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Treasury proposes state pension protection ‘safety net’

Tuesday, 27 October 2015

Treasury Minister Eddie Teare MHK is to seek Tynwald approval for a pension protection ‘safety net’ to guarantee that no pensioners are made worse off by the transition to the Island’s new state pensions system.

As already announced, the Isle of Man and United Kingdom state pension schemes will start to diverge from April next year, though the social security Reciprocal Agreement between the two countries is to be retained in an amended form.

However, for some local residents who have paid National Insurance contributions in both countries the change next year might affect the entitlement to Manx Pension Supplement.

The potential impact of the change only relates to people who have paid NI in both the Isle of Man and the UK and who retire on or after April 6, 2016. It does not affect any existing pensioners or anyone who has only paid NI in the Isle of Man.

To ensure that everyone retiring after next April will receive the Manx Pension Supplement that they expect, Treasury will ask for support at the November Tynwald for an adjustment to the Manx Pension Supplement scheme. In addition, Treasury will seek approval for a scheme designed to provide a ‘top up’ provision that will ensure that no one is worse off under the revised scheme.

Mr Teare said the changes were inevitable given what was happening in the UK and Tynwald’s agreement that the Island should create its own state pensions system.

He explained:

‘Treasury is developing a new state pension regime, tailored to the needs of the Island, in line with the principles agreed by Tynwald in July this year. The phasing in of the new regime, with full protection for existing pensioners, is due to begin in the next few years.

‘In the meantime, however, the Manx and United Kingdom systems will start to diverge next April when the UK introduces changes to the basic state pension which the Isle of Man is not following.

‘The split will mean that retirees who have worked and paid enough NI in both countries will receive two separate pension payments from the next financial year, one from each government, rather than a single combined payment.’

Bill Henderson MLC, the Treasury member responsible for social security, added:

‘Receiving two payments should not be a problem for this group of pensioners, but we have identified a potential issue with the amount of Manx Pension Supplement they could receive. This is because entitlement to the supplement is related amongst other conditions to entitlement to the basic state pension, and in future that will be split between the two countries.

‘Treasury is committed to ensuring that no-one is made worse off as the Island moves towards its own state pensions system. That is why we will be asking Tynwald to agree the proposed safety net provision as a pragmatic transitional arrangement.’

Notes

When Tynwald agreed recommendations for reform of the Island’s state pensions and benefits system in July this year, Treasury Minister Eddie Teare MHK told Members:

‘The Island and the UK will be operating different state pension schemes from April next year. It is proposed that individuals who have paid contributions in both jurisdictions will claim two separate pensions – one from the Island and one from the UK. This type of agreement is similar to that operated between the UK and the Channel Islands.’

The divergence of the UK and Isle of Man systems has potential implications for the entitlement to the Manx Pension Supplement of Island residents retiring on or after April 6, 2016, who have paid NI contributions in both countries. The change does not affect any existing pensioners or anyone who has only worked in the Isle of Man.

Of around 19,000 current state pensioners in the Isle of Man, some 9,000 have paid NI contributions in both countries or all in the UK. Of the people expected to retire on the Island in the next financial year, it is estimated that around 350 will have paid contributions in the UK, and some of these may also have made sufficient contributions in the Isle of Man to qualify for the Manx Pension Supplement.

The Manx Pension Supplement pays up to an additional 46% on top of the basic state pension to people in receipt of the basic pension who have also paid at least ten years of NI contributions in the Isle of Man. The amount of supplement paid to a person is based on the amount of basic pension that they are entitled to here, which is why the splitting of basic pension payments between the Isle of Man and the UK could make a difference if no remedial action is taken.

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