Social Security (Amendment No.19) (Jersey) Law 201-

Information about the publication of Ministerial Decisions

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demonstrating that good governance, and clear lines of accountability and authority, are in place around decisions-making – including the reasons and basis on which a decision is made, and the action required to implement a decision
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A decision made on 25 October 2010 regarding the lodging of the draft Social Security (Amendment No.19) (Jersey) Law 201-

Decision Reference: MD-S-2010-0069
Decision Summary Title :	Social Security (Amendment No.19) (Jersey) Law 201-		Date of Decision Summary:	20 October 2010
Decision Summary Author:	Policy and Strategy Director		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Social Security (Amendment No.19) (Jersey) Law 201-		Date of Written Report:	20 October 2010
Written Report Author:	Policy and Strategy Director		Written Report : Public or Exempt?	Public
Subject: Social Security (Amendment No.19) (Jersey) Law 201-
Decision(s): The Minister decided to lodge the Social Security (Amendment No.19) (Jersey) Law 201-
Reason(s) for Decision: This amendment substantially increases the ability of the States Assembly to approve changes to the Social Security Law by regulation. In light of a number of planned changes to the Social Security Law over the next few years, this will allow these changes to be introduced more quickly, as individual changes will not need Privy Council approval.
Resource Implications: There are no financial or manpower implications of the proposition.
Action required: Policy and Strategy Director to request the Greffier of the States to lodge the draft legislation on 26 October and to request a States debate on 7 December.
Signature:		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Social Security (Amendment No.19) (Jersey) Law 201-

Report – Social Security (Amendment No. 19) (Jersey) Law 201-

Summary

The purpose of this amendment is to allow changes to Social Security legislation to be made in a timely manner. The Social Security law is nearly 40 years old and its construction is now out-dated. All amendments to the main Social Security law must be approved by the Privy Council before they can be brought into effect. This leads to significant delays between the approval of a policy and its implementation.

The need to allow for the possibility of collecting contributions above the current earning ceiling in accordance with the Budget proposals is the specific trigger for this amendment but the opportunity has been taken to include additional areas covered by the Social Security law to facilitate other changes that are planned over the next few years.

The cumbersome timetable associated with law changes under the current system is frustrating. This amendment does not remove any power at all from the States Assembly, but it does allow for changes to be made to the Social Security law in a timely fashion so that benefits and contribution legislation can be kept up to date.

It is vital that the integrity of the Fund is maintained and this amendment seeks to strike the correct balance between creating a more flexible legal structure and maintaining the ultimate decision-making power of the States Assembly.

Social Security legislation

The Social Security (Jersey) Law 1974 sets out rules for the collection of contributions from employees and employers and funding from the States to create a fund which is used to pay pensions and a number of other benefits. The current law was approved in 1974 and has been amended from time to time since then.

Most of the major rules around the Social Security system are contained within the main law itself. There are a number of ministerial orders which deal with administrative and operational details, but the Minister is very restricted in these powers.

Under the present law there are only limited areas that can be amended by the States approving a regulation. These are mainly concerned with making changes to the percentage rates that are collected through contributions and the value of the benefits that are available.

Comparison with other Legislation

Some amendments to the Income Tax Law can be implemented immediately. This is provided for under Article 19 of the Public Finances Law. Privy Council approval is still required and if it is not forthcoming any tax collected would need to be repaid.

The Income Support Law contains extensive regulation making powers and the proposed long-term care benefit law will be constructed in the same way, with a simple enabling primary law, with all the details of the types and values of benefits provided for in regulations.

Fiscal Strategy Review (FSR)

The FSR recommendations include a proposal to make a fundamental change in the way in which contributions are paid. At present the maximum contribution is set according to an earnings ceiling. Any earnings above the earnings ceiling are ignored and the contribution liability of the employee and their employer is fully satisfied by making a contribution at this maximum level. Those earning below the earnings ceiling have their contributions supplemented up to the ceiling by the taxpayers of the Island. These provisions are set out in the main law and cannot be amended by regulation or by order.

The FSR proposal is to require contributions to be made in respect of earnings that are above the earnings ceiling. The additional income received from these contributions will be paid into the Social Security Fund and used to make up part of the shortfall in the contributions of lower paid workers. At present, this shortfall is funded entirely through a transfer from the States to the Social Security Fund. This transfer is commonly known as “supplementation”. The cost to the States will be reduced by the value of the contributions received above the ceiling. This will reduce the overall States deficit.

The initial proposal is that a contribution rate of 2% should be paid by both employees and employers (a total of 4%) in respect of earnings that are in excess of the earning ceiling. For example if someone earns £60,000 a year and the earning ceiling is £43,752 a year, then the existing contribution rate of 10.5% will be applied to the first £43,752 of earnings and a new contribution rate of 4% will be applied to the additional £16,248 (the earnings above the ceiling). There will be no change to contributions to the Health Insurance Fund (2% contribution on the first £43,752 of earnings).

Changes to Legislation

The proposal to extend contributions above the earnings ceiling is a fundamental change to the Social Security scheme and its underlying legislation. As the law currently stands, a change of this nature can only be brought in through an amendment to the primary law. This will require a States debate and then approval by the Privy Council and registration of the law in the Royal Court. This process takes a minimum of several months and can often last a year or more.

The amendment that is proposed to the Social Security Law does not deal directly with the provision of contributions above the earnings ceiling. Instead, it extends the ability of the States to make changes to Social Security legislation through the use of regulations, rather than through individual amendments to legislation.

Only the Minister for Social Security will be permitted to propose regulations under these powers and the States must approve each regulation to bring it into force. The advantage of the use of regulations is that it will allow the States to make decisions which can be implemented within a much shorter timescale compared to changes to primary legislation.

The amendment itself is a change to primary legislation and it will take several months to complete the process of approval and registration. A States debate in late 2010 and a priority passage through the Privy Council process will be needed to ensure that these regulation making powers are available to the States during 2011 in order that changes can be debated and approved before the end of 2011. This will allow additional contributions to be collected from the beginning of 2012.

The extension of the current law to allow for the collection of contributions above the earning ceiling is not a straightforward matter. Once regulation making powers are available, the States will need to debate and approve a number of regulations to specify this process in detail. Existing orders will need to be replaced. There will also need to be changes to administrative and IT systems both within Social Security and for local employers. These changes will need to be planned and agreed ready for implementation in January 2012.

At the same time as providing flexibility in the way in which contributions are calculated and collected, the amendment also introduces flexibility in other areas of Social Security legislation.

Details of the amendment to the Social Security Law

The sections of the amendment that deal specifically with changes that will be needed to introduce contributions above the earning ceiling are:

50(1)(a) - this section deals with the classification of individuals under the law, when they are liable to pay contributions and how much their contribution is. It also covers the rules surrounding contribution credits which are provided in certain situations to people who are not paying contributions at that time.

50(1)(b) - this section deals with employers, including the definition of an employer, the manner in which they are liable to pay contributions and the value of those contributions.

50(1)(c) - this section allows amendments regarding the way in which contributions are collected.

50(1)(e)(i) - this section deals with the way in which contributions are allocated to the Health Insurance Fund and the Social Security Fund.

50(1)(f) – this section deals with the way in which the States pay money into the Social Security fund (“supplementation”).

50(2) – 50(4) - these additional provisions allow for additional definitions to be added, and allow additional orders to be specified.

As well as allowing for changes to enable the collection of contributions above the current ceiling, these provisions will also make it easier to make amendments in respect of other contribution matters including the contribution liability of self-employed workers.

In addition to these powers two further powers are specified:

50(1)(d) - this section deals with benefits and allows for changes to the nature of benefits, eligibility conditions, the value of any benefit and how benefits can be backdated.

50(1)(e)(ii) - this covers the uses to which the Fund can be put.

These powers have been included to allow for future changes to benefits and to allow Social Security Funds to be allocated to specific projects.

For example, at present the Social Security law specifies that Short Term Incapacity Allowance (STIA, commonly known as sickness benefit) can be paid for up to a year and that individuals cannot undertake any work whilst they are receiving the benefit (Articles 15(2) and 15(3)). It is impossible under the current law to allow someone to gradually return to work and continue to provide them with benefit. International evidence suggests allowing people to make a phased return to work provides better health outcomes for individuals and reduces overall benefit costs. The power contained within this amendment would allow a change to be made to the rules of STIA by regulation, and allow a new policy to be implemented much more quickly, subject to States approval.

Under the current legislation, Social Security funds can only be allocated to specific benefits and their associated administration. The ability to seek States approval for funding for specific projects would allow the Department to provide services that would reduce overall benefit costs. For example an occupational health nurse could be employed to advise on return to work plans for individuals receiving incapacity benefit.

There are also a number of areas of Social Security Law that are not covered by these powers.

In particular, there is no attempt to allow for additional measures in respect of fraud and anti-avoidance powers. Powers of this nature must be considered very carefully in the context of human rights legislation and any move to extend the power of the Department to examine personal records or enter premises will be taken as a separate amendment to the primary legislation. Due to the increased value of contributions in the future, it will be necessary to provide for additional anti-avoidance powers and draft legislation to this effect will be lodged during 2011.

Conclusion

The powers provided by this amendment change nothing other than providing the States Assembly with the ability to make changes to Social Security Law through regulations, as opposed to the time consuming process of altering primary legislation. This will increase the flexibility of the Social Security Law and future changes to the definition of contributors, the amount of contributions and the amount and type of benefits available will be dealt with directly by the States Assembly, without reference to the Privy Council.

All changes to the Social Security Law will still need to be debated and approved by the States Assembly before they can be brought into effect.

Financial and manpower implications

There are no financial or manpower implications arising from the amendment itself. The regulations that will be brought to the States Assembly following the registration of the amendment will play a major role in the FSR process and will have significant financial implications.