THE States employees’ pension scheme has been much criticised in recent months. Many people think it’s unaffordable and risks undermining the medium-term financial integrity of the island.

Then there’s a strong feeling that keeping a final salary scheme for public servants is morally indefensible when very few of the taxpayers underwriting that scheme enjoy similar security for their own retirement.

I think both of these ‘anti’ points of view are correct and that the current States pension scheme is, frankly, unsustainable. However, I come to that conclusion reluctantly and certainly not with the relish that some people express when calling for the scheme to end.

I also think any move to change from a final salary scheme to a defined contribution scheme – or any other strategy to strip out cost and risk – must consider what is going on in the UK. To be totally out of kilter with public sector pensions across the Channel would make it almost impossible to recruit key staff.

Let’s look at the issues.

The first has to be the current sizeable deficit that the scheme is carrying. If our government was a company, it would be told by its auditors to bring the funding ratio back up to 100% within a few years.

Being backed by the taxpayer, it doesn’t have to do that and so can defer the true impact of the funding gap.

Of course, recent steep rises in the stock market will have trimmed the deficit, but what goes up can also go down.

The stark reality is that a final salary scheme leaves all of the risk with the States – and that means with ordinary islanders.

Perhaps 10 years ago, when many taxpayers also enjoyed final salary schemes, this was acceptable. Over that decade, most companies have reluctantly realised that such schemes have become unviable because of greater longevity and erratic investment returns.

For most, it wasn’t the ongoing cost to the employer that was the key problem but the unquantifiable risk of having to fund wildly fluctuating deficits. Those firms have gone through the painful process of closing their traditional schemes, first to new entrants, then to their existing workforce. There are now very few States-style schemes in the private sector.

Of course, most workers resented the loss of that benefit even if they understood why it had to happen.

To many, the prospect of also paying higher taxes to prop up the States’ scheme is like rubbing salt into the wounds. The counter-argument is that wages are lower in the public sector and the pension scheme is a vital recruitment tool. If that’s true – and it needs to be substantiated – then the answer is competitive pay rates, not an unaffordable pension scheme. At least then the States will be funding their employment packages from current revenues, rather than passing the buck to future taxpayers by way of a pension deficit.

So should the States’ final salary pension scheme be closed tomorrow and replaced with a defined contribution scheme? Should the States go with a halfway house of a ‘career average’ pension scheme? Should the qualifying age for existing employees be raised to 65, as it is for new employees?

Well, all of these things are worth discussing but the fly in the ointment is the fact that the British government chickened out of pension reform a few years ago. It looked at its own final salary scheme and proposed some radical reforms to make it more affordable, then backed down when

the unions promised massive resistance. That made meaningful reform of Guernsey’s scheme problematic.

Put simply, we will always need to bring in some skilled workers – such as nurses, teachers and social workers – from the UK. Our policy is to limit most of them to five-year housing licences.

If they are not able to transfer their pensions between roughly comparable schemes when moving from the UK to Guernsey and back, then they won’t come.

The interesting thing will be to see what happens to UK public sector pensions after the next general election – whoever wins. With a massive public sector debt to control, radical reform is surely inevitable. We must be ready to change our own scheme, too, to make it far more affordable.

I say this not because I am antipathetic towards public servants, or because I dislike final salary schemes in principle, but because the utter unsustainability of our current scheme is an ‘inconvenient truth’ that must be faced.