‘Doing nothing is not an option.’
That was the message from Bill Henderson MHK, Treasury member responsible for social security, as he unveiled radical proposals to transform the island’s welfare system at a press conference today.
A 640-page report from consultants Ci65 Ltd says the ‘out of date and broken’ system has not kept pace with the ageing population, is based on UK policies rather than local priorities, has become too complex, and risks failing the vulnerable.
The recommended measures, which will go out to public consultation before proposals are presented to Tynwald next year, would leave existing pensioners largely unaffected.
But, if Tynwald approval is given, a new flat rate pension of £180 a week will be rolled out over 20 years from as early as 2016.
People will have to work longer to get the full state pension and the retirement age could rise more than in the UK.
Other proposals could see a cap on benefit payments and the introduction of compulsory workplace pensions.
Mr Henderson insisted that these were recommendations only.
He told reporters: ‘This is a very important day for the Isle of Man.
‘This is nothing to do with the credit crunch or the VAT agreement. Over time it has become increasingly obvious to the government that the sustainability of the NI Fund has come under question.’
Mr Henderson said over the next 30 years there will be 93 per cent increase in the number of people over the age of 65. The total benefits bill, including pensions, is £269m this year - that’s half the Manx government budget.
The NI Fund was now at a ‘critical mass’ and investment returns were having to be used to top it up, he said.
‘It’s not an option to do nothing unless we want to see the collapse of the National Insurance Fund - it’s that serious,’ he stressed.
Mr Henderson said the consultants had identified a ‘pragmatic’ way forward. If some of the recommendations are adopted transition protections would be put in place, he said. Current pensionsers won’t be affected, he said.
The recommended measures include:
*Contributing longer to qualify for a full state pension, with accrual over 45 years instead of the current 30 years. That could give the Isle of Man a higher state pension age than the UK.
*A minimum of 10 years National Insurance contributions to qualify for any pension payment.
*A new flat rate pension of £180 per week, higher than the UK equivalent and more than the current total of £166.85 per week paid to those in receipt of both basic pension and the Manx pension supplement.
*The pension supplement would be phased out for new entrants over a period of 20 years.
*The State Second Pension scheme (formerly SERPS), allowing for additional state pension, to be abolished, with transitional protection for those already in the scheme.
*A £10m a year increase in National Insurance contributions. Ci65 recommends removing the upper earnings limit for employees, dropping the employer’s rate and increasing the self-employed rate to match the employee’s rate of 11 per cent. Those working beyond state pension age would start paying employee’s rate, but employer’s contributions for such workers would be abolished.
*Compulsory workplace pensions. Only 35 per cent of the island’s working population have one – the rest rely on the state pension alone.
*A ‘New Manx Benefit’ to consolidate and simplify the existing regime of 16 working age benefits. Easier for the public to understand and less bureaucratic to administer.
*A ‘Better Off In Work’ guarantee – top-ups to ensure that people will always receive more in employment than out of it.
*Consideration of a benefit cap. The UK model means that no family can receive more than £500 per week in total benefits.