Introduction
As with all other States departments, the Social Security Department is required to make savings in 2013 as part of the agreed Comprehensive Spending Review (CSR). Unlike other departments, Social Security is responsible for three separate funding streams, all of which are used to provide benefits and services. As well as receiving a cash limit from the States, the Department collects contributions into and pays benefits out of the Social Security and Health Insurance Funds.
The Minister for Social Security is also required to act on the decision of the States Assembly last year in respect of the proposition “Pensions: survivor’s benefit – review” P.105/2011, which sought to achieve “… a significant reduction in the current annual expenditure (on survivor’s benefits) of £5 million, whilst honouring the claims of current recipients”.
This proposition draws together these two commitments and proposes an amendment to the Social Security Law to restrict future access to survivor's pension, so that it will only be payable to a surviving spouse or civil partner who has the care of a child. The net savings created by this measure will build up over a number of years to an eventual total of approximately £3.6 million per annum.
The survivor's pension is paid out of the Social Security Fund. However, the Comprehensive Spending Review requires savings in respect of tax funded budgets, and as part of this measure, it is also proposed to transfer responsibility for the payment of invalid care allowance from the tax funded budget to the Social Security Fund. This will transfer an annual cost of approximately £2.68 million in 2013.
The combination of these two measures will deliver a significant proportion of the required CSR saving against tax funded budgets from 2013 onwards, and will also create further savings to the Social Security Fund as the full impact of the change to survivor's pension is felt in the longer term. However, in the short to medium term it will create additional expenditure for the Fund.
The proposals within the Medium Term Financial Plan in respect of Social Security expenditure over the period 2013 to 2015 are based on these proposals and, in particular, the transfer of invalid care allowance to the Social Security Fund from January 2013.
Separately, these regulations propose minor and unrelated changes in respect of two other Social Security benefits - insolvency benefit and adoptive parent grant.
Survivor’s benefits
In July 2011 the States approved the proposition “Pensions: survivor’s benefit – review” (P.105) by 32 votes to 4 (with 1 abstention). This proposition requested the Minister for Social Security to review the survivor’s benefits available in Jersey and to propose a new scheme to achieve a significant reduction in the current expenditure of £5 million a year. The Minister’s comments at that time identified the major workload on the Department and the complexity of Social Security benefits, and suggested that it would be difficult to undertake a full review of this topic by the end of March 2012. Subject to that proviso, the ministerial comments were supportive of the need for a review in this area.
As anticipated, it was not possible to undertake a complete review of survivor’s benefits within the timetable proposed by P.105. However, research has been undertaken on the international provision of survivor’s benefits and an analysis of survivor's benefits currently in payment has been completed.
The full text of P.105/2011 is provided in the appendix to this report. It provides a summary of survivor’s benefits both in Jersey and in neighbouring jurisdictions and explains the background to the proposal for a reduction in total spend.
The generosity of existing survivor’s benefits is quite clear when compared to the availability of similar benefits in other jurisdictions. This proposal makes a simple change to the legislation, which will have a major impact on the overall cost of survivor’s pensions over the coming years. The proposal is to maintain survivor's allowance to all claimants in line with the existing criteria but to restrict future awards of survivor’s pension to those survivors who have dependent children.
Current survivor’s benefits
There are two survivor’s benefits available in Jersey.
Survivors benefits are only available if the couple was married or in a civil relationship. A survivor’s allowance is paid for the first year following the death of a partner with an appropriate contribution record. The allowance is paid to a spouse or civil partner if either the deceased individual or the surviving partner was under pension age at the date of death. It is calculated at a rate 20% above the old age pension rate and the amount paid depends on the contribution record of the deceased person. At the end of the first year the survivor’s allowance ceases and a survivor’s pension is available to a working age survivor until he or she reaches pension age. The value of the survivor’s pension is based on the contribution record of the deceased person and the rate is based on the old age pension. Both the allowance and the pension can be paid anywhere in the world and they are not subject to any means test or income bar. They cease to be paid if the survivor remarries, enters a civil partnership or cohabits with a partner.
Recent statistics provide the following analysis of current claimants:
Claims in Payment in April 2012 | No of Claims paid in Jersey | Estimate of Annual Value of Claims paid in Jersey | No of Claims paid overseas | Estimate of Annual Value of Claims paid overseas | Total no of claims | Estimate of Total annual value of claims |
Survivor’s Allowance (first year) | 43 | £308,000 | 25 | £94,000 | 68 | £402,000 |
Survivor’s pension (after first year) | 462 | £3,201,000 | 359 | £1,077,000 | 821 | £4,278,000 |
Total | 505 | £3,509,000 | 384 | £1,171,000 | 889 | £4,680,000 |
Table 1: Summary of Survivor’s Benefit Claims in Payment - April 2012
In particular, many of these claimants do not live in Jersey. At the date of these statistics (April 2012) 37% of survivors allowance claims and 44% of survivors pension claims were being paid outside Jersey.
Proposal
It is proposed to make one simple change to the eligibility conditions for the survivor’s pension. In future, the pension will only be payable to a survivor who has the care of a dependent child. It is also proposed that all survivors will continue to receive the survivor’s allowance for the first year following the death of their spouse or civil partner.
For the purposes of survivor’s pension, a “dependent child” will be defined in the Law as a child under compulsory school leaving age or a young person over that age but below the age of 25 who remains in full-time education. The child/young person must be the natural or adopted child of either the survivor or the survivor’s deceased spouse or civil partner and s/he must be living with the survivor.
Survivor’s benefits are paid to claimants living in Jersey and outside Jersey. Removing survivor's pension from Jersey residents who do not have dependent children will create some additional cost to the income support budget. In future, a survivor with a low household income may require additional income support, compared to the current position in which the survivor’s pension makes up a proportion of the total household income. There will be no additional cost to income support in respect of survivors with children, as they will still receive the same value of survivor’s pension as at present.
These proposals will have no impact on the entitlement of existing claimants, who will all still continue to receive survivor's allowance or survivor’s pension under the current rules.
An analysis of claims provides the following breakdown:
| SP – receiving IS | SP – not receiving IS | Total |
Survivor’s pension claims - April 2012 | No of claims | Estimated annual value | No of claims | Estimated annual value | No of claims | Estimated annual value |
Claims paid in Jersey – survivor has child under school leaving age | 17 | £101,000 | 23 | £168,000 | 40 | £269,000 |
Claims paid in Jersey – no dependent child | 46 | £312,000 | 376 | £2,619,000 | 422 | £2,932,000 |
Claims paid outside Jersey - survivor has child under school leaving age | | | 2 | £17,000 | 2 | £17,000 |
Claims paid outside Jersey - no dependant child | | | 357 | £1,060,000 | 357 | £1,060,000 |
Totals | 63 | £413,000 | 758 | £3,865,000 | 821 | £4,278,000 |
Table 2: Detail of Survivor’s Pension Claims in Payment - April 2012
Costs associated with ongoing support for survivors with dependant children
Using existing departmental information, it is possible to estimate the number of children under school leaving age, as shown in the table above. These figures indicate that 6% of the value of current survivor’s pension payments (42 claims) is paid to survivors who have a child under this age. However, the Department does not hold full information on the number of young people above this age who remain in full-time education. It is assumed that the number of survivor’s pension claims that include a student above this age but under the age of 25, will increase the number of eligible claims by 50%, producing an estimate of 9% of the value of all survivor’s pension payments. These claimants will continue to receive survivor's pension until the youngest child leaves full-time education.
This calculation over- estimates the cost of ongoing support for dependent children. It is based on existing survivor’s pension claims which can continue until pension age. In the future, no claim will continue after the youngest child has reached the age of 25, regardless of age of the survivor at that point.
Income support costs
As noted above, this change will have an impact on income support costs in respect of survivors who do not have dependent children and who do have a low household income. At present there are 46 survivors who are receiving a survivor's pension, do not have a dependent child and are also claiming income support. The value of their survivor's pension payments is approximately £312,000 a year at present, representing 7% of the total cost of survivor’s pensions. It is assumed that the proportion of future survivors that require income support will be similar to the proportion of current claimants.
In the future, there may also be additional claims for income support from some individuals who do not have dependent children and who will not be able to claim survivor’s pension. Additional costs would only be identified in respect of a single adult living on their own - survivor’s benefits under both the current and future system are withdrawn if the survivor enters into a new relationship through marriage, civil partnership or cohabitation.
Summary of costs
Based on the above analysis of existing survivor’s pension claims, it is estimated that 16% of the current budget will be needed to cover ongoing costs. As noted above, this estimate includes an over-provision for the cost of providing a pension to a survivor with a dependent child, and an under- provision for additional income support claims in respect of survivors without dependent children It is assumed that these two factors will balance each other.
This will create a net saving of £3.6 million (2012 prices) when all survivor’s benefits are being paid under the new rules. These estimates are based on data in respect of current survivor’s benefits claimants and will be carefully monitored over the next few years.
Survivor’s allowance claims
A similar analysis of the 68 survivor’s allowances claims in April 2012 identified 7% of claims with children under school leaving age. There were no income support claims from survivor’s allowance claimants who did not have dependant children. Survivor’s allowance is paid at a higher rate (20% above) than survivor’s pension and so it is reasonable that there are less income support claimants in this group. Whilst acknowledging this, there is no evidence from the survivor’s allowance claimants that the ongoing cost associated with the changes to survivor’s pension will be higher than the 16% calculated above.
Protection of Existing Claimants
P.105/2011 included a clear commitment that any changes to the provision of survivor’s benefits should not affect existing claimants. The proposed Regulations ensure that the changes to survivor’s pension will only apply to survivors who first make a claim for a survivor’s benefit after 1 January 2013.
As existing claimants will be fully protected under these proposals, it will take some time for the full impact of the proposed change to be seen. The rate at which savings will be achieved under these proposals is governed by a number of factors, including the age distribution of existing survivor’s benefit claimants, and the number of years that they will continue to be eligible for survivor's pension, until they reach pension age of 60 (only applies to women who joined the local Social Security system before 1975) or 65.
The next table shows the relative proportions of claimants currently receiving survivor’s pension and the maximum number of years for which these claims will continue to be paid. Claims will close early in a number of situations, including the survivor entering into a new permanent relationship.
Analysis of existing survivor’s pension claims in April 2012 |
Maximum length of claim | No of existing claimants | Cumulative % of total number of claims | Cumulative % of estimate of total annual value |
Up to 5 years | 314 | 38% | 41% |
5 to 9 years | 194 | 62% | 63% |
10 to 14 years | 130 | 78% | 77% |
15 to 19 years | 104 | 90% | 90% |
20 years or more | 79 | 100% | 100% |
Table 3: Maximum length of current survivor’s pension claims as at April 2012
As noted above, this change will not affect any survivor currently receiving a survivor's benefit at the end of December 2012. The amended law will apply to new claims for survivor’s benefits starting from January 2013.
For example:
- Following the death of a spouse in October 2012, a survivor will be entitled to survivor's allowance from October 2012 to September 2013. The survivor will then be transferred to survivor's pension from October 2013 until they reach their own pension age or enter into a new relationship. S/he will not be affected by these changes.
- Following the death of a spouse in February 2013, a survivor will be entitled to survivor's allowance from February 2013 to January 2014. At that point, the survivor will only receive a survivor's pension if s/he is responsible for a dependent child. The survivor's pension will stop when the dependent child first leaves full-time education, or reaches the age of 25, whichever is sooner. The existing rules will also continue to apply, and the survivor’s pension will also stop if the survivor reaches their own pension age or enters into a new relationship.
Home Carer’s Allowance
The proposal to transfer the existing tax funded invalid care allowance to the Social Security Fund has been coordinated with the proposed savings in the survivor's pension, to create a package in respect of a significant proportion of the departmental CSR target for 2013.
Regardless of the savings target, the transfer of this allowance in respect of working age carers to the Social Security Fund is appropriate for a number of reasons. The value of the current invalid care allowance is already set at the same rate as the contributory benefit rate. The primary purpose of the benefit is to support working age carers who are no longer earning a wage due to their caring responsibilities and so fits well with other contributory benefits which support workers unable to work during periods of incapacity or maternity.
The role of carers is an increasingly important one in our ageing society and including the new home carer's allowance within the Social Security Law ensures that the value of the benefit will be maintained in line with other contributory benefits and that funding will be available from the ring fenced Social Security Fund. Although not directly linked, this proposal fits well with the ongoing development of the Long Term Care Benefit Law. The proposition of the Council of Ministers - “Health and social services: a new way forward” P.82/2012 - also highlights the importance of care being provided in the community and identifies a number of new areas in which carers will be supported.
Background
Invalid care allowance (ICA) has been available in Jersey since 1978. It is available to the unpaid carer of a person with a severe disability. The benefit is principally aimed at working age individuals, although someone already claiming ICA can elect to continue to receive it after they reach pension age. From 1 October 2012 the value of ICA is £810.79 per month, and if the claimant is liable for class two contributions, these are paid by the Department (£ 460.75 per month in 2012).
To receive ICA, the carer must satisfy a residency test and both the carer and the cared for person must be present in Jersey. The carer must spend at least 35 hours a week engaged in caring activities. There are restrictions on the total household income of the carer and also restrictions on the amount of earnings that the carer can receive on a weekly basis. Whilst receiving ICA, the carer receives a full contribution record, paid for by the States. ICA is taxable. In September 2012, 186 individuals were receiving ICA, caring for adults and children across a wide age range.
Support for carers receiving Income Support
ICA was introduced many years before income support. Income support now provides financial assistance to low income families, including those that include adults who have caring responsibilities. The income from ICA is included as household income within the income support calculation on a “£ for £” basis. However, a carer receiving ICA and income support is also entitled to a carer’s component under the income support legislation. This component is currently set at £46.97 per week and provides extra income into the carer’s household. The carer’s component is not subject to any age restriction and is available to young carers and to carers aged over 65 as well as working age carers.
Proposal
It is proposed to replace the existing tax-funded invalid care allowance with a new benefit - home carer’s allowance (HCA) - funded from the Social Security Fund. Existing claimants will be transferred to the new benefit which will be paid at the same rate. There will need to be a number of changes to the benefit rules for new claimants, to acknowledge the change to a contributory benefit. The major changes are set out below.
Household income
The current legislation imposes a requirement for the total household income of the carer and their spouse/partner to be under a given maximum. This maximum is currently set at £62,382 per annum, rising to £63,786 for 2013.
With the transfer to the Social Security Law, it is no longer appropriate to impose a maximum household income bar on this benefit. It will be available to any carer, regardless of household income, as long as they meet the other requirements of the proposed benefit. This is in line with all other Social Security funded benefits which do not use means tests or income bars.
Contribution record
At present, there is no requirement for the carer to have paid contributions in order to claim ICA.
This benefit is paid primarily to working age people who give up paid employment due to their caring responsibilities and it is reasonable to require that the individual should have previously paid contributions in order to receive this benefit. As with other contributory benefits, it is proposed that the carer has paid contributions for at least six months at some time in the past. The carer will also need to have contributions in the relevant quarter – i.e. two quarters before the start date of the claim. To ensure that parents of young children are able to satisfy this condition, the contributions in the relevant quarter can be either paid or credited, including Home Responsibility Protection credits which are available to a parent caring for a child under five.
There are wives who were married before April 2001, who continue to be able to elect not to pay contributions, and who will receive a pension based on their husband’s contribution record. A married woman in this situation may not have a contribution record in her own right, but she will still be entitled to claim the new benefit.
The requirement for a contributory record may exclude a small number of carers in the future, who would be covered under the current legislation. However, the income support system now exists to support low income families and the carer’s component under income support will continue to be available to anyone who is the main carer for an individual with a severe disability.
Respite Care
The new law will make additional provision for the carer to continue to receive HCA whilst the person they are caring for receives respite care, for up to four weeks a year. This is in addition to the existing rules which cover situations such as the carer or the cared for person receiving hospital treatment, or being out of the island for a short time.
Previous residence in Jersey
Following various legislative changes associated with the introduction of income support, there are currently no restrictions on the prior residence of the cared for person. It is proposed to re-establish a test on the prior residence of the cared for person, who should be ordinarily resident in Jersey for a continuous period of 12 months immediately prior to the date of the application. The requirement for ordinary residence allows for periods of time to be spent outside the island, for example, on holiday, receiving medical treatment, or at school or university.
Contribution credits
Under the current legislation, the States pays contributions on behalf of a carer if they have a contribution liability, to create a full contribution record whilst the carer is receiving the benefit. It will not be necessary to continue this practice in future, as the carer will receive contribution credits which will have a similar effect, protecting the pension record of the carer.
Determination and appeal procedure
The current legislation provides for determination, redetermination and independent appeals as is standard throughout departmental benefit legislation. This will not change. However, at present appeals are made to the Social Security Tribunal. It is proposed that decisions as to whether the carer meets the criteria for caring under the legislation will be referred to the Medical Appeals Tribunal. This tribunal includes a medical representative and a disability representative, as well as a lawyer, and is well placed to consider such decisions. The Medical Appeals Tribunal will also continue to hear appeals in respect of decisions relating to whether a cared for person satisfies the necessary personal care requirements.
Carers aged under 16 or receiving full-time education
The current law excludes an individual from receiving ICA if they are aged under 16 or they are receiving full-time education. The proposal to include a contribution requirement will automatically exclude young people aged under 16. However the income support scheme will continue to support young carers, below this age, with the carer’s component.
It is proposed to remove the exclusion that a carer cannot be receiving full-time education. There are instances in which carers are undertaking online courses and, as long as the carer can demonstrate the extent of their caring responsibilities, educational activities should not act as a bar to receiving the benefit.
Overlapping benefits
The great majority of Social Security benefits are subject to overlapping conditions. These prevent an individual from claiming more than one full rate benefit at the same time. These rules also apply to ICA which cannot be paid at the same time as another Social Security benefit, with the exception of survivor’s benefit. It is proposed that the normal overlapping rules should apply to the new benefit and there will no longer be a special case made for survivor’s benefits. However, there are currently two claimants receiving both benefits and these claims will continue, using transitional provisions.
In other areas, the rules set out in the existing legislation will be transferred directly to the new benefit. These include the rules on the gainful employment of the carer, the definition of a cared for person and the treatment of a carer upon reaching pension age.
Transitional arrangements
All existing claimants will be automatically transferred to the new benefit, and they will not need to satisfy the initial eligibility conditions.
Other legislation
The Invalid Care Allowance Law 1978 will be repealed, as the new benefit is established.
Income tax is payable on the current ICA, and will continue to be payable on HCA and the Income Tax law will be amended to allow for this.
Implementation
The proposed Regulations refer, in a number of areas, to Ministerial Orders. Subject to States approval of the Regulations, these Orders will be finalised and signed before the end of 2012, to allow the full implementation of the new benefit from 1 January 2013. Existing claimants will receive a letter in advance explaining the change in the benefit and confirming that they remain eligible for and will receive the new benefit.
Other changes to Social Security benefits
The opportunity has been taken to make minor adjustments to two other Social Security benefits.
Insolvency Benefit
The States Assembly approved the establishment of an insolvency benefit in June 2011 and this is scheduled to come into force in December 2012. Until then, a temporary scheme continues to provide some financial support to workers affected by the insolvency of their employer.
Three specific areas are clarified under the proposed regulations. These relate to:
- the order in which the various components of the insolvency benefit are discounted if the total of the benefit would otherwise exceed £10,000 (the maximum payment allowed)
- a definition of wages
- the ability of the Minister to seek to recover in any insolvency proceedings amounts that were paid in the form of Social Security contributions or income tax from an employer or other party.
Adoptive parent grant
This grant is available to parents who adopt a child, and is paid at the same rate as the maternity grant which is paid to a mother on the birth of a child. The current legislation contains very few restrictions on the circumstances in which parents may claim the adoptive parent grant. This has resulted in the possibility of the grant being paid in cases where it was not intended to be available. The proposed regulation adds a new condition so that the grant cannot be claimed by a step parent, who is married to, or in a civil partnership with, one of the child’s parents, as that parent is likely to have already received a maternity grant in respect of the child. At the same time, the contribution condition in respect of the adoptive parent grant is aligned with that of the maternity grant, so that only one adoptive parent must satisfy the contribution condition, rather than the current condition which requires both parents to do so.
Manpower and financial implications
Home carer’s allowance and survivor’s pension
There are no ongoing manpower implications. There will be a temporary period, lasting a few months, during which new applications will be processed manually until the departmental IT system is updated in line with the new benefit rules. There are approximately 5 ICA and 7 survivor’s benefit applications per month and this additional temporary work will be absorbed within existing resources.
The cost of the existing ICA benefit will be removed from the tax funded budget of the Department, in line with the proposals published in the MTFP. This cost will be borne in future by the Social Security Fund. There will be an increase in the cost of benefits paid out of the Social Security Fund and a reduction in the income received by the Social Security Fund.
The cash limit within the Medium-Term Financial Plan is based upon savings equivalent to the current budget of ICA of £2.2 million. Without the proposed transfer of ICA, the Department would also require a growth bid[1] of £480,000 in 2013 to meet the current level of ICA claims.
If the proposal to transfer ICA funding to the new HCA benefit is not agreed by the States then, without an amendment to the Medium-Term Financial Plan, savings of £2.68 million from either income support or employment services will need to be made in 2013, on top of the £600,000 income support savings already identified for 2013 and the additional £3 million savings included within the 2014 cash limit.
The impact on each area of Social Security expenditure is set out below:
1. Tax funded budget - In 2013, the cost of ICA will be removed from the tax funded budget. The estimate of the 2013 cost is £2.68 million. This is made up of £1.82 million in benefit payments and £860,000 in contribution payments.
The changes to survivor’s benefits will create no additional cost in respect of income support in 2013. Survivors who started to receive benefit before the end of 2012 will not be affected by the proposed changes and they will continue to receive their benefit under the current legislation. Survivors who start to receive a benefit during 2013 will all receive survivor’s allowance for the first 52 weeks - this benefit is not changing.
From 2014 onwards, there will be a gradual increase in income support costs as a small proportion of new survivors will require additional income support payments at the end of their entitlement to survivor’s allowance. The bulk of these costs will build up over the next 10 -15 years. The eventual cost is estimated at £320,000 per annum (2012 prices)
2. Social Security Fund - The changes will have an impact both on the income received by the Social Security Fund and the benefits paid out by the Fund.
At present, contributions are paid on behalf of the majority of ICA claimants into the Fund to maintain their contribution record. These contributions will not be paid in 2013, and the contribution income of the Fund will reduce by approximately £860,000. Note that there are no consequences for supplementation. At the same time, the cost of the proposed HCA benefit will be paid out of the Fund. The estimate of this cost in 2013 is £1.8 million. The cost of survivor’s benefits in 2013 is not affected by the proposed changes.
However, from 2014 onwards there will be a reduction in the cost of survivor’s pension payments, as these will be restricted to survivors with dependent children in respect of new claimants. As existing claimants will be fully protected from these changes, it will take time for the full impact of the savings to be felt. By the end of 2026, it is estimated that the net impact of the reduction in survivor’s pension will equal the value of the HCA benefit, with further savings experienced in following years until everyone in receipt of a survivor’s benefit at the end of 2012 is claiming an old age pension or is no longer entitled to survivor’s benefit.
This table summarises the proposals:
| Tax funding | Social Security Fund | Combined impact |
Abolish ICA | Reduce cost by £2.68M in 2013 | Reduce contribution income by £860K in 2013 | No net change |
Create HCA | | Increase benefit cost by £1.82M in 2013 |
Amend SP | Increase in income support costs, gradually from 1/1/2014 Final impact: increased income support costs of £0.3 million | No change in contribution income. Reduce benefit cost gradually from 1/1/2014 Final impact: benefit saving of £3.9 million | Net annual saving of £2.68 million by 2026. Final impact: long term net annual saving of £3.6 million |
Table 4 – Summary of Proposals
The long term impact of these changes is an overall reduction of net costs of £3.6 million per annum. These estimates are based on an analysis of a “snapshot” of survivor’s pension claims in April 2012. Actual expenditure will depend on a wide variety of factors.
During the transition period, the Social Security Fund will bear the cost of additional benefit payments. These short-term costs can be absorbed on the basis of a long-term reduction in benefit costs which will more than cover the transitional costs.
One off development costs, mainly in respect of changes to software, are estimated to cost approximately £150,000 and these costs will be met from existing departmental allocations.
Insolvency Benefit and Adoptive Parent Grant
There are no significant resource implications in respect of these proposals. There will be a small saving in the costs of the adoptive parent grant as some future applications will not satisfy the proposed requirements.
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