Actuarial Review of the Social Insurance Fund 2005 - Department of ...

10. The review has considered five alternativefuture benefit/contribution indexation policiesas follows:n Indexation of benefits in line with projectedfuture wage inflation (current position)n Indexation of benefits in line with projectedfuture price inflationn An increase in the State Pension (Transitionand Contributory) to 40% of projected GrossAverage Industrial Earnings (GAIE) over a 10year phase-in period; indexation beyond thisdate in line with earnings inflation.n An increase in the State Pension (Transitionand Contributory) to a level of 50% ofprojected GAIE, again with phasing asoutlined above.n Uprating of benefits to ensure thatpayments are at a minimum level to avoidthe risk of poverty as measured by the EUSurvey of Income and Living Conditions (the‘SILC Index’); indexation in the future in linewith assumed earnings inflation.While the review has considered each of thesepossibilities, this does not mean that thereis any commitment from the Government toadopt any of these alternatives.11. Chart E3 below summarises the results ofthese projections, with the required pay-asyou-gocontribution rates to balance incomeand expenditure (taking no account of theexisting assets of the Fund) expressed aspercentages of GNP.12. It is clear from the chart that, except for thescenario where benefits are uprated in linewith prices, contribution rates would have toincrease substantially if the Fund’s income isto be adequate to support the benefit outgo.13. We have also reviewed the impact on theFund’s finances of increasing the Stateretirement age, using several possibleapproaches. Most of the variations weconsidered do lead to some improvementin the expected financial position of theFund going forward, relative to the currentarrangements. However, none of thealternatives considered in isolation indicatethat a significant increase in contributions canbe avoided in the future, all else being equal.14. Finally, we were also asked to look at a rangeof ‘value-for-money’ measures to assess theextent to which individuals receive value-formoneyfrom the Fund for their own and theiremployer’s contributions. It is clear that, basedon current contribution and benefit levels, whilecertain individuals benefit more than others,there are very limited circumstances in whichexcellent value-for-money is not achieved.15. The review has been carried out using arange of different assumptions and overan exceptionally long projection period. Itis therefore to be expected that the actualexperience of the Fund could quite easily turnout to be different, perhaps materially, fromthat indicated by this review.Chart E3: Summary of shortfall of projected income to expenditure(expressed as % of projected GNP) under various scenarios set out above(12%)(9%)120% GNP(6%)(3%)0%3%2006 2016 2026 2036 2046 2056YearCentral Prices 40% GAIE 50% GAIE SILC IndexExecutive summary & conclusions9060300-3014