More money will be needed in future to pay old age pensions and other social security benefits.

Social Security have issued a consultation document which shows how the social security funds will run out by 2040 unless corrective measures are taken. Those measures could involve higher social security contributions for individuals or employers. There could be increases in the upper earnings limits and there could be an increase in the pension age, but not before 2020.

Payments into the social security funds from general revenue also need to be addressed. At present, for every £1 of social security contributions collected for the Guernsey Insurance Fund a further 15 pence is added from general revenue. In 2007, the Policy Council and the Treasury and Resources Department wanted this formula looked into. The States directed Social Security to review the whole funding arrangements. They have now done this and will report to the States at the December meeting.

'This is a problem which can definitely be solved' says Deputy Mark Dorey, Social Security Minister. 'But it can be solved in several ways and we need to find the best solution overall. I think that the answer will involve changing two or three things rather than just one.'

'The benefit uprating policy is important' says Deputy Dorey. 'Our intention is to increase pensions and other contributory benefits by more than RPI over the medium and long-term. If we were to stick strictly to RPI, we would not have a future funding difficulty, but we would find ourselves in the same position as the UK, where the basic state pension is only £90.70 per week. The Guernsey pension is £160.75 per week. If we stuck to RPI, we would have much higher expenditure on the means-tested supplementary benefit, which is financed from taxation.'

The report shows the impact of increasing the contribution rates for employed, self-employed and non-employed contributors. Increases of 0.5% and 1.0% are shown. Similar increases for employers are also shown.

The report also shows the impact of increasing the upper earnings limits or removing them altogether. At present, the upper earnings limit is £64,896 per year for employed and self-employed people and £108,108 for employers.

Pension age is also considered. In the UK, pension age will be increasing to 68 by 2046. Other countries such as the United States, Germany and Denmark will have a pension age of 67 by around 2027.

Social Security have included an option in the report for the Guernsey pension age to increase to 70 by 2050.

'We hope to draw the attention of the States, and the people of Guernsey and Alderney, to these very important issues' says Deputy Dorey. 'In addition to the States report, we are sending a leaflet to every household in Guernsey and Alderney. The leaflet contains a summary of the issues and has a questionnaire that we hope people will fill out.'

'As this is a consultation document, we have not included recommendations for what the Social Security Department sees as the best way forward. We will do that next year, when we take a follow-up report to the States.'

'We will also be holding a public meeting at Les Beaucamps School on Wednesday 3 December, starting at 7.30pm. People can come along and hear more about the issues and express their views.'

NOTE: The States Report and the leaflet can be downloaded by clicking on the links to the right of this page.  The leaflet will be delivered to all households in Guernsey and Alderney during the week commencing 17 November 2008.

14 November 2008

Contact information

Malcolm Nutley, Chief Officer, Social Security Department (Tel: 732581) or Ed Ashton, Deputy Chief Officer, Social Security Department (Tel: 732562).