UK - The States of Guernsey has issued a consultation paper on possible reforms to the state pension which include raising the retirement age to 70 by 2050, as officials say social security funds will run out by 2040 if no changes are made.

Other potential changes outlined in the consultation include whether contribution rates for employees, employers, self-employed and non-employed should be increased, whether the upper earnings limit for these groups should be raised and whether the grant from the state to the social security funds should be linked to RPI, or some variation of RPI, or frozen at the current level.

At present, the States of Guernsey, a crown dependency of the UK, pays 15% of contribution income into the Guernsey Insurance Fund, which is responsible for paying retirement benefits to residents of the islands of Guernsey and Alderney.

The existing value of the state pension in Guernsey is £160.75 (€191.90) a week, compared to £90.70 in the UK, and although Guernsey admitted uprating future benefits by RPI would remove the future funding issue, it said it would end up "in the same position as the UK" with a much lower pension and higher costs for means-tested benefits.

Research showed if no changes are made the funds in the Guernsey Insurance Fund will have run out by 2040, but if future benefits are linked to RPI only then the scheme is "sustainable", however the report stated "the Department [of Social Security] would strongly advise against seeing this as a proper solution to the long-term funding issue".

Instead, it revealed increasing the pension age from 65 in 2020 to 70 in 2050, at a rate of two months a year, would by itself extend the life of the fund until 2053 and would make it "very close to sustainability".

The consultation report also suggested an increase in contribution rates "is the main opportunity for ensuring sustainability of the fund", but admitted the long-term solution would be a combination of the suggested reforms.

Figures from the report highlighted the main problem behind the funding issue is increasing longevity and a reduction in the ratio of working people to pensioners. In 2007 the 'support ratio ' was 4.2 workers for every pensioner, but in 2060 this is predicted to fall to just under two.

Deputy Mark Dorey, social security minister for Guernsey, said: "This is a problem which can definitely be solved. But it can be solved in several ways and we need to find the best solution overall. I think that the answer will involve changing two or three things rather than just one."

The department of social security will report on the consultation process to the States at the December meeting, and it confirmed it would publish a further report with firm proposals for the future of the fund in 2009.

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