Draft Social Security (Amendment of Law No.5) (Jersey) Regulations (P15/2013): Comment on Amendment

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A decision made on 15 March 2013:

Decision Reference: MD-S-2013-0020
Decision Summary Title :	DS - Comment on P.15/2013 amendment		Date of Decision Summary:	15 March 2013
Decision Summary Author:	Policy and Strategy Director		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	WR - Comment on P.15/2013 amendment		Date of Written Report:	15 March 2013
Written Report Author:	Policy and Strategy Director		Written Report : Public or Exempt?	Public
Subject: States comment on amendment to P.15/2013 – Draft Social Security (Amendment of Law No.5) (Jersey) Regulations 201- (P.15/2013): amendment
Decision(s): The Minister decided to present a comment to the States with regard to Deputy Southern’s amendment to proposition P.15/2013 – Draft Social Security (Amendment of Law No.5) (Jersey) Regulations 201- (P.15/2013): amendment
Reason(s) for Decision: Deputy Southern has put forward an amendment to the Draft Social Security (Amendment of Law No.5) (Jersey) Regulations 201- . The amendment seeks to increase the level of the adjustments to be made to the old age pension. The attached comment contains the Social Security Minister’s response to the amendment.
Resource Implications: None
Action required: Policy and Strategy Director to request the Greffier of the States to arrange for the comment to be presented to the States as soon as practicable.
Signature:		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Draft Social Security (Amendment of Law No.5) (Jersey) Regulations (P15/2013): Comment on Amendment

Draft Social Security (Amendment of Law No.5) (Jersey) Regulations 201 – (P.15/2013) Amendment – Comment

States Members are strongly urged to reject this amendment on the grounds that it more than doubles the immediate cost of the proposal and will create substantial additional costs which will be felt over several years.

In December 2012, the States agreed P97/2012 which proposed adjustments to the old age pension rate to bring it in line with the increase in RPI (pensioner) in 2012. Rather than the original increase of 1.5%, pensioners would receive a 2.9% increase backdated to October 2012. The Regulations now lodged as P.15 implement this decision. If approved, the pension rate will rise by £2.59 per week from £187.25 up to £189.84 in May 2013. In addition, an old age pension adjustment payment of £80.29 for a pensioner receiving a full rate pension will compensate for the period between October 2012 and May 2013. The cost of these additional amounts is estimated at just over £2 million for the 12 month period from October 2012 to September 2013.

This amendment extends this proposal by including an additional adjustment. The weekly amount would increase by £6.32, rather than £2.59 and the full rate old age pension adjustment payment would be £195.92. The total cost of these adjustments is estimated at just under £5 million for the same 12 month period.

In summary:

	Current pension rate	P.15 proposal	Amendment
Weekly pension rate	£187.25	£189.84	£193.57
% increase from September 2012 rate of £184.45	1.5%	2.9%	4.9%
OAP adjustment payment (Full rate single pensioner) - lump sum amount		£80.29	£195.92
Additional cost for year ending 30 September 2013		£2.04 million	£4.95 million

In addition to the immediate cost of the amendment, the increased level of the pension will result in significant additional costs over the next few years. Using the economic estimates set out in the Medium Term Financial Plan and the current number of pensioners as an illustration, the additional cost of the amendment would amount to a further £11.6 million over the following three years, compared to £2.4 million using the original proposal.

Using these assumptions, the final cost of the amendment would be even higher as the pension index will still be above the earnings index for the 2016 uprate, requiring further adjustments in 2016 and possibly beyond.

The exact costs of the proposal and the amendment will depend on the values of the RPI(pensioner) index and the average earnings index over the next few years, but, whatever the actual values, the cost of the amendment will be far greater than that of the original proposal.

As the amendment seeks to compensate pensioners for the 2011 uprate as well as the 2012 uprate, and the payments will be made to all current pensioners, there will be upwards of 1,000 younger pensioners who will receive these additional sums in respect of periods before they reached pension age.

As discussed in the December debate, the old age pension is paid throughout the world. In respect of local pensioners, Jersey already has in place a range of measures available to pensioners on low to middle incomes. These include Income Support (including specific disregards for pension income), Christmas Bonus, Food Cost Bonus, Cold Weather Bonus, Jersey 65+ Health plan, free TV licences for over 75’s, the Energy Efficiency Service and free bus passes. These are well targeted at local pensioners who require extra assistance. By contrast the amendment would provide additional pension income to all pensioners, regardless of their circumstances, and throughout the world.

Conclusion

During the autumn of 2012, Ministers worked together to design a scheme to provide old age pensioners with an additional pension uprate that took into account the increase in the cost of living for 2012. This was debated by the States last December and P.15 has been prepared in the light of that decision - to compensate pensioners in line with a 2.9% increase for 2012.

The amendment proposes a much larger increase in the pension, above and beyond that already agreed by the States. This will cost an additional £2.95 million for 2012/13 but most worryingly the additional cost to the Social Security Fund will be felt for several years to come and during the following 3 years could cost more than £9 million in excess of the current proposal.

Members are urged not to support this Amendment. Instead members are asked to acknowledge that the volatility in the economic climate and the relative strength of the Jersey old age pension suggests a more measured approach is appropriate. As proposed in P.15/2013 the adjustment in the old age pension should be limited to provide a total increase of 2.9%. To provide an uplift of 4.9% is likely to add at least £12 million to our pension bill at a time when all Islanders are seeing a contraction in the spending power of their income and unemployment levels amongst local residents are at an all-time high.