Major changes on the way to States pensions

Tuesday 11 October 2016

Islanders are being asked their views on major changes to the States pension system which will mean either contributions increasing, tighter limits applied to the amount being paid out, or the pension age increasing again from 67.

The Social Security Department says that a decision on which way to go needs to be made over the next three years, which is why they are asking for comments now. There is currently nearly £1.4billion in the States pension fund, but with Islanders living longer, there will be double the number of people over 65 in 20 years time as there are now, while the number under 65, who pay their pensions, will be approximately the same.

Jersey's scheme works on a 'pay-as-you-go' basis, which means that current contributors are paying for current pensioners, meaning the working population in 20 years time will be supporting far more people than they do now. 

The issue is also affected by immigration, as although the pension bill is currently going up, with more people working in the Island the number of contributors is also increasing. The States interim population policy expired earlier this year, and so far nothing has replaced it, meaning at the moment, no decision has been made as to whether the size of the population should be controlled, and if so, how. Projections as to what the Island's population will be in future years are to be announced this week. 

But Social Security say that changes need to be made by 2020, and the options are to increase contributions from either the employee, or the employer, or both; to increase the pension by a lower rate every year, so it isn't linked to the headline cost of living; or to increase the age at which you can draw a States pension from 67, which is partly how the problem has been addressed in the UK, Guernsey and the Isle of Man. 

Social Security Minister, St Clement Deputy Susie Pinel commented: 

"We need to understand the public's views on living longer and having a longer retirement, so that government can play the right role in helping people to save for their retirement in future. This is an opportunity for government, employers and citizens to work together and ensure we have the right solution for Jersey.

"Action is needed, but the Social Security Fund is in a healthy position, and there is no need to make any hasty decisions. If it is decided to make changes to the scheme they can be phased in during the 2020's."

Life expectancy has increased significantly in recent years with a person aged 65 in the 1950's probably reaching the age of 78, whereas someone who was 65 in 2010 can expect to live until 87, on average.

Currently, the employer pays 6.5% of an employee's salary to the Social Security department, with the employee adding a further 6%. Those percentages last went up in 2002, from the previous total of 10%. However, employees now also have to pay a Long Term Care charge on top of their tax payments, and recently the proposed new health charge was narrowly defeated in the States on a tied vote. 

The review of the States pension is part of a wider consideration of income in retirement. Social Security are looking for comments, and there is a questionnaire to fill in by clicking here.