Why cost sharing is needed

Defined benefit pension schemes like those in the Isle of Man public service are very expensive to provide. Over the last 20 or so years they have become even more expensive as benefits relating to pay have increased, contributions have not kept pace with benefit increases and people are on average now living longer. It is good news that most of us will now live longer and more healthy lives, but compared with say 30 years ago, pensions in retirement are now paid for more than twice the length of time that they had been before. If you think about it, payment of a pension for twice the period it was expected means that the cost of providing that pension has roughly doubled.

In the private sector, this significant cost increase along with increased regulatory provisions (some of which also applies to Isle of Man defined benefit pensions) has meant that most defined benefit schemes have now closed to both current and future new employees and alternative Defined Contribution schemes are now the norm. This is not the case in the UK or Isle of Man public sector where defined benefit scheme are still provided to the majority of employees.

Government now pays over £80 million in total every year to support public sector pensions in the island and this is projected to increase in the future, albeit at a slower rate due to recent reforms across all schemes. This compares with roughly £20 million per year paid by scheme members in pension contributions. Therefore you can see that Government still pays by far the lions' share of public sector pension costs.