The Auditor-General is pleased to announce that the Performance Audit report entitled The Government’s Pensions was presented to the Legislative Assembly on June 30th, 2026. It assessed the internal staffing, resources, and processes of the Pensions Unit in the Office of the Deputy Governor as well as frontline procedures, financial management, and relations with public employees, pensioners, and other stakeholders.
Background: The administration of public-service pensions is centralised within the O.D.G. through a small Pensions Unit. Together with Ministries and Departments, it assesses and approves requests for Early Exits, Early Pensions, Regular Pensions, and related matters. Its services include pensioners living on the island as well as those resident in other countries, such as Montserrat’s share of pensions payable to retired Justices of the Eastern Caribbean Supreme Court.
Key Findings:
- Total pension-related liabilities exceed $200 million. Most of the accrued pension-costs are not accounted or reflected in the published financial statements of the Government, which continues to report on an outdated and inadequate cash-basis. Whilst the Public Accounts of Montserrat reflect amounts in the region of $10 million to $16 million per year for pensions and gratuities, the total actuarial estimates of the Government’s pensions now exceed E.C.$200 million. As this is the present-value estimate (discounted at 5% per year), it should be noted that the gross amount of future pension-benefits to current pensioners is a far greater figure. New pensioners, at higher average salaries and allowances, will continue to add to the Government’s total liabilities for these future pension-related obligations.
- Government’s pensions are non-contributory. The main factor leading to high recurring costs to the public finances is that the past and present employees, who will receive 100% of the pension-benefits, made/make no contributions towards these benefits. The Government, as the employer, also made/makes no periodic contributions towards funding of future benefits; it pays 100% of the current pensions as they are disbursed. Hence, taxpayers are bearing the entire cost. This arrangement contrasts sharply with the Social Security Fund, which operates on a contributory model both for employees and for employers (including the G.O.M. for public employees). *Update #1: The Cabinet has approved a transition to a Defined Contribution plan.
- No pension reserves exist while costs continue to rise. The Government’s pension-plans are unfunded with no reserves to support current or future benefits. The rates of contributions and the level of reserves are key drivers of the financial performance and sustainability for all pension-funds. This puts a large and growing burden on the recurrent spending of the Government. This is in stark contrast with the Social Security Fund, which has reserves. *Update #2: The Cabinet has approved the transferral of the Government’s pensions to the administration of the Social Security Fund (*with effect from fiscal year 2026/2027).
- Pensions for police-officers are a special category. Members of the Royal Montserrat Police Service are subject to a separate category of employment and pension-benefits from those applicable to most public servants. We especially noted that, whilst the retirement-age for most public servants has moved in ten increments towards a standard age of 65 years (for those born after year 1975), police-officers still have a mandatory retirement-age of 55 years and a discretionary retirement-age as early as 50 years. The Police Act was originally published many years ago and it has not been revised to address such discrepancies in the public sector, nor the demographic trends such as rising life-expectancies. Another issue identified in this audit is that the past and current legislative frameworks have disadvantaged police-officers who transfer to another Ministry/Department within the public service: their years of pensionable service in the police service do not carry forward to new appointments elsewhere in the public service.
- Lack of a reasonable cap on combined pension and Social Security benefits. Previous administrations recognised the moral hazard created when public servants were receiving both a government pension and a social Security pension. Since year 2011, policy-reforms, and actuarial recommendations have consistently proposed establishing a reasonable ceiling on the combined benefits, given that employees contribute only to Social Security, and not to the Governments’ pension-scheme. However, in practice, no cap has been implemented. As a result, some retirees receive combined pension-benefits that exceed their former take-home pay, a finding reinforced by external actuarial reports. Other jurisdictions, including within the Caribbean, have addressed similar issues, by integrating public pensions and National Insurance/Social Security schemes, and eliminating “double-dipping,” which otherwise provides windfall benefits entirely at taxpayers’ expense.
- Little or no pre-retirement counselling and education. There was no systematic programme in place to prepare employees for retirement. Over the past several years, the O.D.G./H.R.M.U. has conducted only a few ad-hoc sessions (once every two years or more) and involving only small numbers of employees who were nearing their retirement-dates. For most employees, the only documented communication regarding pensions and retirement was a letter issued by the H.R.M.U./O.D.G. during their final year of employment. The absence of pre-retirement education leaves employees poorly informed about their benefits, options, and financial planning needs
Key Recommendations:
- Gradually implement rates of contribution. The O.D.G. should advocate through the Financial Secretary, the Minister of Finance, and the Cabinet for an updated pension-framework that introduces contributions by employees. This is the most important reform for long-term sustainability. A phased approach, similar to the Montserrat Social Security Fund’s reforms implemented between years 2022 and 2026, would help to smoothen any impact. To further encourage participation, the Income Tax Act can be amended to make pension-fund contributions tax-deductible, just as employees’ contributions to the Social Security Fund already are. For example: $4,000 x 5% = $200 gross contribution, resulting in a net deduction of approximately $140 after tax.
- Improve budgeting for pensions to prevent recurring shortfalls. The D.G. should correct the longstanding pattern of under-budgeting for pension expenditures. The projections for each year should be guided by the actual payments of the previous year plus a margin for new pensions/pensioners, as the number of pensions/pensioners continues to grow each year, in addition to periodic increases granted to existing/continuing pensioners. The O.D.G. and the MOFEM should jointly seek the Cabinet’s approval and secure the F.C.D.O.’s support to ensure adequate funding for both pension payments and operational expenses. Using rolling 3-year and 5-year averages, along with trend-analysis, would improve accuracy and reduce the risk of mid-year funding gaps.
- Review, update, and integrate laws and policies affecting pensions. The O.D.G., along with partners such as the Attorney General’s Chambers, the Royal Montserrat Police Service, the Office of the Premier (which includes Regional Affairs and matters relating to the Diaspora), and the MOFEM, should review current laws, regulations, and policies for discrepancies, inconsistencies, and inequities, such integrating the various Acts to remove instances of discrimination, such as preventing police-officers from carrying forward their years of pensionable service when they transfer to employment elsewhere in the public sector. In addition to updating laws, regulations, and policies to reflect current realities, including rising life-expectancies, and demographic trends.
- Integrate the Government’s pensions with Social Security pensions. The O.D.G. should implement a reasonable cap on the maximum of the combined value of Government pensions and Social Security pension-benefits. Since the Social Security Fund already provides a pension of up to 55% of the first E.C.$4,000 of monthly employment income, the Government’s pensions could be restructured to function as a top-up, rather than a duplication of coverage. For example, if a reasonable cap is set at 60% of average pensionable emoluments, the Government pension would cover the difference between this ceiling and the Social Security benefit. This approach would:
- Streamline public-sector pension arrangements
- Reduce overall fiscal costs
- Ensuring adequate income-coverage for retirees
- Prevent excessively generous windfalls to high-income employees who currently “double-dip,” despite the Government pensions’ being entirely non-contributory to date.
Reform in this direction would also free fiscal resources to strengthen the minimum-pension floor for lower-income employees, ensuring that no pensioner receives less than the social-welfare ceiling (currently E.C.$900 per month, plus other benefits). This minimum should be periodically reviewed and adjusted to reflect living-cost changes as well as whenever the Government grants general increases of salaries in the public sector.
5. Implement regular financial education of employees. The O.D.G./H.R.M.U. should conduct ongoing financial literacy and retirement-planning sessions for all eligible public employees. The earlier in their careers they are educated and supported in these areas, the better employees will be prepared for life before and after retirement. For many employees, getting a notice-letter just months in advance of their projected retirement-date is far too late. Moreover, the much-reduced rate of pension-benefits since June, 2011, means that employees must increasingly rely on additional personal savings and investments.