the Isle of Man are likely to underperform the OECD average GDP growth in the coming decades.
Meanwhile, the more populous Malta’s GDP per capita is moving up to the OECD average and will begin to converge with the three Crown Dependencies in the coming decades.
The report identifies global ‘megatrends’ that the islands all face. These include slowing global growth – which the OECD expects to halve by 2060 – as well as growing inequality caused by technology and automation, increasing regulation of financial services, competition and consolidation within the sector, and widespread moves towards net-zero carbon emissions.
Pictured: The PwC report forecasts that Malta will perform better than the Crown Dependencies when it comes to economic growth.
The report compares the islands against five “dimensions” with PwC has identified as most relevant to the future of island states between now and 2050.
These are Environmental Sustainability; Connectivity and Business Dynamism; Confidence and Stability; Human Capital; and Institutions.
Jersey has strong ratings across the board but is weakest on Connectivity and Business Dynamism. In particular, PwC identifies that Jersey “would benefit from improvements to its ecosystem for innovation”.
It adds: “The island scores well on workforce health and participation, along with a gender pay gap that comes out under the OECD average.
“But the island’s ability to replenish its workforce and attract top talent to overcome its rising old-age dependency ratio is hindered by its immigration rules and high cost of living.
Pictured: An illustration showing how Jersey's average population age is getting rising. (Government of Jersey)
“Moreover, there may also be a case for lifting the effective age of retirement to help retain key talent and ease the calls on public finances.
“Jersey scores well on environmental sustainability due to low carbon electricity imports and relative resilience to extreme weather events. However, recycling rates are low and more could be done to capitalise on the opportunities opened up by the net zero transition.”
When it comes to how Jersey could boost economic growth, the report states: “As the island's population ages, and the relative share of older islanders increases, the propensity for economic growth and innovation is likely to slow.
"These downward pressures are particularly evident by the impact of an ageing population in slowing progress in skills accumulation and in dampening the diffusion of new technology across business and people.
“The Jersey government is actively seeking to boost workforce numbers, not just from inward migration but also encouraging greater workforce participation across all ages and by developing the affordable housing and modern infrastructure needed to motivate more young people to stay on the island.
“But both more investment and faster workforce expansion may be needed as the ageing of the population accelerates in the coming years. The decisions made now will be critical.”
Pictured: "The decisions made now will be critical."
It continues: “Economic growth has stalled since 2000, with earnings flatlining and productivity [output per-person] dropping by over a fifth.
“During this time, the economic contribution of financial services has declined as a share of total output from 55% to 40%.
“The main reason has been a steeper fall in productivity in financial services than other sectors. This reflects the falling profitability in Jersey’s banking sector, driven by lower interest rates, which accounts for the majority of the sector’s gross value-added.”
It adds: “Despite this, over the same time frame, the island has benefited from increasing sophistication and inward investment in its trust and funds administration industry - helping to offset a consolidation of the banking sector locally.
“The finance sector has also attracted a growing number of investment managers, who tend to be well remunerated and highly skilled.
“The Government’s investment in a Future Economy Programme does provide a clear sense of direction and aspiration through its five missions around becoming a skilled, innovative, resilient, fair, and international economy.
“Even so, the growth ahead could be moderate at best and some way below the OECD average. Without any improvements to skills and productivity, the island’s GDP per capita could continue to fall. This underlines the importance of boosting productivity through increased and effective investment in skills and technology.”
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