Govt defends use of early exit schemes despite doubts raised by Principal Auditor

The Gibraltar Government on Thursday insisted early exit schemes were “a vital component” of a public service human resources strategy that sought operational efficiency while delivering long-term efficiencies.

It was responding after the Principal Auditor found there was “no real ownership” of the various schemes on offer, and raised questions as to how carefully they had been planned and how effective they were in achieving efficiencies.

The first early exit scheme arose in February 2011 under the then GSD administration, which had reached an agreement with Unite the Union to restructure the then Buildings and Works Department and set up the Housing Works Agency.

The scheme was made available to members of the department’s industrial workforce and technical grades aged over 52.

It was originally envisaged that the scheme would remain open for three years to allow younger employees to apply for early exit when they reached the age of 52.

It was subsequently widened between 2013 and 2021 to make early exit available to support grades at the Housing Works Agency and staff at the Technical and Design Department of the Ministry of Housing on transfer for the agency, and keeping the scheme open indefinitely.

The government had made clear in 2014 that all posts vacated by staff taking up early exit would not be replaced by new employees.

Early exit schemes were later introduced in different areas including Gibraltar Mechanical & Electrical Services Ltd; the Technical Services Department; HM Customs; Gibraltar General Support Services Ltd; the Gibraltar Port Authority; and the Royal Gibraltar Post Office.

Not all the schemes were the same but they broadly included:

• Ability to retire, with a deferred pension, before reaching pensionable age;
• Enhancement of years of public service, dependent on age and whether industrial or non-industrial and capped at the maximum overall service permitted for pension purposes, meaning 400 months, or 33⅓ years;
• Award of a lump-sum payment which varied depending on the age of the employee or whether the employee is in a contributory or non-contributory pension scheme;
• An increase in basic salary, awarded solely on the last day of service just before retirement, with a view of augmenting the pension and gratuity.

In return, employees taking up the offer and benefitting from the early exit scheme- with the exception of those from HM Customs and the GPA - were not eligible for future employment in the Government, or any Government company, agency or authority, nor were they eligible to register as unemployed, for unemployment benefit or income support.

In his report, the Principal Auditor highlighted a “general lack of management costings or assessment studies” prior to the introduction of the schemes, alongside a “marked absence” of post scheme reviews to determine their success or otherwise.

The reasons for the schemes ranged from seeking savings in recurrent labour costs, reducing the number of employees who were recipients of final salary pensions and, in the case of Customs and GPA, harmonising the retirement age with other uniformed essential services employees.

But without tight controls, it was difficult to assess what cost savings if any had been achieved, especially as work in some departments was outsourced as the staff complement was reduced.

In his report, the Principal Auditor raised questions not just about the “general absence of management costings and post scheme reviews” but flagged too “serious concern at the lack of basic management information” about the schemes.

“The little information that is available is scattered throughout different government departments and entities, showing there is no real ownership in terms of centrally administering and managing the Early Exit Schemes,” he said in the report.

“It was impossible to acquire a complete and accurate population list of all public servants who have retired under an Early Exit Scheme, as none of the lists obtained from the various departments were complete.”

The Principal Auditor, drawing on information from the departments and Treasury, found that 192 government employees had applied and retired under the various schemes, including 144 from the Housing Works Agency.

The total cost to the public purse of the lump-sum payments under the various schemes to the 192 retiring employees was £13.62m at the time the report was prepared, though the final figure as of September 30, 2023, was just shy of £17m when interest was factored in.

The Principal Auditor established that 49% of the total number of employees awarded an early exit had already reached voluntary retirement age and could have retired regardless of the scheme “and therefore without the added and significant cost to Government”.

GOVT RESPONSE

The Principal Auditor’s findings, first reported by GBC earlier this week, drew a detailed response from the Government.

“Whilst the Government fully supports and respects the importance of thorough auditing processes and the work of the Principal Auditor and his team, the Government is concerned that certain aspects of the report do not present a true, holistic reflection of the Government’s policy and the impact of the scheme on the Public Service as an organisation, both at systemic and operational levels,” No.6 Convent Place said.

“It was actually the GSD Government that negotiated with Unite the Union to implement the Early Exit Schemes that have delivered the greatest reduction in staff levels and have cost the most, just weeks before the 2011 General Election.”

“These schemes set a benchmark that was later used for other similar schemes.”

At the time of the first agreement, the Public Works Department had 182 employees and was replaced by the Housing Works Agency with 160 employees.

Since then, as a result of the early exit package, the number of employees has declined to 80.

In his report, the Principal Auditor said this resulted in outsourcing of maintenance work and questioned the rationale for the early exit scheme given this additional spending.

“The use of private sector contractors appears to have been the rationale of the GSD Government for introducing the scheme in 2011,” No.6 Convent Place said.

“If the Principal Auditor had gone back to the origin of the policy he would have realised that this was the case.”

“In 2011 the workforce in the Housing Works Agency were also given a pay rise of 25%, as a productivity bonus, for their cooperation in allowing private construction companies to do maintenance of Government estates.”

“The GSD agreement continues in force and has been honoured, as it has to be, by the present Government.”

“These factors increase considerably the cost since 2011 of the implementation of the GSD early exit scheme.”

No.6 said the GSLP/Liberal government had never initiated an early exit scheme of its own accord, adding that each of the schemes after 2011 had been at the behest of Unite the Union or the workforce.

“The GSLP/Liberal Government has, nevertheless, made use of Early Exit Schemes as a vital component of its human resource strategy, providing opportunities for voluntary exits while maintaining operational efficiency and supporting workforce transition and outsourcing of functions to deliver long-term efficiencies,” it added.

The Government said the audit report could “inadvertently” suggest the employees of normal retirement age should not have access to early exit schemes.

But this would be “…tantamount to discrimination on the grounds of age, which is now illegal.”

“It is now contrary to law to force an employee to retire based on their age alone,” No.6 said.

“The Government’s Early Exit Schemes are therefore designed to be inclusive and non-discriminatory, with eligibility criteria based on factors such as tenure and organisational needs, rather than just age.”

“The Government is committed to promoting a diverse and inclusive work environment where all employees are treated with dignity and respect, regardless of age.”

For the Government, the audit report did not accurately reflect the “comprehensive nature” of these schemes “on a holistic and operational level”.

It said a “driving factor” for many of the schemes was the rejuvenation of the workforce or the outsourcing of functions, “which are both extremely difficult to implement without the buy-in of the workforce and its trade union”.

It said that where positions had been filled after people had left on one of the schemes, a compensating saving had been achieved from other government departments, agencies or authorities, “which amount to real savings across the board”.

“It is also important to state that every Early Exit Scheme agreement has been shared with the Principal Auditor prior to its implementation and not signed off until HIS input was considered,” No.6 said.

It added that no payment arising from an early exit scheme was paid by the Treasury without first being scrutinised and approved by the Principal Auditor, “…and consequently he would have had the powers to stop such payments if he felt that they were not appropriate.”

Chief Minister Fabian Picardo said: ‘It is important to understand the conclusions of the Principal Auditor’s report with the full context of how and why Early Exit Schemes are agreed to by the Government, and the holistic, organisational impact that they have across the Public Service.”

He said every scheme was “…analysed and approved by the Principal Auditor before any payments are made [and that this] is further vindication that these agreements are a necessary tool of organisational development, efficiency and reform.”

“That is not to say that we cannot continue to improve how these agreements are done, and to improve how we serve the public and how we manage our employee bank.”

“For that, I obviously welcome the Principal Auditor’s report in this area, as I do in all others.”