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Treasury seeking to progress reform of state pensions and benefits

Wednesday, 8 July 2015

Tynwald Members will be asked to support a package of measures aimed at paving the way for a radical modernisation of state pensions and benefits in the Isle of Man.

Treasury Minister Eddie Teare MHK has described the proposed reforms as ‘one of the most important and fundamental decisions to be made since the introduction of the welfare state.’

He said:

‘Consultants Ci65 have estimated that if we continue with our current policies our National Insurance Fund will be exhausted by 2047 – seven years earlier than previously projected. We are taking responsibility now, so we can manage this situation in a reasoned and pragmatic way, not leaving it for others to deal with in years to come when the situation could prove immensely difficult to resolve.’

Mr Teare will put forward five recommendations at the July sitting to maintain progress towards the bold transformation that is needed to ensure the sustainability of the Manx system. He will call for Members to agree a set of high-level principles for reform, which will allow for more detailed arrangements to be drawn up.

The recommendations focus on five key areas – the future of state pensions, National Insurance, working age benefits, workplace pensions and the Island’s relationship with the United Kingdom.

The overarching proposals have been developed in response to a report by consultants Ci65 which said the Isle of Man’s current arrangements are out of date, have not kept pace with the aging population, are based on UK policies rather than local priorities, and have become far too complex.

Treasury’s proposed reform programme also reflects feedback from Island residents provided via a public consultation and an online survey, discussions with business leaders and a series of community meetings.

Minister Teare said:

‘This is about the next generation, not the next general election. It is about sustainability. The evidence says our current system is broken and not fit for the future. It is clear that urgent action is needed to put in place simpler and fairer arrangements that will protect our children and grandchildren and be competitive for our economy.’

He added:

‘People have made their views known and we have listened very carefully before coming forward with these options. This is an opportunity to look at revising and improving policies that affect the lives of every man, woman and child in the Isle of Man.’

The raft of measures includes proposals to –

  • Introduce a single-tier pension of about £180 a week, based on local needs
  • Ensure the Isle of Man’s state pension age is in line with life expectancy in the Island
  • Phase out the Manx Pension Supplement – for new pensioners only – over a 20-year period
  • Simplify how National Insurance is calculated and collected
  • Equalise arrangements for employed and self-employed people
  • Introduce a single Manx benefit to support people in and out of work
  • Strengthen rules around eligibility and payment of benefits
  • Introduce a benefits cap

Subject to Tynwald approval, further consultation will take place with employers and pension providers regarding the introduction of a compulsory workplace pension. The intention is to report back to Tynwald in July 2016 on the feasibility of the proposal.

Treasury is also recommending that a reciprocal agreement with the UK is maintained, but modified to provide greater flexibility. This would take account of social security reforms in both countries and allow people to move between the Island and UK while protecting their entitlement to National Insurance funded benefits.

Bill Henderson MLC, Member of Treasury with responsibility for Social Security, said:

‘I want to emphasise right from the outset that existing pensioners will be unaffected by any reforms. Pension rights already built up will be protected and our intention is that nobody would be worse off. If a decision is made to remove the Manx pension supplement for future pensioners it would be phased out over a 20-year period. This would mean that new claimants after that period would not be eligible to receive the supplement.’

He added:

‘State pensions and most benefits are paid out of National Insurance contributions. Spending is now outstripping what government receives in contributions, with the NI Fund forecast to run out by 2047. Doing nothing is simply not an option.’

Mr Henderson explained that replacing the range of working age benefits currently provided with a single Manx benefit would make the system much simpler for claimants to understand and navigate, and would also reduce administration costs to Government.

He said:

‘One of the core principles of our approach is that people who can work will be better off in work than on benefits. A new Manx benefit would also allow us to tailor support for an individual and target our resources in a more effective way.’

The public consultation demonstrated broad support for the retention of some form of reciprocal agreement between the Isle of Man and the United Kingdom. Businesses felt it was important in helping them to recruit employees from the UK.

Mr Henderson said:

‘Treasury may look at renegotiating the reciprocal agreement to ensure that people can continue to move easily between the two countries, but also to allow the Isle of Man the flexibility to introduce its own social security systems and gain more control of its own destiny.’

He added:

‘We are asking Tynwald Members to support a number of general principles at the July sitting. This is still very much a work in progress and we will return with more detailed proposals for further public discussion later in the year.’

Pensions image courtesy of Stuart Miles at FreeDigitalPhotos.net

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