Report on pensions and benefits system

Wednesday, 5 November 2014

Report recommends radical change to prevent collapse of pensions and benefits system

A 'bold transformation' of the social security system is required to make it meet the Island's needs and protect the future of state pensions and benefits, according to a major report published today (Wednesday November 5, 2014).

The 640-page report from consultants Ci65 Ltd says the 'out of date and broken' system has not kept pace with the ageing population, is based on UK policies rather than local priorities, has become too complex, and risks failing the vulnerable.

It predicts that without change the Manx National Insurance Fund, from which the state pension is paid, will be exhausted by 2047 – seven years earlier than previously projected.

The report, commissioned by the Treasury, recommends a package of reforms to extend the life of the Fund - to make the system sustainable, simpler and suited to the economic and social conditions of the Isle of Man. Breaking the link with UK policies could mean changing or replacing the reciprocal agreement on social security between the two countries.

The recommended measures, which will go out to public consultation before proposals are presented to Tynwald next year, would leave existing pensioners largely unaffected. They include:

  • Contributing longer to qualify for a full state pension, with accrual over 45 years instead of the current 30 years. That could give the Isle of Man a higher state pension age than the UK, but the report says this might be necessary to achieve  the right balance between the numbers in retirement and those in work supporting them.
  • A minimum of ten years National Insurance Contributions (NICs) to qualify for any pension payment.
  • A new flat rate pension of £180 per week, higher than the UK equivalent and more than the current total of £166.85 per week paid to those in receipt of both basic pension and the Manx pension supplement. The latter would be phased out for new entrants over a period of 20 years.
  • The State Second Pension scheme (formerly SERPS), allowing for additional state pension, to be abolished, with transitional protection for those already in the scheme.
  • A £10 million a year increase in National Insurance Contributions. Ci65 rcommends achieving this by removing the upper earnings limit for employees, dropping the employer's rate from12.8% to 11% to match the employee's rate, and increasing the self-employed rate from 8% to 11%. Those working beyond state pension age would start paying employee's rate, but employer's contributions for such workers would be abolished.
  • Compulsory workplace pensions. Only 35% of the Island's working population have one – the rest rely on the state pension alone.
  • A 'New Manx Benefit' to consolidate and simplify the existing regime of 16 working age benefits. Easier for the public to understand and less bureaucratic to administer.
  • A 'Better Off In Work' guarantee – top-ups to ensure that people will always receive more in employment than out of it.
  • Consideration of a Benefit Cap. The UK model means that no family can receive more than £500 per week in total benefits.

The Ci65 report can be found on the Government website at http://www.gov.im/ni-review

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