The third way
Monday 8th October 2012, 2:30PM BST.
THE Jersey Social Security Minister’s warning that there’ll be no increase in that island’s old-age pension any time soon is fascinating.
There may be some additional targeted payments, but no general up-rating of benefits for all OAPs. Senator Francis Le Gresley also criticises the Guernsey proposal to raise pensions by 3.6%, claiming that our Treasury and Resources minister is against the move.
In contrast, he stresses he’ll do nothing to undermine the sustainability of the Jersey pension fund and put payments to future generations in jeopardy.
It will be interesting to see how long he can hold that line in the face of what is bound to be strong criticism from Jersey’s large, growing and voting army of senior citizens. Certainly he has shown considerable courage, but let’s take a look at his arguments one by one and ask which island – if either – has got it right.
His central contention that long-term sustainability should be at the heart of all Social Security policy is definitely correct. How to achieve that happy state of affairs is another issue. There are many ways to balance the income and outgoings of the insurance fund in the longer term. Lower payments, higher contributions, means testing, raising retirement ages or a combination of these things. And there’s no doubt that the changing demographics of our community
will make it only harder to find the right solution.
Where Senator Le Gresley is wrong is in stating that Guernsey’s T&R minister is against the proposed increases here. True, Deputy St Pierre has issued warnings about long-term sustainability, but he has steadfastly refused to urge members to vote against the proposals. Obviously if he was really against the increases on the basis of affordability, then it would be his duty as a responsible, political leader to argue for them to be thrown out.
Instead, he is pressing for a full review of taxation and social security. But what is likely to emerge from that process?
It won’t be pretty.
As far as social security is concerned, it is bound to include moderating pension increases, increasing contributions and raising the state pension age. The States has already agreed to gradually increase that age to 67, but that is likely to be just a staging post on the way to 70.
I really hope it doesn’t include the measure hinted at in Jersey – making elements of the old-age pension means tested. Of course, those benefits funded by general revenue should be targeted at those who really need them. That’s already the case with supplementary benefit and the philosophy may well be extended to family allowances. But if the state retirement pension, which is funded by insurance contributions, were no longer universal, that would be a real breach of promise.
It shouldn’t matter how well off an OAP is.
The States insurance scheme is just that. People are forced to pay into the system in return for a guaranteed benefit at the end.
Imagine if you had taken out any other insurance policy and dutifully paid the premiums, only to be told when you needed to make a claim that the insurance company wouldn’t pay out because you were rich enough to do without? You would be furious.
Likewise if you had paid into an occupational pension scheme but were denied the full benefit because you had other income.
One way to treat every contributor fairly but still avoid giving too much cash to the better off would be to keep pension payments to everybody very low, but then help the poorer OAPs through income support. I suspect that may be what Jersey has in mind. But that approach, too, is fraught with problems.
Firstly, because income support is a non-contributory benefit, it relies on the ongoing ability of government revenues to meet those payments. Such an ‘unfunded’ approach is far riskier than making payments out of a sustainable pension fund.
Secondly, it forces thousands of elderly islanders to claim additional benefits as the real value of
pensions dwindles. People who thought they had made adequate provision would suddenly have to apply for supplementary benefit/income support.
I’m certainly not trying to stigmatise those who do need to extra help, but is that a culture change we really want?
There is no magic answer.
Guernsey’s current approach is probably unaffordable without a major increase in contributions. Jersey’s suggested approach is verging on the immoral.
The search for a ‘third way’ has already been delayed far too long.