Corporate report

FCDO Overseas Superannuation Supplementary Estimate memorandum 2021 to 2022

Published 4 March 2022

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 (Supplementary Estimate 2021 to 22)	Difference (+/-) £million compared to original budget this year (Main Estimate 2021 to 2022)	Difference (+/-) % compared to original budget this year	Difference (+/-) £million compared to original budget this year (Outturn 2021 to 2022)	Difference (+/-) % compared to original budget this year (Outturn 2020-21)
Resource AME	9.5	+1.5	18.8	+1.7	-15.2
Net Cash Requirement	49.5	0.0	0.0	-0.6	-1.2

The increase in Resource AME requested is based on an anticipated increase in expected credit losses required to be recognised under accounting standard IFRS 9 ‘Financial Instruments’ in relation to overpayment receivables.

1.4 Key drivers of spending changes since last year

The provision sought under Resource AME is lower than last year. This is largely due to the Treasury-set interest rate on scheme liabilities decreasing from 1.80% to 1.25%, partially offset by an anticipated increase in expected credit losses on overpayment receivables.

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
2016 to 2017 outturn	28.4
2017 to 2018 outturn	23.6
2018 to 2019 outturn	54.1
2019 to 2020 outturn	18.8
2020 to 2021 outturn	11.2
2021 to 2022 plans	9.5

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 £35.2m 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 £0.8m in 2021-22 (2020-21: £0.8m).

2 Spending detail

2.1 Explanations of changes in spending

subhead	description	detail	Resource AME
			this year (2012 to 2022 Supplementary Estimates budget sought) £million	this year (2012 to 2022 Supplementary Estimates budget sought) % change	this year (2021 to 2022 Main Estimates budget approved) £million	this year (2021 to 2022 Main Estimates budget approved) % change
A	interest on Scheme and other expenses	interest on scheme liabilities	7.7	0.0	7.7	0.0
A	interest on Scheme and other expenses	expected credit losses under IFRS 9 ‘Financial Instruments’	1.8	+1.5	0.3	+500.0
A		total	9.5	+1.5	8.0	+18.8

subhead	description	detail	Resource AME
			this year (2012 to 2022 Supplementary Estimates budget sought) £million	this year (2012 to 2022 Supplementary Estimates budget sought) % change	this year (2021 to 2022 Main Estimates budget approved) £million	this year (2021 to 2022 Main Estimates budget approved) % change
	use of pension provision	pension payments	49.5	0.0	49.5	0.0
		total	49.5	0.0	49.5	0.0

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 £73.0m at 31 March 2021. No new contingent liabilities are expected in 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 £771.7m. 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 2021. The valuation was £604.2m.

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

25 February 2022