Nov 28 - Opposition Say Chief Minister Is A “Cavalier Risk Taker”
The GSD say that the more they probe the Government about Credit Finance the more they are led to the conclusion that the Chief Minister is acting like a “cavalier risk taker” who is gambling with the future of Gibraltar.
The GSD have released the following statement to back up this assessment:
Commuted Pensions
It will be recalled that three weeks ago the Opposition published irrefutable documentary evidence that savers’ monies was being used to pay the commuted pensions of civil servants.
What has emerged from answers to Parliamentary questions last week is that Credit Finance is entering into agreements with Civil Servants where it will pay up to 100% of their commuted pensions in exchange for an assignment of the right to receive the monthly pension payments from the Government over the course of their lives had they not commuted their pensions. In simple terms, a commutation is where a member of a pension scheme gives up part or their entire pension in exchange for an immediate lump sum payment.
It is of note that the entitlement of a Civil Servant to receive a pension ceases on death so that if a Civil Servant dies before the lump sum paid out by Credit Finance has been repaid to Credit Finance by the Government (i.e the monthly payments), the company will receive no further payment and will make a loss. The Chief Minister is therefore gambling on the fact that the life expectancy of a sufficient number of Civil Servants will be such that the monthly payments made by the Government to Credit Finance exceed the amounts paid by Credit Finance in commutation payments.
It will be appreciated that when a life insurance company decides whether to make a commuted pension payment and in what amount, it will do so on detailed and expert actuarial advice which will take account of a number of factors such as the age of the individual and his life expectancy. In other words, it assesses the risk that the person may die, for example, before the insurance company has recouped what it has paid out by way of a commuted pension payment.
When the Chief Minister was asked whether Credit Finance had obtained any independent actuarial advice he rather bizarrely and worryingly said that the whole scheme has been put into place based on the optimism of Ministers that they expect Credit Finance to make massive profits out of this type of business.
Non-contributory
In the vast majority of cases Civil Servant pensions are paid from income generated by the Government from year to year. The Government argues that it would have had to pay these pensions anyway and that the money invested in Credit Finance is guaranteed by the Government Therefore, any losses would have been incurred by the Government anyway. This analysis does not tell the full story.
The fact is that the Government is using Credit Finance as a piggy bank or credit card to pay for obligations that it would otherwise have been obliged to pay from the consolidated fund (i.e. the Government’s own money) and then using any money it saves from that operation in order to pay for its manifesto commitments or expenditure obligations without having to borrow directly and without Parliamentary scrutiny.
No doubt this is the result of promising too much to too many people at the last election while at the same time promising cut public debt. However, if the investments in Credit Finance go pear shaped, it will be the taxpayer that will need to bail out the company. If the Government spends the money it would have otherwise have spent paying Civil Servant pensions on manifesto commitments or other obligations, then it will need to find additional money to pay for these liabilities.
The implications for the public finances of this community and its solvency are huge. That is why it is imperative for the Opposition to be able to assess the overall level of risk in the investments made by Credit Finance, which we cannot do at present because the Government refuses to provide us with the information we need.
Not Regulated
These latest revelations compound the concerns of the Opposition because not only is the Government using Credit Finance as a lending institution but it has also now turned it into a quasi-life insurance company and done it without any regulatory oversight. We now have a situation where the combined entities (Gibraltar Savings Bank and Credit Finance), are undertaking banking, lending and life insurance risk without any regulatory oversight from an independent regulator!
This is extraordinary. It is as if the financial crisis of 2008 that saw the near-collapse of many leading financial institutions (resulting in massive government bail outs), had never happened as far as Mr. Picardo is concerned.
The Opposition will continue to probe the Government on Credit Finance over the coming months.
