Proposed changes to Jersey Social Security contributions

One of the recommendations arising from the Fiscal Strategy Review was to introduce social security contributions above the current earnings ceiling. As a result of this recommendation, the 2011 Budget report proposed a new 2% rate for 'higher' income earners.

Draft regulations were published earlier this week and are due to be debated on 18 July. I thought it would be useful to outline the new proposals for you.

2% employer contribution

• The draft regulations propose an additional 2% employer contribution on all monthly earnings above the existing earnings limit (£44,232 p.a.) up to a new upper earnings limit of £12,500 per month (£150,000 p.a.) from 1 January 2012.
• Self-employed individuals will also pay 2% above the earnings limit

This increase is less than anticipated as the 2011 Budget proposed to increase both employer and employee contributions by 2% with no earnings limit and similarly a 4% increase was proposed for the self-employed.

The reasons given for the change of heart are:

• GST has increased to 5% from 1 June 2011
• Employees will see an increase to their contribution rate from 2013 with the introduction of a long-term care contributory benefit. The initial increase for employees at this time is currently estimated to be 1.5%.
• There was concern that the concept of unlimited contributions would impact on the competitiveness of Jersey. An analysis subsequently undertaken revealed that an upper earnings limit of £150,000 should result in the greatest additional yield being gained whilst having little impact upon the relative competitiveness of the Island.

There are plans to draft new legislation for 2013 to provide for additional enforcement and anti-avoidance powers.

If you have any questions regarding these proposals, please do not hesitate to contact Wendy Dorman or Garry Bell whose details appear alongside.