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A decision made 19 March 2010 regarding: Social Security (Jersey) 1974 Law - supplementation of under 18s.

Decision Reference: MD-S-2010-0011
Decision Summary Title :	Anomalous supplementation of under 18s		Date of Decision Summary:	18 March 2010
Decision Summary Author:	Strategy & Policy Director		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Anomalous supplementation of under 18s		Date of Written Report:	18 March 2010
Written Report Author:	Strategy & Policy Director		Written Report : Public or Exempt?	Public
Subject: Social Security (Jersey) 1974 Law - supplementation of under 18s
Decision(s): The Minister decided, notwithstanding the option to disregard the lower threshold level for supplementation for persons under the age of 18, as provided in Article 9(2) of the Social Security (Jersey) 1974 Law, that the lower threshold level for supplementation will apply equally to those aged below 18 as it does to those aged 18 or above with effect from 1 January 2010.
Reason(s) for Decision: The current anomaly whereby workers aged 18 and above do not receive supplementation on wages below £770 per month whereas those aged below 18 do receive supplementation on wages below this level is responsible for approximately £1.6 million per annum of States funding towards supplementation. This cost cannot be justified in view of the limited benefits available to workers aged under 18, most of whom are engaged in part-time employment whilst continuing their full time education.
Resource Implications: The annual funding of supplementation by the States will reduce by approximately £1.6 million in 2010
Action required: The Finance Director to adjust the calculation of supplementation so that supplementation is provided to those under 18 in the same circumstances as it is provided to those aged 18 and above. These calculations to take effect from 1 January 2010.
Signature:		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Social Security (Jersey) 1974 Law - supplementation of under 18s

Report

Background

The Social Security Fund raises contributions from employers and employees based on a percentage of earned income up to a maximum earnings level of £43,752 per annum. Those earning above this level make a standard rate contribution and those that earn below this level receive supplementation up to the standard rate contribution, ensuring that they receive the benefit of a full contribution record for each month that they make the appropriate contribution.

The Social Security Law sets a lower earnings threshold below which contributions are not supplemented. At present the lower earnings threshold is £178 a week. At this level, supplementation of £69.69 per week is payable. Workers earning below this amount are still subject to make contributions (provided they work eight hours or more per week) but their contributions are not supplemented and do not give rise to a full contribution record.

Issue

At present, individuals aged under 18 receive full supplementation on all earnings regardless of whether they are above or below the lower earnings threshold. There is a substantial cost to providing this supplementation as the majority of workers in this age group are not in full time work but receive relatively low wages from part-time work, as they are still in education. The contribution record of workers aged under 18 does not count towards their old age pension and there are limited benefits arising from this expensive form of supplementation.

Proposal

The current anomalous provision of supplementation to all workers aged under 18, regardless of their level of earnings, should be brought in line with the treatment of workers aged 18 and above. Workers aged under 18 should not receive supplementation in respect of earnings below the monthly lower threshold.

Current Supplementation of under-18s

The supplementation of contributions is set out in Article 9 of the Social Security Law.

Article 9 (2) states

"Notwithstanding the provisions of paragraph (1), contributions (paid or credited) for any month which, before the deduction of the appropriate Health Insurance Fund allocation, are below the lower threshold level shall not qualify for supplementations:

Provided that the Minister may, subject to such conditions as may be prescribed, disregard the lower threshold level where to apply it to a person below the age of 18 years would disqualify that person for supplementation.”

At present the Law is being administered such that the lower threshold level is disregarded in respect of all persons below the age of 18. The effect of this is that every individual paying contributions under the age of 18 is receiving supplementation to create a full contribution record, regardless of the value of their monthly earnings.

It is estimated that the total cost of supplementation in respect of individuals under the age of 18 earning below the lower earnings threshold is £1.6 million per annum.

Benefit entitlement

Creating a full contribution record by providing supplementation to individuals aged under 18 and below the earnings threshold does not have any effect on their entitlement to old age pension. Only contributions made after the age of 18 are taken into account. However, contributions made by those under 18 does creates a contribution record that can be used to provide eligibility for Short term Incapacity Allowance, Long Term Incapacity Allowance, Incapacity Pension, Maternity Allowance and Maternity Grant as well as any associated credits. The only benefit actually claimed by individuals aged under 18 in 2009 was Short Term Incapacity Allowance.

During 2009 55 Short Term Incapacity Allowance claims were paid in respect of individuals aged under 18 who had contributions below the lower threshold in the month in which they claimed STIA. Some of these individuals may have had higher earnings in previous months. For example, their earnings may have dropped in the month of the claim if their employer did not pay them when they were ill. Not all claims were paid at the full rate as contributions had not been received in enough months of the relevant quarter.

If the rules on supplementation are brought in line with the treatment of over 18s, these claims would no longer be accepted. This would bring under 18s in line with workers aged 18 or above with the same level of earnings who have never been entitled to claim benefit.

Impact on Social Security Fund

The Government Actuary’s Department has modelled the impact on the Social Security Fund of the removal of supplementation from under 18s below the threshold. The impact on the Fund as a whole is limited

Break-even contribution rates (%)

Year	Current system	Remove special treatment of supplementation for those under age 18
2006	9.0	9.0
2011	9.7	9.8
2016	10.7	10.8
2026	13.4	13.5
2036	16.3	16.5
2046	16.3	16.5
2056	16.7	16.8
2066	17.1	17.3
Year in which the Funds are extinguished5	2038	2037

Operational Issues

The current processing of contributions from under 18s has been extended in 2009 to provide the option to provide supplementation in respect of all earnings (as now) or to limit supplementation to earnings above the threshold. Both options are tested and available for use.

Conclusion

The current States expenditure of £1.6 million per annum used to supplement the contributions made by workers aged under 18 cannot be justified in terms of the limited benefits it provides to these workers.

Reversing the previous decision will place workers aged under 18 in the same position as workers of 18 and above.

This decision can be implemented immediately and will take effect in respect of earnings from January 2010 onwards.

19/03/2010 L:\General Information\Workgroups\Policy\sue 2009\Report under 18 summary.doc