Pensions and other contributory benefits will be increasing by 6.5% from next January if the States approves the Social Security Department’s recommendations. Supplementary benefit, family allowances and other taxation-funded benefits will go up by 5.5%, which is the most recent RPI figure.

'With the cost of living having risen more than expected, we think that many pensioners are feeling the pinch' says Deputy Dorey. 'By recommending that pensions be put up by 6.5%, which is above RPI, we've been as generous as we can be this year.'

Benefit increases
Pensions
Single pensioners will get an extra £10.50 per week, with a full rate pension increasing from £160.75 to £171.25.

Pensioner couples will get an extra £15.75 per week, increasing their joint pensions to £257.00.

Until 2007, the rates of pension payable for incomplete contribution records, particularly at the lower end of the scale, were not proportional to the number of contributions paid.  This was as a result of the old Christmas bonus payment being put into the general pension rate in 1991.  In September 2007, the States approved Social Security’s proposals to correct this over a two year period.  From January 2008, increases for pensioners with incomplete records were slightly less than for those with full records.  A similar situation will apply from January 2009, after which the process will be complete and strict proportionality will be restored. 

Other contributory benefits
Other contributory benefits, including sickness, unemployment, invalidity and bereavement benefits all go up by 6.5%.

Social Security have drawn attention to the increasing number and cost of claims for invalidity benefit.  Invalidity benefit is a long-term sickness benefit for people who have been incapable of work for more than 6 months.  Over a 10 year period the number of people receiving invalidity benefit has increased by 36% from 581 people in 1998 to 788 people in 2008.  The biggest growth area is in mental health, which mirrors national trends.  Invalidity benefit expenditure in 2007 was £5.5m and is expected to be just over £6m in 2008.

‘This is a worrying trend’ says Deputy Dorey.  ‘But we have had a lot of success in helping people with the capacity to work to find suitable employment.  We are constantly reviewing our existing schemes of support and policies to see if we can do more to help these claimants.  This is a top priority for the Department.’

Supplementary benefit
Supplementary benefit rates and the benefit limitation will go up by 5.5%.

Fuel allowance
Social Security are recommending a 17.7% increase in the fuel allowance paid to supplementary benefit householders during the winter, taking it from £19.30 to £22.70 per week. This matches the general increase in fuel prices over the last year.

Family Allowances
Family allowances will increase from £13.85 per week per child to £14.60.

Social Security have been examining the feasibility of a scheme of income-related family allowance, as a replacement for the current flat-rate universal system.  A consultation document was sent to all households in Guernsey and Alderney in July 2007.  ‘We had an excellent response to the consultation document’ says Deputy Dorey.  ‘More than 1,000 people responded.’

The results showed that a clear majority of people were against changing to a scheme of income-related family allowance.  Unless the family allowance budget were increased substantially, it would be necessary to clawback family allowance from middle income families, as well as from high income families, to pay for an increase in the rate of family allowance for low income families. 

‘It was clear from the feedback we received from the public that many middle income families rely on their weekly family allowance payments and cannot afford to receive less’ says Deputy Dorey. 

After reviewing the findings from the consultation exercise and further financial modelling, Social Security says that it will not be pursing the proposals.

Long-term care insurance benefits
Social Security are recommending that the co-payment, which must be paid by people in care before any long-term care benefit is paid, should increase from £154.00 to £162.40 per week from next year. They recommend that the maximum residential care benefit should increase from £341.25 to £360.00 per week. Nursing care benefit is to increase from £637.00 to £672.00 per week.

Prescription charges
Prescription charges will increase by 10p, to £2.80 per item from 1 January 2008.

Contributions

Savings to general revenue

The revisions to the upper earnings limits in 2007 and 2008 and the 1% increase in the employers’ contribution rate in 2008, with compensatory reductions in the States grants, has produced an annual saving to general revenue of at least £26m per year.

Upper earnings limit
Social Security are recommending that the upper earnings caps for contributions should increase by 6.5%.  If approved, the upper earnings limit for employees will go up from £64,896 to £69,108 per year and the upper earnings limit for employers will increase from £108,108 to £115,128 per year.

Contribution rates
Social Security are not recommending any changes to the percentage contribution rates for 2009.

Investigation of an allowance for non-employed contributors
Under current rules, if a non-employed contributor’s income is below the lower income limit of £13,650 (2008 limit), they pay no social insurance contributions.  And if their income is above the lower income limit, the contribution is charged on total income.  Social Security recognise the need to change this and have been investigating the introduction of an allowance on personal income as a possible solution.  The allowance would be similar to an income tax personal allowance.

‘We are working closely with Treasury and Resources to identify areas where we can make savings from rationalising the work of the two Departments’ says Deputy Dorey.  ‘One possible area where savings could be made is by transferring responsibility for collecting non-employed contributions from people over the age of 65 to Treasury and Resources.  If this can be achieved in the next year, it would seem sensible to introduce an allowance on personal income for people over 65 at the same time as the transfer of the collection function to Treasury and Resources.’

A different solution will be needed for non-employed contributors who are under the age of 65.  The collection of contributions from this group of people may be more difficult to transfer to Treasury and Resources because it is necessary to record weekly contributions paid or credited for benefit purposes, in particular for pension.

States Grants to contributory funds
In September 2007, the States agreed that the grant to the Guernsey Insurance Fund would reduce from 36% of contribution income in 2007 to 15% from 1 January 2008 and that the grant to the Guernsey Health Service Fund would decrease from 27% of contribution income in 2007 to 12% from 1 January 2008.  The States also agreed that Social Security should carry out a full review of the long-term future funding of the Guernsey Insurance Fund, the Guernsey Health Service Fund and the Long-term Care Insurance Fund in conjunction with the Treasury and Resources Department.  As this review is still ongoing, Social Security are not recommending any changes to the grants in 2009. 

The Department is preparing a report for the December States meeting, which will be in the form of a consultation document, allowing a full exploration of the funding issues relevant to the sustainability of the contributory social insurance schemes, including pension age.  Once it has considered the responses to the consultation report, Social Security hope to be in a position to return to the States in May or June 2009 with firm proposals for the future level of the States grants to apply in 2010 and beyond.

Estimated operating deficit on the Guernsey Insurance Fund in 2009
Taking into account the proposed contribution and benefit rates for 2009, Social Security estimates that there will be an operating deficit in the order of £800,000 in 2009.

‘This will be more than covered by investment income’ says Deputy Dorey.

5 September 2008

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