Social Security Reserve Fund: Transfers for 2021

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A decision made on 26 March 2021

Decision Reference: MD-S-2021-0031
Decision Summary Title :	DS - SS reserve fund transfers for 2021		Date of Decision Summary:	24 March 2021
Decision Summary Author:	Senior policy officer		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	NA
Written Report Title :	WR – SS reserve fund transfers for 2021		Date of Written Report:	24 March 2021
Written Report Author:	Head of Finance Business Partnering – CLS		Written Report: Public or Exempt?	Public
Subject: SS reserve fund transfers for 2021
Decision(s): Under the Social Security (Jersey) Law 1974, the Minister for Social Security has decided to approve the transfer of up to £94.9 million of liquid assets from the Social Security Reserve Fund to the Social Security Fund during 2021.
Reason(s) for Decision: These transfers are required to enable effective cashflow management of the Social Security Fund, following the decisions to remove the States grant in 2021 and temporarily reduce and defer contributions, in response to the Coronavirus pandemic.
Resource Implications: The resources held by the Social Security Reserve Fund will be reduced by up to £94.9m during 2021 and transferred to the Social Security Fund.
Action required: Head of Treasury and Investment Management to carry out the first transfer between the Social Security Funds.
Signature: Deputy J A Martin		Position: Minister for Social Security
Date Signed:		Date of Decision (If different from Date Signed):

Social Security Reserve Fund: Transfers for 2021

Customer & Local Services

Ministerial Decision Report

Transfer from the Social Security Reserve Fund to the Social Security Fund

1. Purpose of Report

As outlined in the Government Plan 2021 there is a requirement for a transfer of resource from the Social Security Reserve Fund to the Social Security Fund. This requirement arises as a consequence of three key decisions:

Removal of the States Supplement to the Social Security Fund in 2021;
Temporary reduction in employee Social Security Contributions; and
Deferral of Social Security Contributions for some industrial sectors.

The consequence is that the Social Security Fund will not have enough cash resource to fund anticipated benefit payments in 2021. The first two of these were anticipated in the Government Plan 2021.

This report seeks to enable the Minister to consider a recommendation to:

Approve the transfer of up to £94.9m of liquid assets from the Social Security Reserve Fund to the Social Security Fund during 2021 to manage the cash shortfall.

These actions would draw on the Reserve Fund’s liquid assets during 2020. The performance of the investments held in the Reserve Fund were favorable in 2020 and therefore the required transfer will not result in investment losses being realised, it will however result in a reduction in the value of the investment portfolio and investment balances.

2. Background

The purpose of the Social Security Fund is to make social security payments which are funded by the receipt of Social Security Contributions from individuals and business and, in normal circumstances, a States Grant. There is also a Social Security Reserve Fund, this fund holds excess funds generated by the Social Security Fund and invests these to generate investment income. It is intended that the reserve fund is used in the coming years to help fund the response to the coronavirus pandemic in 2021, this is described in the Government Plan.

As outlined in further detail below, the authority of the Social Security Minister is required for any transfer of resource from the Reserve fund to the Social Security Fund.

Decisions have been made to:

Remove of the States Supplement to the Social Security Fund in 2021;
Reduce employee Social Security Contributions from 6% to 4% from October 2020 to June 2021; and
Defer Social Security Contributions relating to QD 2020 and QA 2021 for some industrial sectors.

All of these have an adverse impact on anticipated cash receipts to the Social Security Fund in 2021.

At the time the Government Plan and Social Security Fund budget were prepared it was anticipated that £94.9m would be transferred from the Social Security Reserve Fund to the Social Security Fund (SSF) in 2021. This transfer was anticipated to compensate the SSF for the removal of the supplement and the reduction in employee contributions.

As at February 2021 it is forecast that a transfer at this level will not be enough to enable the fund to break even in either cash or accounting terms. There is uncertainty in respect of the value of the deferrals for QD 2020 and QA 2021. The maximum estimate for this is £24m at present. The attached Annex provides the initial SSF budget, the current forecast and a forecast cashflow.

The Social Security Reserve Fund held financial assets valued at £2.1 bn as at 31 December 2020 and reported a return on investments of £110m during 2020.

3. Proposal

It is proposed that authority is provided to enable the initial transfer of up to £94.9m from the Social Security Reserve Fund to the Social Security Fund during 2021. It is possible that a further approval will be required later in the year depending upon circumstances relating to the level of cash contribution income. This amount is consistent with the Government Plan for 2021.

The timing of the transfers during 2021 will be informed by cash balances with a view to managing the transfers in a way which minimises the impact upon the value of financial assets available for investment.

A Ministerial Decision is sufficient authority for the transfer within the terms of the Social Security (Jersey) Law 1974:

Article 31. Social Security (Reserve) Fund

(1) The Insular Insurance (Reserve) Fund established in pursuance of the Law of 1950 shall be renamed the Social Security (Reserve) Fund and shall be under the control and management of the Minister, and such assets as the Minister may determine may be transferred from the Social Security Fund into the Social Security (Reserve) Fund which shall be maintained as a reserve for the Social Security Fund.

(2) Article 30(4), (5), (5A), (5B), (5C), (5D), (6), (7), (8) and (9) shall apply to the Social Security (Reserve) Fund as they apply to the Social Security Fund.

3) Any sums determined by the Minister to be income of the Social Security (Reserve) Fund shall be paid into the Social Security Fund.

(4) Subject to the foregoing provisions of this Article and any other provision of this Law expressly directing payments to be made out of the Social Security (Reserve) Fund, a payment out of that Fund shall not be made otherwise than under the authority of a resolution of the States and shall be made subject to such conditions as to repayment or otherwise as may be specified in the resolution.

The minister therefore has authority to transfer ‘income’ resource out of the reserve fund to the Social Security Fund. A review of audited accounts figures from 2005 indicate that investment returns total £1.3bn of the £2.1bn balance as at 31 December 2020. This is significantly in excess of the value of the transfer outlined in this report. It should be noted that a £55m transfer was actioned during 2020.

Such a transfer is considered appropriate in the current circumstances. Social Security Contributions received will continue to be used to pay Social Security Benefits. The use of past Reserve Fund investment returns to contribute to funding the consequences of the Covid-19 is entirely appropriate as it helps support the economy and will contribute to ensuring future receipts of social security contributions. The proposed transfer value represents a relatively small proportion of the fund and therefore will not in itself have a substantial impact on the future funding of Social Security Benefits. It is accepted the transfer will reduce the value of the Reserve Fund and investment income.

Legal advice has been sought which confirms that a Ministerial Decision is sufficient authority to action the required transfer of resource. This is on the basis that the transfer is a transfer of income received by the fund. This is defined as investment income and not transfers of other taxpayer funds made to the reserve fund.

4. Timeline & Process

The process, timeline and approvals to enable the required transfer to be made to ensure that the Social Security Fund has sufficient cash to enable benefits payments to be made are:

Ministerial Decision	Social Security Minister	26 March 2021
Transfers and Social Security Reserve Fund Liquidity in line with forecast actioned	Head of Treasury & Investment Management	Per attached cash forecast

Recommendation

The Minister is recommended to:

Approve the transfer of up to £94.9m from the Social Security Reserve Fund to the Social Security Fund during 2021 to compensate the Social Security Fund for reduced income and enable it to fund Social Security Benefit payments during 2021.
Note that this is consistent with the 2021 Government Plan.
Note that further transfers may be required during 2021.

Resource Implications

The resources held by the Social Security Reserve Fund will be reduced by up to £94.9m during 2021 as a consequence of transfers to the Social Security Fund being actioned. The recommendation does not in itself have material resource implications as it is to transfer resource to compensate the Social Security Fund for other decisions and the economic impact of the Coronavirus pandemic.

Report author : Head of Finance Business Partnering – CLS	Document date : 18 March 2021
Quality Assurance / Review : Senior Policy Officer	File name and path:
MD sponsor : Policy Director	File name and path: