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Islanders will see their benefits rise by the rate of inflation from January 2024, with the States to look at more ways to make the social security system fairer going forward.
Deputies yesterday agreed the annual changes to social security rates and contribution levels, in line with a previously agreed 10-year plan to ensure that the public insurance funds become financially sustainable, with a uplift of 6.8%.
But the States also agreed to reform how yearly increases to benefits, except those that come out the long-term care fund, are calculated.
These have been increased by whatever is higher of the rate of inflation, or inflation plus a third of the real terms increase in average wages over the year. Now, previous years will be looked at to ensure annual increases aren’t disproportionate to inflation.
Deputy Peter Roffey, President of Employment & Social Security, said this would “protect the real value of pensions no matter the economic weather”, and would be more affordable for the States, but only if the 10-year plan is followed or the contributions systems is “fairly reformed”, he added.
Deputy Roffey said such reforms had “apparent universal support from deputies” in previous tax debates, which was confirmed by unanimous support for ESS’s plans yesterday.
Anyone earning up to £35,000 in Guernsey pays more out in tax and social security than their equivalents in Jersey. Introducing a personal allowance, which stops individual contributions on initial earnings, would be fairer, he said.
Pictured: Employment & Social Security annual uplift of benefits is to mitigate the effect of cost increases.
An amendment tabled by Deputy Heidi Soulsby was unanimously supported and directed ESS to consider cutting employer contribution rates for those past retirement age to encourage employment, and whether to provide less allowances to higher earners.
It also called for “intergenerational fairness” to be considered to ensure workers of the day are not unfairly supporting the benefit payments of those who have left the workforce.
ESS will fold these ideas into its wider review of social security contributions, but the ongoing debate on taxes, capital projects and borrowing could have an impact on what the future system will look like as social security reforms are part and parcel of Policy & Resources’ tax and spend plans.
In any case, ESS will report back on its investigation at the end of 2024.
Pictured: Pensions are estimated to cost over £166m next year, up £33m on 2023.
The States will also cut social security credits for parents, who are exempt from paying non-employed contributions, by changing the maximum age at which benefits are awarded for a household’s youngest child from 16 to 12-years-old from 2025.
Deputy Roffey said 16 was too high an age to subsidise the pension entitlement of parents, and that the limit is likely to decrease again with an incremental approach being taken to slowly withdraw the benefit.
A protection scheme will be provided for parents if they can prove that receiving the credits for their child up to the age of 16 would be fair and equitable.
Widowed parent allowance will also be extended to cater for co-habiting couples, rather than just those who were in a legal union at the time of a death in the family.
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