07 February 2012
The UK Government Actuary carries out a review every 3 years and this latest one covers 2007, 2008 and 2009. It looks at contribution income and benefit costs until 2069. Its findings show that the fund remains healthy in the short term as a result of decisions made in the late 1990s to build up a reserve fund.
Further action will be needed to ensure that benefits and pensions can continue to be paid over the coming decades, as the proportion of older people in the population increases.
However, the results of this review and the recent decision to increase pension age mean that increases in contributions can be delayed for a number of years.
Pensions
Old age pensions form the largest single item of expenditure. In 2009 £126 million was paid in old age pensions – that’s 73% of all benefits paid out of the fund that year. Other benefits include incapacity and maternity benefits.
Last year the States agreed to increase the pension age gradually from 65 to 67. This process will start in 2020 and the pension age will rise by 2 months each year until it reaches 67 in 2031.
The actuarial report calculates the impact of this change. It estimates that pensions in 2039 will cost between £228 million and £233 million with the higher pension age, compared to £251 million if the pension age remained at 65.
Senator Le Gresley said “This review has found that the fund remains in a healthy state in the short-term, but we will need to make more changes over the next decade to protect the fund and ensure that the workers who are paying into it today will receive a pension when they retire.
“The States has agreed that the pension age will start to rise from 2020. This will not be enough on its own to meet the challenges of the increasing number of older people over the next 2 decades. I am committed to maintaining the value of the old age pension in the long term and this will inevitably lead to future increases in contribution rates.
“The results of the recent census were not ready in time to be included in this review but we will be working closely with the Statistics Unit during 2012 to update our figures for the next review.”
‘Triple Lock’ mechanism
The Government Actuary has also investigated the impact of introducing a ‘triple lock’ mechanism for uprating old age pensions. At present, pensions and all other Social Security Fund benefits are automatically increased by the Earnings Index each October. Under the ‘triple lock’ pensions would increase by whichever is higher :- 2.5%, the earnings index or the retail price (pensioners) index.
The Actuary’s calculations show that this more generous uprating system for the old age pension would cost an extra £8 million per year by 2029, rising to an extra £18 million per year by 2049.
Senator le Gresley continued “The Government Actuary’s figures show the significant cost to future generations of this proposal. For example, the savings delivered by increasing the pension age to 67 would be wiped out by the extra cost of the ‘triple lock’.
“It has to be remembered that the States has already agreed that the cost of long-term care should be met through contributions into a new ring fenced fund, which will be set up during 2013.
"In short, this review has confirmed the strong position of the Social Security fund, built on wise decisions taken in previous decades. I will continue to monitor the long-term health of the fund to ensure that future generations will also be able to benefit from it.”
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