The Guernsey Insurance Fund could afford to continue paying the States pension for about 3.8 years without further contributions from employers and employees. That is down from six years in 2010.
The ‘years cover’ measure is used to calculate the value of the fund relative to the number of pensions being paid from it.
ESS said that action was being taken to help sustain the fund in response to its declining ‘years cover’ value and the growing number of pensioners.
Its preference is a package of changes which would substantially increase standard contribution rates but introduce an annual allowance below which earnings would incur no contribution charges. That option is contained in Policy & Resources’ tax plan which is currently being debated by the States.
An alternative is to continue a 10-year plan to increase all contributions gradually without the introduction of an allowance.
ESS president Tina Bury hoped the first option would be backed by the Assembly.
‘There are inequities within the existing contributions system,’ she said.
‘For example, there is no allowance, so as soon as you pass the threshold for liability, called the lower earnings limit, you are charged on all your earnings up to the upper earnings limit.
‘Not only is that not progressive, but it creates a cliff edge when you cross the threshold. At the moment, if you earn £831 a month you don’t need to pay social security contributions, but if you earn £833 a month you have to pay on everything you earn.
‘The restructure is designed to fix this and other similar issues as well as making the whole system more progressive.’
Deputy Bury said that continuing the 10-year plan by raising contribution rates for everyone would raise adequate income for the Guernsey Insurance Fund, but hit lower- and middle-income earners the hardest.
The 10-year plan was calculated to be the minimum required to stabilise the fund, albeit leaving barely more than two years’ cover remaining. The lower the ‘years cover’ in the fund, the more the scheme has to rely on contributions from the working-age population, as investments then cover a smaller proportion of the cost of paying pensions.
Guernsey’s pension scheme essentially uses an unfunded model, meaning today’s contributors are paying the pensions of today’s claimants. However, it has a modest buffer fund which helps avoid calling on general revenue to pay pensions.
It is understood that the results of a fresh actuarial review of the fund are expected by the end of this year.