THE States old-age pension, health service and long-term care funds combined have plummeted by at least £100m. since the beginning of the year, Social Security confirmed yesterday.
Last week Treasury and Resources said that the civil servants’ pension fund had fallen by £255m. in a similar period – all because of stockmarket falls.
‘The department is extremely disappointed about the fall in value, but understands that by having a high proportion of investments in equities the performance of the fund is going to be volatile,’ said minister Mark Dorey (pictured).
‘But it is important to remember that these are unrealised losses and would only become real if the equities were sold.’
He added that 72% of the funds were invested in equities which, as a result of the loss of confidence in global stockmarkets, had fallen significantly.
The fall was between December and the end of September.
‘The department is also aware that the value of the investments has fallen since then. However, they have recovered some of their value in the last few days,’ said Deputy Dorey.
The increase in Social Security’s combined investment funds over the last five years was 7.43% per annum and since the end of 1994 it has been 6.49% per annum.
The department reviewed its investment policy with its adviser last year.
Different fund managers made presentations explaining and illustrating different investment strategies on the basis that the department will not need to start using the capital in the funds for several years.
‘The result of the review was that the department now has three fund managers whereas before it only had one, he said.
They have the responsibility for allocating funds between different types of assets within permitted ranges to gain the best return in different market conditions.
‘It was also decided to reduce the permitted ranges of total funds invested in equities,’ he said.
‘However, the allocation to equities is still high as the department was advised that this would generate the best long term return with an acceptable level of risk.
‘The department accepts that this policy means that there will be some years when investments perform well and some years, like this year, when they perform poorly.’
The Guernsey Insurance, Health Service and Long Term Care Funds are a buffer that Social Security is planning to use in future as the number of pensioners increases.
Currently, pensions are funded from the income from contributions and a grant from the States and the island effectively has a ‘pay as you go’ system.
The fall in value will have no immediate effect on the department’s ability to pay pensions.
Article posted on 6th November, 2008 - 2.30pm
One Article Comment
It is also important to remember that in the current financial climate, it could easily go down another £100 million! (If there is that much left!)
What we have witnessed of the global financial meltdown so far is equivalent to the “visible one-eighth of the iceberg” – there is a lot more to come.
So, the Department is extremely disappointed. I feel soooo sorry for them! What are they doing about it? Sitting on the sidelines letting events take their course while feeling disappointed, no doubt.
This crisis has been evolving for a long time. The investment managers should have been aware and should have taken action a long time ago. Why are they still 72% invested in stocks?
As a pensioner, I am extremely worried for myself and other pensioners. I would like to see the equity fund replaced by something of real and lasting worth such as physical gold and silver.
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