States pensions could be double locked in future

But the Guernsey Insurance Fund deficit is continuing to grow as the proposed 2023 benefits are announced.

The double lock move would mean that the States pension would be increased by RPIX each year, plus a third of real increase in earnings, which ensures the spending power of pensioners is maintained.

The suggestion would also affect all contributory benefits, except long-term care benefits.

Pensions were already double locked in 2018 and 2019, but it is not a States policy at this stage.

‘However, before doing so, the committee intends to examine the potential long-term financial implications to the Guernsey Insurance Fund of the ‘double lock’ policy,’ the ESS committee said in the policy letter.

‘In the meantime, the committee recommends that contributory benefits funded from the Guernsey Insurance Fund be increased in 2023 by 7%, this being the annual rate of ‘core’ inflation (RPIX) for the year to June 2022.’

The document also details the proposed rate for 2023 pensions. This year an insured person would receive £233.85 a week. This would increase to £250.22 a week under the proposals.

Other benefits would also be increasing.

Those increases, along with increases in administration costs and the number of pensioners claiming due to the ageing demographic, means that it would cost the Guernsey Insurance Fund £183.1m. next year.

That compares with a forecasted £169.8m. this year. The expenditure has been steadily increasing, with the 2019 expenditure being £155.1m.

Pensions were the biggest of the benefits drawn from the fund. They have increased from £128.7m. in 2019 to an expected £154.8m. next year.

‘Pension expenditure is increasing due to larger numbers of people reaching pension age, but it is also affected by lower mortality rates, meaning that people are enjoying longer retirements, with many more people living into and beyond their 80s,’ the policy letter stated.

‘Increasing the States pension age, which started from 1 January 2020, will have the effect of slowing this increase in expenditure. Pension age is increasing by two months every 10 months, until it reaches age 70 by 2049.’

The Guernsey Insurance Fund has been in deficit since 2009 and it is estimated it will have a operating deficit of £25.8m. in 2023.

‘The operating deficit arises when expenditure on benefits and administration exceeds contribution income,’ the policy letter states.

‘This shortfall is met by drawing down the fund’s reserves and, although the drawdown has been planned, it results in the number of years’ expenditure cover remaining in the fund reducing. It also reduces the extent to which investment income can contribute to the financing of the scheme.’

The drop in unemployment has reduced costs, but this only makes up a small percentage of the funds expenditure. Before the pandemic it was £0.9m. in 2019, while this year it is forecast to be £0.6m.