Anyone earning over £25,000 is likely to be left out of pocket by proposed reforms to the Manx state pension, the Manx Independent has learned.
Proposals to introduce a single tier state pension of £170 a week in 2019 will go before Tynwald next week.
This follows the Isle of Man’s historic break away from the UK state pension scheme in April this year.
At a press conference this week, Treasury member Bill Henderson MLC described the proposed plans for the new single Manx state pension as a ‘pragmatic way forward’ to prevent the National Insurance Fund from running out some time in the 2050s.
There are changes to the scheme as originally proposed, however. A state pension of £180 a week had initially been mooted, but this has been reduced to £170. And the minimum number of years to qualify for a full pension was going to be 40 but this has now been cut to 35. The figure is currently 30.
The proposals also see the phasing out of the Manx pension supplement, the ending of the second state pension and an increase in the state pension age in line with the UK, taking it to 67 between 2026 and 2028.
But while the proposals talk of protecting the rights of those who are close to retirement so that they do not see a reduction in the value of their state pension, Mr Henderson could not give such a guarantee to those who are retiring in future years.
And Treasury Minister Eddie Teare could only say that the reforms will ensure there will at least be something in the pot for future generations.
He said that currently on average a pensioner in receipt of the Manx pension supplement will receive £90,000 in total more than than they paid in during their working life - a situation clearly unsustainable.
But the Manx Independent has learned that anybody earning perhaps £25,000 and above is likely to lose out from the proposed reforms – while those earning less than that figure may receive more than they would under the current scheme.
This is because that while benefits already built up are protected, from 2019 the accrual of additional state pension will stop. Anybody earning over £50.70 a week (the difference between the £170 new Manx state penson and the current £119.30 basic state pension) in additional pension is affected.
A Treasury official said: ‘Anybody earning over that amount will not be able to accrue as much additional pension and your total pension from the state will be lower than you might have expected under the current scheme.’
In addition, the phasing out of the Manx pension supplement by 5 per cent a year over 20 years will mean a smaller pension for many – although the proposed Manx single tier state pension will still be higher than that in the UK which is £155 a week.
The Treasury official said further work would be carried out to find out how many people will be disadvantaged by the reforms and to what extent.
The reforms will see an end to the unsustainable ‘triple lock’ under which pensions have increased by either price inflation, earnings growth or 2.5 per cent, depending on which is the highest. Instead, the state pension will be uprated in line with earnings.
Mr Henderson said the gradual introduction of the reforms would avoid sudden ‘cliff edges’.
He stressed that the changes will not affect existing pensioners, except for future uprating of the pension supplement.
While the reforms will stop the National Insurance Fund running out in 2050s he said it would be untenable to look 60 years into the future and Treasury may have to come back to Tynwald with further changes.