Corporate report

FCDO main estimates 2021 to 2022 memorandum: overseas superannuation (accessible version)

Published 13 May 2021

This was published under the 2019 to 2022 Johnson Conservative government

1. Overview

1.1 Objectives

The overseas superannuation pension schemes cover the payments of pensions and grants under various unfunded defined benefit schemes relating to service overseas by former colonial public servants. Payments to entitled pensioners and their dependants are fully financed by the Exchequer.

1.2 Spending controls

The overseas superannuation pension schemes’ budgets are not subject to pre-set Departmental Expenditure Limit (DEL) control totals; they sit within a category of spending known as Resource Annually Managed Expenditure (AME), which can be revised and reforecast regularly. This is because net expenditure and cash payments are largely outside the control of the schemes’ administrators on a day to day basis, instead being affected by factors such as membership numbers; mortality rates; the age profile of members, and annual pension increases.

The Resource AME sought in this Estimate is primarily the interest cost arising during the year. The interest rate is charged on the opening discounted provision for future pension payments adjusted for pension payments made in year.

In addition, the Net Cash Requirement represents the estimated net cash required for the year to cover payments of pensions.

1.3 Comparison of net spending totals sought

The table below shows how the totals sought for the pension schemes compare with last year:

Net Spending total; Amounts sought this year (Main Estimate 2021-22)		Difference (+/-) compared to final budget last year (last year’s Supplementary Estimate 2020-21)		Difference (+/-) compared to original budget last year (last year’s Main Estimate 2020-21)
	£ million	£ million	%	£ million	%
Resource AME	£8.0m	-£5.0m	-38.5%	-£4.0m	-33.3%
Net Cash Requirement	£49.5m	-£5.1m	-9.3%	-£5.1m	-9.3%

1.4 Key drivers of spending changes since last year

The provision sought under Resource AME is lower than last year, largely due to the Treasury-set interest rate on scheme liabilities decreasing from 1.80% to 1.25%.

The reduction in the Net Cash Requirement reflects an anticipated reduction in the number of pension payments under existing schemes, partially offset by pension increases.

1.5 Spending trends

The chart below shows Resource AME spending trends for the last five years and plans presented in Estimates for 2021-22. As AME is re-forecast on an annual basis, there are no future plans beyond the current Estimate.

Resource AME - Outturn and Plans	£ million
2021-22 plans	8.0
2020-21 plans	13.0
2019-20 outturn	18.8
2018-19 outturn	54.1
2017-18 outturn	23.6
2016-17 outturn	28.4

The underlying trend is downwards, as the number of pensioners reduces over time. The spike in 2018-19 Resource AME was primarily due to the initial recognition of a £35.2 million liability associated with the pensions for beneficiaries and former beneficiaries of the Gibraltar Social Insurance Fund.

1.6 Administration costs and efficiency plans

The costs of the administration of the schemes are borne by the Foreign, Commonwealth and Development Office and are forecast to amount to £0.7 million in 2021-22 (2020-21: £0.7 million).

2. Spending detail

2.1 Explanations of changes in spending

Subhead	Description	Detail	Resource AME
			This year	Last year	Change from last year
			£ million	£ million	£ million	%
A	Interest on Scheme liability and other expenses	Interest on scheme liabilities	7.7	12.5	-4.8	-38.40%
		Expected credit losses under IFRS 9 ‘Financial Instruments	0.3	0.5	-0.2	-40.00%
A	Total		8	13	-5	-38.50%

Description	Detail	Net Cash Requirement
		This year	Last year	Change from last year
		£ million	£ million	£ million	%
Use of pension provision	Pension payments	49.5	54.6	-5.1	-9.30%
Total		49.5	54.6	-5.1	-9.30%

2.2 Changes to contingent plans

The contingent liability primarily relating to the Hong Kong (Overseas Public Servants) Act 1996, Sterling Safeguard Scheme for value of public service pensions, was £71.8 million at 31 March 2020. No new contingent liabilities are expected in 2020-21 or 2021-22.

2.3 Estimated scheme liabilities

The latest full valuation of scheme liabilities was performed with a calculation date of 31 March 2018, using membership data as at 31 December 2017 (30 November 2017 for the Gibraltar Social Insurance Fund, which subsequently transferred to Overseas Superannuation on 1 April 2018). The total valuation, including the Gibraltar Social Insurance Fund, was £771.7 million. At that time there were a total of 11,647 pensioners. The average age, excluding Hong Kong members, was 88 years and 79 years for Hong Kong members.

The next full valuation will take place with a calculation date of 31 March 2022, using membership data as at December 2021.

The latest interim valuation assessment of scheme liabilities was performed as at 31 March 2020. The valuation was £646.9 million.

3. Accounting Officer Approval

This memorandum has been prepared according to the requirements and guidance set out by HM Treasury and the House of Commons Scrutiny Unit, available on the Scrutiny Unit website.

The information in this Estimates Memorandum has been approved by myself as Departmental Accounting Officer.

Sir Philip Barton Accounting Officer

Permanent Under Secretary Foreign, Commonwealth & Development Office

11 May 2021