Friday 20 September 2013
SSD's report covers two important issues. The first is the annual set of recommendations for benefit and contribution rates for 2014. The second is a revised set of proposals for the reform of the supplementary benefit scheme, including the Housing Department's rent rebate scheme, taking effect from 2015 onwards
Summary
- SSD's benefits and contribution proposals seek to strike a balance between the level of benefits being paid out and the long-term implications for the Guernsey Insurance Fund and General Revenue.
- Proposals are for a straight RPIX increase of 2.1% in 2014 for all benefits apart from Family Allowance, which stays unchanged.
- Proposed modernisation of the supplementary benefit scheme is a more moderate version of proposals put before the States in March 2012
- A unified system of rent and income support.
- Proposals to be implemented after the conclusion of the Personal, Tax and Benefits Review so that a clear source of funding can be identified - therefore no implementation until 2015.
Overview of benefit and contributions proposals for 2014
(Parts 1-4 - Paragraphs 8-223)
Pensions and other benefits will go up by 2.1% from January if the States approve Social Security's proposals at the October States meeting.
Deputy Allister Langlois, Social Security Minister, commented:
"We're recommending a straight RPIX increase of 2.1% for all benefits for 2014. The exception to that is the Family Allowance, where we propose no increase."
"We understand that our pensioners would prefer a higher increase but we are in difficult times. For quite some time the annual increases in pensions has been above RPI, on the grounds that wages and general prosperity were increasing by more than RPI. But that's not the current situation, and we have to strike a balance between the level of benefits being paid out and the long-term implications for the Guernsey Insurance Fund which is in a deepening operational deficit."
In view of the increasing operational deficit in the Guernsey Insurance Fund, the Department is also recommending an increase in the employers' contribution rate of 0.5%, taking it from 6.5% to 7.0% of earnings. It is estimated that this will increase contribution income by £5.3m per annum. The Department is not proposing an increase in the contribution rates for self-employed or non-employed persons.
A corresponding reduction in the grant from General Revenue from 15% to 14% of contribution receipts is also proposed. This is to ensure that General Revenue contributes no more to the Fund than it is doing under the current employers' rate.
Deputy Langlois commented:
"The long-term plan is to draw down the reserves of the Guernsey Insurance Fund over the next 20 years or so. The problem is that the drawdown is happening earlier and more rapidly than was forecast. The increasing number of pensioners and pension payments can be, and was, forecast fairly accurately. But on top of that we currently have slow economic growth, unemployment higher than normal and less contribution income than forecast. That has resulted in the drawdown from reserves running ahead of time and we need to take action. The extra 0.5% contribution from employers will certainly help, but will go only part of the way towards addressing the depth of the deficit. We think it is a prudent measure to take at this stage."
"We have given a commitment to report back to the States with detailed proposals to achieve long-term sustainability of the Guernsey Insurance Fund as soon as possible after the conclusion of the Personal Tax, Pensions and Benefits Review, which we are currently undertaking with Treasury and Resources."
Details of proposed benefit rates for 2014
Pensions
Single pensioners will get an extra £4.05 per week, with a full rate pension increasing from £192.85 to £196.90.
Pensioner couples will get an extra £6.08 per week, increasing their joint pensions to £295.53. If both spouses have paid full-rate contributions throughout their working lives, they will receive two full pensions totalling £393.80 per week, or an increase of £8.10 per week. (para. 50 of the Report in the Billet D'État)
Reminder of changes to old age pension from 2014
From 1 January 2014, for new pension claims there will be no more additions to a man's pension in respect of a wife who is under 65. Those claims that are already in payment with such an addition will continue until the wife reaches 65 and receives her own pension.
This change, which was part of the overhaul of the social insurance scheme to achieve gender equality, was agreed by the States in 2003, on recommendation from the former Social Security Authority, with a ten year lead-in.
Deputy Langlois commented:
"Within this report, we are also reminding the States of the changes to old age pension which were agreed by the States in 2003 with a ten year lead-in. These will take effect from 1 January 2014."
"The Department wrote to all male customers in November 2010 who will be 65 in 2014 to remind them of these changes with effect from 1 January 2014."
Next year also sees the ending of a right for entitlement to a pension being calculated on pre-2004 rules, if to the pensioner's advantage.
Fundamental changes were made to the social security system in 2004 for gender equality. These included individualising benefit entitlements. On pensions, the legislation allowed for a married woman to have her pension calculated according to both the new rules and the old rules and for her to receive the higher pension. This provision was largely intended by way or reassurance as the new rules were expected in most cases to provide better pensions for married women than the part-pension allowed on the husband's contribution record. This has proved to be the case.
Other contributory benefits
Other contributory benefits, including sickness, unemployment, and bereavement benefits all go up by 2.1%. (paras. 51-52)
Supplementary Benefit
Supplementary benefit rates will go up by 2.1%. The benefit limitation will stay the same at £500.00 per week (paras. 143-145)
Winter fuel allowance
An increase of 7.4% is recommended for the winter fuel allowance for householders on supplementary benefit, taking it from £27.93 to £30.00 per week from this October through to April 2014. The uplift matches the 7.4% increase in the index for fuel, light and power for the year to June 2013. (paras. 152-155)
Family Allowances
Family allowance will be frozen at the 2013 rate of £15.90 per child per week. (paras. 211-214).
Long-term care insurance benefits
Social Security are recommending that the co-payment paid by people in care should increase from £182.98 to £186.83 per week from next year. The benefit to help meet the cost of residential care fees will increase from £405.44 to £413.98 per week and the benefit for nursing care fees will increase from £756.98 to £772.87 per week. (paras. 126-129)
The rate of benefit for people with EMI (elderly mental infirmity) needs which are being met by services in residential homes will increase from £534.24 to £545.44 per week. (para. 130)
Prescription charges
Prescription charges will increase by 10p to £3.30 per item from 1 January 2014. (para. 97)
Review of Attendance Allowance and Invalid Care Allowance
Social Security recommended a number of changes relating to attendance allowance and invalid care allowance which States Members approved in October 2011.
The Department is currently taking steps to implement the various States resolutions, including the removal of the earnings limitation on invalid care allowance and the re-naming of the two benefits. It is expected that the changes will come into force in spring 2014.
In the meantime, Social Security has recommended increasing the weekly rate of both benefits by 2.1% and uplifting the annual income limit to £90,000 (paras. 215-219).
Overview of modernisation of supplementary benefit proposals
(Part V - Paragraphs 224-570)
Part 5 of Social Security's report concerns proposals for the modernisation of the supplementary benefit scheme.
The background to the modernisation proposals will already be familiar to States Members. Social Security's proposals to the States in March 2012, prior to the General Election, were narrowly defeated.
Deputy Langlois commented:
"This time the proposals have been moderated. Many significant changes to the supplementary benefit scheme were agreed by the States in March 2012, but the uncertainty surrounding the overall costs of the proposals meant that the States did not agree to several of the key parts.
"Social Security fully recognises that we are in difficult economic times and so this set of proposals provides a compromise between the recommendations made to the States in March 2012 and the requirement to work within the current fiscal framework'.
"We think there's a need to take a middle course."
Social Security is proposing the introduction of a single system of rent support for low income households which will ultimately be achieved through the closure of the Housing Department's rent rebate scheme.
Deputy Langlois commented:
"We're asking the States to agree our proposals for the introduction of a single, fit-for-purpose, housing-related benefit, which would mean that Housing's rent rebate scheme can be phased out over 3 to 5 years.
"Both the supplementary benefit scheme and the rent rebate scheme have the same aim, which is to ensure that people have enough money to live on. The trouble is that, at the moment, the two schemes achieve this aim in very different ways."
Social Security and the Housing Department agree that it does not make sense to continue to operate two benefit systems side by side.
The two Departments also agree that the unified system of rent and income support should be operated by the Social Security Department.
Deputy Langlois commented:
"It's much more efficient to bring the two schemes together so that Guernsey has a single system of rent support for those who cannot meet their own need for accommodation and day-to-day living."
Social Security's proposals will provide assistance to approximately 1,000 new supplementary benefit households and will affect almost 2,000 low income-households living in social housing.
Deputy Langlois commented:
"We're focused on achieving equal treatment for low income households, an increased focus on work for the fit and able, including partners of those claiming benefit, with a cap on rent allowances as well as a cap on benefit.
"If we were to close the rent rebate scheme tomorrow, some people living in social housing would experience financial difficulties with a significant or sudden change of income."
In order to ease this, Social Security is proposing an, in principle, increase in benefit rates from 2015 and a two-stage increase in the benefit limitation to £650 per week over two years. In parallel, the Housing Department should cease to operate the rent rebate scheme from 2015, but would provide transitional arrangements for those social housing tenants who will be adversely affected, allowing them to gradually adjust to a lower income.
Deputy Langlois commented:
"I want to make it clear that, if the States sign-up to our proposals, then the appropriate transitional arrangements will be put in place to avoid anyone in social housing from being severely impacted by the changes."
These transitional arrangements are anticipated to cost in the region of £800,000 over 5 years.
None of Social Security's proposals will be implemented until the source of funding is identified.
Deputy Langlois commented:
"We have explicitly stated within this report, that unless Social Security can find the funding, the proposals in our report will not happen."
The report identifies that this funding will be progressed through the Personal Tax, Pensions and Benefits Review which it is anticipated will be concluded and agreed by the States in 2014.
Deputy Langlois commented:
"The conclusion of the Personal Tax, Pensions and Benefits Review is essential for us to progress our proposals. It means that, even if the States agree our proposals in October, we will not be implementing them before January 2015."
Social Security has carried out a detailed analysis of the costs involved with introducing its package of proposals which are estimated to be in the region of £3.75m per annum above the current total joint costs of the supplementary benefit and rent rebate schemes.
If implemented, Social Security's new proposals will require additional staff resources, estimated at a cost of around £500,000 in year one, which will decrease in subsequent years.
Social Security currently has a business improvement project as part of the Financial Transformation Programme to identify resource savings which can be off-set from the estimated staff costs required for the new proposals.
Deputy Langlois commented:
"It's vital that we have sufficient resources in place to deal with all the new supplementary benefit claims that we will be processing as a result of the changes."
Details on Review of Supplementary Benefit Scheme
In order to achieve the rationalisation of the supplementary benefit and rent rebate schemes, Social Security is proposing in principle, that from January 2015: the rent rebate scheme be closed, supplementary benefit rates are increased, maximum rent allowances for families are brought in and the benefit limitation for people living in the community is increased to £650 over two years.
The closure of the rent rebate scheme will be achieved through increasing the supplementary benefit limitation, introducing maximum rent allowances for families and making moderate increases to benefit rates.
All people on low incomes will be treated equally, using a single set of rules administered through one single comprehensive means test.
Social Security's proposals mean that assistance will be provided to approximately 1,000 new supplementary benefit households.
Social Security's proposed changes will affect almost 2,000 low income-households living in social housing.
If Social Security's proposals are implemented, around 800 tenants will be better of by more than £10, just over 400 tenants will be worse off by more than £10 and just over 740 tenants will be affected by less than £10 either way (i.e. better or worse off) including some tenants for whom there will be no change.
Initial estimates from the Housing Department are that the transitional arrangements for closing the rent rebate scheme may cost in the region of £800,000 in total over the five year transitionary period, although more detailed work is required to determine the exact scope and application of these arrangements.
Social Security is also proposing a moderate increase in benefit rates from January 2015, which have been calculated with reference to median household income.
The current combined cost of the rent rebate and supplementary benefit scheme is £31.78m, of which £20m is spent on supplementary benefit and £11.78m on rent rebate.
Social Security estimate that, if the States agree their proposals, the additional expenditure required to fund their proposals will be in the region of £3.75m.
The funding for Social Security's proposals will be sought from the Personal Tax, Pensions and Benefits Review, with targets and efficiencies being sought from within the Department's own remit, for example from universal benefits.
Deputy Langlois commented:
"We're asking the States to sign up to the principles contained within this report. The simple reality, which this report highlights, is the unfairness between the rent rebate and supplementary benefit schemes. Our proposals are about treating low income households fairly, equally and efficiently."
-ENDS-
