Ministers count the cost of States redundancies

Monday 11 May 2015

A States-wide redundancy programme could cost millions in pay-offs to departing staff and could widen existing pension deficits to the point where thousands of States workers end up getting reduced payouts in retirement.

Ministers are reviewing the implications of a planned redundancy scheme as part of a £60 million savings programme against the cost of the £1 million-per-day States workforce.

But a redundancy scheme has two major financial implications: firstly, cash payouts of up to 18 months’ salary need to be funded for workers leaving the public sector; and secondly, their pensions will be paid out immediately, worsening the existing public sector pension scheme deficit.

Under a legal agreement reached some years ago, the pension scheme deficit is a problem for the workers, not the States or the taxpayer. That means workers would either have to accept smaller payouts or put more of their salaries into the pot – the States have the option of voluntarily “topping up” the fund, but that is not likely in the current financial climate.

Asked about the implications of the redundancy scheme for both the cash payouts and the pensions, Treasury Minister Alan Maclean said: “Those are all valid points. We certainly need further analysis and consideration, and those are elements that have to be factored into costs and budgeting.

“Yes there is a cost, obviously there is a cost, and we are well aware of it.

“We certainly made it clear what we were doing was laying a direction of travel.”

Last week ministers announced plans for £60 million worth of staff savings and job cuts, along with £35 million worth of benefit and service cuts and a new £35 million “health charge" to plug a £135 million black hole in States finances.

They said that for the first time in years, the government might start laying people off. A voluntary redundancy scheme is set to start to reduce the public sector pay bill – currently running at £1 million per day – and ministers say that it will be used “to minimise the number of compulsory redundancies."

The problem for the States is compounded by the fact that ministers have to find another £50 million for the Health department and another £9 million for the Education department every year, just to cover much-needed investment in looking after the growing elderly population, raising pay for nurses and improving standards in schools.