Main estimate 2024 to 2025: estimates memorandum for Foreign, Commonwealth & Development Office overseas superannuation
Published 18 July 2024
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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 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:
| Category | Net spending total amounts sought this year (Main Estimate 2024 to 2025) | Difference (+/-) compared to final budget last year (last year’s Supplementary Estimate 2022 to 2023) £ million | Difference (+/-) compared to final budget last year (last year’s Supplementary Estimate 2022 to 2023) % | Difference (+/-) compared to original budget last year (last year’s Main Estimate 2022 to 2023) £ million | Difference (+/-) compared to original budget last year (last year’s Main Estimate 2022 to 2023) % |
|---|---|---|---|---|---|
| Resource AME | 23.0 | -3.0 | -11.61% | -£3.0 | -11.61% |
| Net Cash Requirement | 38.3 | -3.7 | -8.75% | -3.7 | -8.75% |
1.4 Key drivers of spending changes since last year
The provision sought under Resource AME is lower than last year because of a decrease in the opening pension liability. There is also an anticipated decrease in expected credit losses required to be recognised under accounting standard IFRS 9 ‘Financial Instruments’ in relation to overpayments as there is no longer a regularity error in the accounts.
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 six years and plans presented in Estimates for 2024 to 2025. As AME is re-forecast on an annual basis, there are no future plans beyond the current Estimate.
| Year | £ million |
|---|---|
| 2017 to 2018 outturn | 23.6 |
| 2018 to 2019 outturn | 54.1 |
| 2019 to 2020 outturn | 18.8 |
| 2020 to 2021 outturn | 11.1 |
| 2021 to 2022 outturn | 8.0 |
| 2022 to 2023 outturn | 11.0 |
| 2023 to 2024 plans | 26.0 |
| 2024 to 2025 plans | 23.0 |
The spike in 2018 to 2019 Resource AME was primarily because of 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 £0.6 million in 2024 to 2025 (2023 to 2024: £0.7 million forecast).
2. Spending detail
2.1 Explanations of changes in spending
Resource AME
| Subhead | Description | Detail | This year (£ million) | Last year (£ million) | Change from last year (£ million) | Change from last year (%) | Is change significant? See explanation, note/para number |
|---|---|---|---|---|---|---|---|
| A | Interest on Scheme liability and other expenses | Interest on scheme liabilities | 22.8 | 24.1 | -1.3 | -5.47% | N/A |
| A | Interest on Scheme liability and other expenses | Expected credit losses under IFRS 9 ‘Financial Instruments’ | 0.2 | 1.9 | -1.7 | -91.58% | Paragraph 1.4 |
| A | total | 23.0 | 26.00 | -3.0 | -5.50% | [no data] |
No cash requirement
| Description | Detail | This year (£ million) | Last year (£ million) | Change from last year (£ million) | Change from last year (%) | Is change significant? See explanation, note/para number |
|---|---|---|---|---|---|---|
| Use of pension provision | Pension payments | 38.3 | 42.0 | -3.7 | -8.75% | N/A |
| total | 38.3 | 42.0 | -3.7 | -8.75% | [no data] |
2.2 Changes to contingent liabilities
The contingent liability primarily relating to the Hong Kong (Overseas Public Servants) Act 1996, Sterling Safeguard Scheme for value of public service pensions, was £43.5 million at 31 March 2023. No new contingent liabilities are expected in 2023 to 2024 or 2024 to 2025.
2.3 Estimated scheme liabilities
The latest full valuation of scheme liabilities was performed with a calculation date of 31 March 2022, using membership data as at 31 December 2021). The total valuation, including the Gibraltar Social Insurance Fund, was £635 million. At that time there were a total of 6,290 pensioners.
The next full valuation will take place with a calculation date of 31 March 2026, using membership data as at December 2025.
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 and Development Office, 18 July 2024