Social Security (Jersey) Law 1974: Transfers from the Social Security Reserve Fund for 2020

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A decision made on 27 May 2020

Decision Reference: MD-S-2020-0030
Decision Summary Title :	DS - SS reserve fund transfers for 2020		Date of Decision Summary:	7 May 2020
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 2020		Date of Written Report:	7 May 2020
Written Report Author:	Head of Finance Business Partnering – CLS		Written Report : Public or Exempt?	Public
Subject: SS reserve fund transfers for 2020
Decision(s): Under the Social Security (Jersey) Law 1974, the Minister for Social Security has decided to: Approve the transfer of up to £150 million of liquid assets from the Social Security Reserve Fund to the Social Security Fund during 2020. Direct that an initial transfer of £55 million should be made as soon as practicable. Delegate the decision regarding the timing of future transfers to either of the Assistant Ministers for Social Security, up to the limit of £150 million, should the Minister be unavailable for any reason.
Reason(s) for Decision: These transfers are required to enable effective cashflow management of the Social Security Fund, following the two previous decisions (deferral of contributions and removal of the States grant in 2020) in response to the Coronavirus pandemic.
Resource Implications: The resources held by the Social Security Reserve Fund will be reduced by up to £150m during 2020, 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:		Position: Minister for Social Security
Date Signed:		Date of Decision (If different from Date Signed):

Social Security (Jersey) Law 1974: Transfers from the Social Security Reserve Fund for 2020

Customer & Local Services

Ministerial Decision Report

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

1. Purpose of Report

Two key decisions have been made in response to the Coronavirus pandemic which have a significant impact on the Social Security Fund. These are the decisions to allow the deferral of Social Security Contributions and to remove the States Grant to the Social Security Fund. The consequence being that the Social Security Fund will not have enough cash resource to fund anticipated benefit payments in 2020.

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

Approve the transfer of up to £150m of liquid assets from the Social Security Reserve Fund to the Social Security Fund during 2020 to address this shortfall.
Approve the first transfer of £55m in May 2020.
Approve subsequent transfers as they are required during the year.
Delegate the approval of future transfers to the Social Security Assistant Ministers.

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 anticipated increase in the number of pensioners (both in absolute terms and relative to the size of the working population).

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.

The States Assembly’s decision to allow many businesses and the self-employed to defer social security contributions for two quarters due in April and July 2020 for one year is anticipated to reduce the cash income to the Social Security Fund. Further, it is anticipated that the social security contributions due to the Social Security Fund will be reduced in 2020 as a result of the economic downturn per the economic assumptions published by the Fiscal Policy Panel in March.

In total, it is estimated that income to the Social Security Fund could be reduced by up to £75m. Additionally, the Assembly have decided to remove the States Supplement payment to the Social Security fund in 2020 resulting in a further £65m income reduction.

This reduction in cash income to the Social Security Fund will result in the fund having insufficient cash to meet social security benefit payments. These benefit payments include the Old Age Pension and a range of other entitlements.

The Social Security Reserve Fund held financial assets valued at £1.98bn as at 31 December 2019. The impact of the recent reduction in investment asset values is forecast to have reduced the value of the fund to circa £1.7bn as April 2020. The Reserve Fund holds £207m in liquid assets.

3. Proposal

It is proposed that authority is provided to enable the transfer of up to £150m from the Social Security Reserve Fund to the Social Security Fund during 2020. This is anticipated to enable effective cash-flow management of the Social Security Fund based upon current forecasts. The transfers would be made as required and will seek to ensure that recent losses on investments are not realised unnecessarily. This level of transfer is likely to be sufficient on the basis that there are no further deferrals of Social Security Contributions payable to the Government and economic performance is broadly in line with the Fiscal Policy Panel report published in March.

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 £1.23bn of the £1.98bn balance as at 31 December 2019. This is significantly in excess of the value of the transfer required.

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 although it is accepted the transfer will reduce the value of the Reserve Fund earlier than intended.

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. The total value of the investment returns which are held by the reserve fund far exceed the proposed transfer, this is supported by independently audited accounts.

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	15 May 2020
Review SSF Cashflow Forecast and recommend transfer values and forecast drawdown dates	Head of Finance Business Partnering	18 May 2020
Approval of cashflow and transfer forecast	Director General Customer & Local Services	20 May 2020
Transfers and Social Security Reserve Fund Liquidity in line with forecast actioned	Head of Treasury & Investment Management	22 May 2020 and then as required

Recommendation

The Minister is recommended to:

Approve the transfer of up to £150m from the Social Security Reserve Fund to the Social Security Fund by 31 December 2020 to compensate the Social Security Fund for reduced income and enable it to fund Social Security Benefit payments during 2020.
Approve the first transfer of £55m in May 2020.
Approve subsequent transfers as they are required during the year.
Delegate the approval of future transfers to the Social Security Assistant Ministers.

Resource Implications

The resources held by the Social Security Reserve Fund will be reduced by up to £150m during 2020 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 : 11 May 2020
Quality Assurance / Review : Senior Policy Officer	File name and path:
MD sponsor : Policy Director	File name and path: