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Pensions increase in line with earnings

24 August 2011

Following the announcement of a 2.5% increase in the Jersey annual earnings index, the Minister for Social Security, Deputy Ian Gorst, has released details of increases in benefit rates from October 2011.

These are automatically linked to the rise in average earnings. The full rate for a single pensioner will increase by £4.48 to £184.45 per week. The full married couple rate will increase from £298.76 to £306.25 per week. Other benefits such as incapacity and maternity benefits will also rise by 2.5%.

Associated changes to Income Support will ensure that all low income pensioners will see an increase in their total benefit entitlement of £4.48 a week for a single pensioner or £7.49 for a couple.

Deputy Gorst said: "The UK Government Actuary is currently completing a 3 year review of the Jersey Social Security Fund. The results of this review will be used to plan future changes to the Social Security Scheme. As we know, the number of pensioners is increasing and people are living longer. The States has already agreed to increase the pension age from 2020 onwards, but we will also need to increase contribution rates over the next few years to ensure that pensions can continue to be paid in the future.

"I have asked the Government Actuary to include in his review an analysis of the impact of changing the method used to increase pensions from year to year. At present, pensions are increased automatically in line with the increase in the earnings index so that pensioners’ incomes rise at the same rate as the incomes of the working population. This method was introduced in 1990 and has ensured that current pension rates have kept pace with the general level of wages in the Island.

"Since the earnings index began in 1990, the growth in earnings has been higher than the Retail Prices Index (RPI) in most years. In only 6 years has the increase in RPI been higher than the increase in earnings. As a result, the Jersey pension rate of £184.45 a week compares very favourably with the UK pension of £102.15.

"In recent years, the RPI has been higher than the earnings index in 2008, 2010 and 2011. The review by the Government Actuary will calculate the cost of changing the method of uprating, so that it takes into account both the cost of living and the earnings index. In the UK this has been referred to as a 'triple lock' and the UK government has committed to uprating the basic state pension by a triple guarantee of the highest of the increase in earnings, prices (CPI) or 2.5%.

"The cost of changing the method of uprating will need to be borne by the current working age population. Any decision will need to take into account the increase in the contribution rate that is needed to maintain the current system, as well as the extra cost of a more generous uprating method.

"I intend to publish a report setting out this analysis at the end of October. Following the elections, the new Minister for Social Security will be able to put proposals to the new States Assembly."
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