‘Early and sustained’ increases in the state pension age are most effective way of preventing the island’s National Insurance Fund running out, UK government actuaries have concluded.
It’s been calculated that the NI Fund, out of which the state pension and certain benefits are paid, will be completely exhausted by 2054 unless there is radical reform.
A review carried out by the UK government’s actuary’s department included the testing of options to delay the date of exhaustion.
A presentation to Tynwald members heard that the main influences affecting the date when the fund runs out are the proportions of the population paying in and receiving entitlements, contribution rates, benefit rates and conditions of eligibility, and increases in the state pension age.
The actuaries noted that entitlement to those already in receipt of the state pension could not be changed without difficulty and most other changes would need time to be introduced and then to start to make a difference.
Updating the results of a review carried out in 2012, the UK actuaries tested a range of options including increasing the number of qualifying years from the current 35 to 40 or 45, reforming NI contributions, introducing further increases in the state pension age, bringing in a single tie pension and phasing out the pension supplement.
They concluded: ‘Fundamentally, none of the options tested is necessarily in itself a permanent and stable solution, as conditions do not remain static and there will be practical constraints involved.’
The actuaries found the most effective way of delaying the projected fund exhaustion date was ‘early and sustained increases in the state pension age’. But it noted there may be practical limitations involved.
A significant increase in NI contribution rates could potentially improve the fund substantially but it may not be realistic to increase rates by the level required to make a sufficient difference, they noted.
The proposed new single tier Manx pension was more generous that the UK’s and would actually accelerate the decline of the fund, and this was not offset by the phasing out of the pension supplement.
Under current proposals, the retirement age for both men and women will be equalised at 65 by 2018 and will rise in phases to 68 by the year 2046.
The UK actuary’s department tested the options of raising the state pension age to 70 or 72 by the year 2071-72.
They suggested the Manx government may wish to wait until the UK reviews its state pension age next year before making a decision on the age of retirement here.