BACKGROUND INFORMATION ON THE ISLE OF MAN PENSION SUPPLEMENT
In 1992, Tynwald (The Parliament of the Isle of Man) commissioned an actuary’s report into the National Insurance Contribution Fund, which had a surplus amounting to more than 2 years of annual income, a surplus that was increasing.
The Report, the Chislett Report, recommended that a supplement be paid to all pensioners, subject to a residency qualification, to be decided by Tynwald, as this would eliminate the dependency of most pensioners on Supplementary Benefit, a result much to be desired. The DHSS, in formulating these proposals, changed the qualifications to 10 years contributions to the Isle of Man National Insurance Fund run separately but parallel to the UK’s with the same contributions and benefits.
This was accepted by Tynwald, on the basis that those who had paid in should reap the benefit, so that the 10-year rule was accepted, though many members expressed reservations about the long-term divisive effect. A supplement of £5 per individual and £8 per couple was paid from April 1993.
At the time the surplus in the fund was represented in round figures at 60% capital payments from the United Kingdom Government to fund pensioners living here, 17% each from Isle of Man employers and employees and 6% from self-employed and non-employed. Isle of Man contributors are in no way responsible for the whole of the surplus.
Over the years the Supplement has grown, along with the surplus which was well invested, and in April 2001, was increased to a figure of 50% of the basic pension, the 10 year rule rigorously enforced and no pro rata concessions made. This disadvantaged those who had only spent a part of their working life on the Island, particularly those of Manx birth, who had been obliged by economic circumstances to earn their living off the Island. This included doctors, nurses, teachers, V.S.O.’s, armed service personnel etc.
That the supplement is intended as a cost of living allowance is perhaps best shown by the provision that a pensioner in receipt of the Supplement loses that entitlement if she or he leaves the Island to live elsewhere, even when a full lifetime contribution has been made.
Pensions are not paid out of any surplus, but from the current year’s contributions, any surplus or deficit affecting the central fund. In recent years, there has been a steady surplus. Many workers contributing to the scheme will not be here to receive the supplement. “Contributions” is a misnomer – it is a tax like any other, even if earmarked for a specific purpose. “Contributions” suggests a funded scheme, such as is run by companies or individuals, with the contributions invested for the participants’ benefit. The tax element is shown, (a) by the Isle of Man Government taking £44 million from the Fund to help pay for the hospital plus a further £6m in each of the following 2 years making a total of £56m and (b) by Gordon Brown’s increase in National Insurance Contributions, used in the United Kingdom solely to fund expenditure, and here only half implemented to offset health costs.
An argument has been put forward that paying the supplement to all would provoke a flood of pensioners coming in; not if IOMPA’s 10 year residency rule was followed, even less so given the cost of housing and the higher cost of living. This is a reversal of the position 10-15 years ago, when the retail price index was lower here.
On the Island many benefits are higher than in the U.K. – is this Government generosity (not extended to U.K. pensioners) or an acknowledgment of the higher costs? A means-tested winter fuel payment funded by the IOM Government operates in the Isle of Man. However, the UK Government fund a Winter Fuel Payment, that is not means tested but does not extend to the IOM. It does extend to Gibraltar, a Crown dependency, and non-EU countries such as Switzerland, Martinique and Reunion Island (both French) and others. Qualifications to obtain the payment are any national who is aged 60 and over who is in receipt of a UK old age pension.
Child benefit on the Island is significantly higher, payable after only 6 months residence, reflecting higher costs.
Pensions paid by the United Kingdom Government to recipients living here are spent on the Isle of Man to the benefit of the Island’s economy. There are about 2,100 pensioners who would be entitled under the 10-year residency rule. This number would decrease, as new qualifiers would not replace those who die, many of whom had been invited to retire to the Island by Government advertising campaigns in the UK. This number would diminish further as the costs of living on the Island would further discourage those reaching retiring age from moving here. This increased cost to the Pension Supplement would amount to about £3 million annually and would in turn be mainly spent within the Island’s economy.
Although two Petitions of Grievance have reached the floor of Tynwald, one was overtaken by a General Election, and the other was handled in a most undemocratic and inaccurate manner, with only one interview, no recordings, and no notes on submissions and no attention paid to the main thrust of the Petition – the irrelevance of the “Contributions” concept. A proper reasoned discussion in Tynwald is very overdue. Five Petitions of Grievance lie on the Table, as not a single politician will “pick them up”.
IOMPA put the following proposal to the DHSS on 25th
January, 2006, 14:40
"To investigate further the option for persons
not in receipt of the Manx Pension Supplement owing to the age restrictions,
for the age restriction to be lifted and they being able to make the necessary
contributions, not exceeding the current Class 3 contribution level, in order
to qualify for the Manx Pension Supplement."
At that time we stressed that IOMPA was only seeking this concession for those who had been permanently resident on the Isle of Man for 10 or more years. That each person had to qualify individually, and that other Class 3 benefits such as credits to the State Retirement Pension years be excluded.
The feasibility of allowing retrospective contributions to be made to the NI Fund by those not currently in receipt of the Pension Supplement in this way, i.e. allowing for "back payments", was agreeable to the DHSS since it still acknowledged the existing contributory nature of the Pension Supplement Scheme, which they wished to preserve. Whether it would prove affordable to such individuals to “buy into” in terms of the back payments that would be needed, or be sustainable by the NI Fund itself from this new demand made on it, was something which could only be answered after consultation with the (UK) Government Actuary who had prepared the latest (2004) report. While such an investigation fell short of all the IOMPA's aspirations for its members, it did have the potential to ultimately benefit individuals especially those who had fallen short of making the minimum 10 years contributions in the IOM. It is therefore very disappointing that it has taken 15 months to obtain from DHSS the results of this work, and more disappointing to find that the level of detail required to draw valid conclusions is simply not there.
Other suggestions put to Department of Health and Social
Security Minister Teare and dismissed out of hand include
1. Freezing current payments and inflation increase divided up and given to non-qualifiers.
2. 1% N.I. contribution implemented here as in the UK and used to boost the Isle of Man N.I. Fund. The DHSS’s own figures show it may be in the red in 60 years time, on the least likely scenario, an argument that they are increasingly relying on. The author of the GAD Report covered himself by saying that the order of magnitude could not be relied upon on so far ahead.
As the result of questions by Brenda Cannell MHK of DHSS Minister Teare in Tynwald on Tuesday, 17th April, 2007, Minister Teare promised to provide IOMPA with the Government Actuary’s Report (GAD Report) and associated documents. Some of these were only received the following day owing to the ability of the local postman to decipher an incorrect name to the correct address!
On the 20th April 2007, it was apparent that the information received from the DHSS did not contain the Actuary’s Report and IOMPA contacted Minister Teare by email and he confirmed that he would follow this up with Ken Crellin DHSS. As no reply had been received from the DHSS to clarify matters, the Chairman of IOMPA on 16th May, 2007, contacted his constituency MHK Steve Rodan, who immediately contacted Minister Teare. The following day the missing documents from the UK Government Actuary’s Department were received by IOMPA.
The Report totally fails to show what questions were asked and what assumptions were made. Additionally it fails to show
1. How many OAPs receive the Pension Supplement.
2. How many OAPs who can show permanent residency in the Isle of Man for 10 or more years, do not receive the Pension Supplement.
3.What is the cost to include this group in the Pension Supplement Scheme?
Likewise there is no recognition of
1. The Class 3 receipts from the group.
2. The increase to the Treasury of income tax.
3. The increase to the Treasury of VAT.
4. Savings on Income Support as it will lift some people out of Income Support.
5. Increased spending on the Island to the benefit of the economy.
The Report tries to compare the cost of the present Class 3 payments of £7.50 per week with an expected £20 per week cost for the IOMPA proposal yet totally ignores the fact that we are only asking for one benefit for our contribution and not the extensive and expensive range that present Class 3 contributions give.
Is the £20 per week back payment an average? The impact on the Fund will surely depend whether all entitled to claim do so, but for many it will not be practical, while for others who have made NI contributions in the IOM but have fallen short of the 10 year minimum it would be feasible. Why is there no breakdown figure etc? Why is there no recognition of the facts that 1) The DHSS has told people that although they could have contributed just under 10 years Class 3 N.I. payments and would have been able to do so, that there was no point as they would need to have 10 full years contributions. 2) For others who had retired to the IOM just prior to the Pension Supplement being introduced they were unable to pay the necessary Class 3 N.I. contributions because of the age restriction.
At the Scheme’s inception and until the Report on the Manx National Insurance Fund 1997/2002 there appears to be no shortage whatsoever of funds available. The normal recommended actuarial UK reserve is twice the annual outgoing. The Isle of Man Fund has had up to 11 times this amount. Strictly in a pay as you go system there is little need for any reserve much greater than the recommended amount of twice the outgoings. The funds for future Pension Supplement payments, disregarding the recommendations in the UK Green Paper, are also substantial. The statement/inference of a shortfall for payment to the identified group of OAPs since its inception to date appears to be without foundation. The Fund appears to have approximately 50 years viability under the present arrangements. The suggested new N.I. pension payments i.e. increased payment, later retirement age puts some strain in the later years of this period. The actuary notes the non-similarity between the UK benefit of State Retirement Pension and the IOM State Retirement Pension plus Pension Supplement and therefore this is reflected in the need for appropriate enhanced contributions and/or investment income in the IOM to preserve the Fund in balance. Yet the IOM has chosen recently not to follow the UK in introducing the 1% N.I. employee’s contribution. This would raise approximately £4.5m. Additionally £56 million was taken from the N.I. Fund to help pay for Nobles Hospital. If this money were returned to the N.I. Fund along with the interest it would be in an even better financial state. The Fund would also be in a position to pay the Pension Supplement to those with 10 or more years residency in perpetuity. This number will fall owing to the lack of attraction to pensioners to live in the Isle of Man due to increased cost of living as compared to the UK and hence the cost to the Fund.
On the social side
1. We have a two tier OAP Society.
2. Social division..
On the International Scene we have been fighting this issue for over 6 years and as Ken Crellin DHSS acknowledges in his emails to the UK actuaries, "IOMPA has continued to argue (almost weekly in the local media)" 22 February, 2006 10:54. Our case has appeared on UK Television Stations and in the UK press and written questions asked at various levels in the UK Government. This will continue.
At present in excess of £20,000,000 a year comes from the UK Treasury to fund a proportion of the pensions of residents here who have qualified in the UK. In all probability this is matched by a similar amount from occupational pensions, savings etc. This money goes directly into the Manx economy and probably around 10% directly to the Isle of Man Treasury in the form of VAT, Custom Duties, and Income Tax etc. If even half of this were to be repatriated with its recipients to a lower cost economy (e.g. Spain, UK etc) it would be a severe blow for both business and Government.
The Actuary’s Report presupposes no change in employment, contributions, age of retirement etc, which is inherently impossible. In any event in only one out of four scenarios is the Fund in deficit after 60 years.
A pervading question that should be answered, is that in the 21st Century what duty does a State have to all its citizens and not a selective majority. It should be noted that Great Britain along with the Isle of Man has one of the worst Old Age Pension arrangements in Europe. This would put those who are not in receipt of the Pension Supplement and heating allowance at the very bottom.
There seems to be an attitude within a section of Government, whether wittingly or otherwise, to force IOMPA to resort to litigation or take our case “off Island”. In the event of a successful case the supplement could be awarded retrospectively.
Documents have been sent to Members of Tynwald to seek their support for a proper feasibility study by DHSS, which answers whether those who have fallen short (in some cases just short) of the 10 years rule can feasibly make back payments, and how would this negatively impact on the Fund, (if at all).
On 31st August 2007, IOMPA sent a detailed response to the DHSS Government Actuary’s Document individually addressed to all 32 politicians. 5 made written replies and Graham Cregeen MHK deleted his unread. See below, copy available –Tynwald Members Teare Reply 310807.
On 4th September, Minister Teare stated that, “to pay the supplement to pensioners who had not paid in for a decade would mean an annual extra spend of £14m.” This spin doctoring is worthy of Alistair Campbell. The DHSS says that it is unable to identify how many people have been resident on the IOM for 10 or more years and do not receive the pension supplement without looking at every individual case. These are the group that IOMPA is campaigning for. Our projected costs are around £3m and falling. It is to be hoped that our financial institutions have a far better recording system than the DHSS, or is this why we are being subjected to close scrutiny by the USA Government financial authorities?
Also in the same article his director of social security, Ken Crellin said, “when campaigners came to live in the Island the existing rules on the supplement were already in place.” As many pensioners came before the pension supplement was implemented and were mathematically unable to pay class 3 contributions to qualify, we assume that Mr Crellin’s comments are reflective of his incomplete knowledge of the subject matter, rather than the more serious charge of lying.
The Minister has told IOMPA that the age limit cannot be changed owing to the National Insurance Reciprocity Agreement with the UK. Surely then anyone with 10 years N.I. contributions wherever paid is eligible for the Pension Supplement? Yet we are then told that that the Pension Supplement is a local scheme with local rules. Surely in that case the age limit could be raised and the class 3 contributions could be made.
With the lack of a Freedom of Information Act on the Island, it has been necessary to contact the relevant department in the UK. We have successfully used the UK Freedom of Information Act on several occasions to obtain information denied to us on the IOM.
The IOM Law Society lists 4 human rights lawyers. On the 8th September, 2007, letters were sent to each firm of advocates. One, Paul Beckett of Mannin Chambers replied by return of post. We still await replies from the others.
ADDITIONAL DOCUMENTS AVAILABLE
We have a wide and comprehensive source of documents and correspondence on issues relating to our case. Of immediate interest are the following.
IOM PRESS Headlines of interest from the IOM Newspapers from 9th January 1992 to the present day. We have the actual newspaper cuttings and these cover a very wide range of issues.
DHSS PRESS RELEASE PENSION SUPPLEMENT 300807 The DHSS reply to IOMPA’s proposal.
TYNWALD MEMBERS TEARE REPLY 310807 IOMPA’s response to DHSS Government Actuary’s Document.
IOMPA PRESS RELEASE 030907 IOMPA’s response to the DHSS press release 300807.
HOUSE OF LORDS 281107 questions asked as a result of information supplied by IOMPA.
INTERNET LINKS OF INTEREST
GAVIN MACFADYEN who is a Visiting Professor at City University and the Director of the Centre for Investigative Journalism, an international training charity. He has been a Senior producer-director of many World in Action, Channel 4 Dispatches, BBC’s Fine Cut, 24 Hours, Panorama, The Money Programme, Multi Cultural Birmingham, PBS Frontline programmes from 1970 to the present. He addressed the Positive Action Group (PAG) on the IOM on October 2nd, 2007, the You Tube video link contains highly pertinent comments. – see link http://uk.youtube.com/watch?v=vmAF2gYKGfY
POSITIVE ACTION GROUP (PAG) believe that three ‘core principles’ should apply to the system of Government in the Isle of Man from November 2006
OPEN, ACCOUNTABLE GOVERNMENT
RIGOROUS CONTROL OF PUBLIC FINANCES; and A FAIRER SOCIETY FOR ALL
see link http://www.positiveactiongroup.org/
RICHARD MURPHY of TAX JUSTICE has carried out detailed research on Isle of Man Finances.
http://www.taxresearch.org.uk/Blog/category/tax-justice-network/
http://www.taxresearch.org.uk/Blog/2007/10/28/the-isle-of-man-has-failed-the-eu-code-of-conduct-on-business-taxation/
The links above make disturbing reading.
STEVE WEBB MP has highlighted the failure of the UK Inland Revenue to inform some women between 1996-97 to 2001-02 of the opportunity to fill the gap in their pension record through paying voluntary 'class 3' NICs. This might also apply to the Isle of Man.
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=492777&in_page_id=1770
See also Steve Webb's own web site that contains an informative document on the issue entiltled "Latest Campaign - buried treasure for pensioners"