Social Security Report and Accounts 2008.

Social Security Department

Centre for work, pensions and benefits

MINISTER

I. J. GORST, Deputy of St. Clement (from 11 December 2008) P.F. ROUTIER, Senator (to 11 December 2008)

ASSISTANT MINISTER

A. E. JEUNE, Deputy of St. Brelade (from 16 December 2008)

P. N. TROY, Deputy of St. Brelade (to 11 December 2008)

CHIEF OFFICER

R. W. BELL

On the XX XXX 2009, the Social Security Minister presented to the Assembly its Report and

Financial Statements for the year ended 31st December 2008.

The States ordered that the said Report be printed and distributed.

Mr. M. N. De La Haye Greffier of the States

Contents

Minister's Report on the 2008 Financial Statements  page  5 Social Security Fund  page  13 Social Security (Reserve) Fund  page  38 Health Insurance Fund  page  57 Statistical Appendix  page  77

Minister's Report for 2008

Introduction

I am pleased to present this Report, my first as Social Security Minister.

The Social Security Fund has again achieved success in terms of its finances, with income increasing at a greater rate than expenditure, generating a surplus of £ 35.9 million - though this was £2.7 million less than 2007.

As expected, the performance of the Social Security (Reserve) Fund over the last year has been disappointing. However, considering the turbulence in the world's financial markets it has weathered well and out-performed the FTSE 100 share index for the comparable time period. The Social Security (Reserve) Fund continues to hold the equivalent of more than three years worth of pension payments from the Social Security Fund and current pension payments are secure. Money

is not expected to be needed from the Social Security (Reserve) Fund for at least the next five years (based on the last actuarial review) so the investment policy is to secure long term growth in the Fund. An updated actuarial review is expected shortly. As the Reserve Fund is a 'buffer' to deal with the longer term funding of Social Security pension payments, the value of assets can fluctuate from year to year without affecting those payments. Over the last five years

the Reserve Fund has grown at an approximate rate of 7 per cent per annum on average.

The main focus of the Department during 2008 was on the introduction of the new Income Support system. This benefit was introduced, as planned, on 28 January 2008 with over 8,000 households transferred from existing benefits on the same day. This was a major undertaking for the Department and has, in all, been very successful. It must not be forgotten that during this period the Department continued with its vitally important day-to-day business of collecting contributions from local employers and employees and distributing a range of benefits and pensions to clients, as reflected by these Financial Statements.

2008 also saw the establishment of the Skills Executive, a partnership between representatives of the business community and three States Departments - Economic Development, Education, Sport & Culture and Social Security. A new service, Careers Jersey, is now operating from the La Motte Street site, with some Social Security staff transferring to the new venture. This partnership will continue to be built upon during the coming months, providing employment and careers advice to local residents.

The Department continued to consolidate and extend progress in a number of major policy areas. In particular the work progressed on phase 2 of the Employment Legislation programme with regards to family friendly and flexible working policies and the preparation of redundancy and business transfers legislation.

As reported last year, these Financial Statements which comprise the Social Security Fund, the Social Security (Reserve) Fund and the Health Insurance Fund, are U.K. GAAP compliant. The Department was the first to achieve this and remains ahead of the requirement for the States of Jersey which adopts UK GAAP compliant accounts for the year ending 31 December 2009.

Minister's Report for 2008

The year saw a sustained rise in contribution income and expenditure, with a surplus achieved during the year in both the Social Security Fund and Health Insurance Fund, providing opportunity for further investment for the future. Headline figures were:

• Income  from  contributions,  supplementation  interest  and  rent  reached  £239  million,  an  increase  of  7% (2007: £224 million).

• Expenditure on benefits was £186 million, a rise of 7 % (2007: £174 million).

• A reduction of £75.1 million in Net Assets of the  Social Security (Reserve) Fund, the investment vehicle for the Social Security Fund, reducing the total balance to £567 million (2007: £642 million). The total balance includes the 2008 transfer from the Social Security Fund of £35 million.

• An increase of £9 million in Net Assets of the  Health Insurance Fund, raising the Net Assets to £72 million (2007: £63 million)

The graph below shows the movement in income and expenditure over the last five years and the surplus achieved:

INCOME, EXPENDITURE AND SURPLUS OF THE SOCIAL SECURITY

AND HEALTH INSURANCE FUNDS

250 50 45

200 40 35

150 30 25

100 20 15

50 10

5 0 0

2004 2005 2006 2007 2008 Net Surplus Generated Income Expenditure

Minister's Report for 2008

Social Security Scheme

The Social Security scheme is the means by which people insure themselves, through the payment of contributions, for their retirement and for periods of ill-health or disability.

Contributions collected from employees and employers rose by £11 million to £145 million (2007: £134 million). This rise reflects the earnings linked up-rating in the contribution ceiling (4.7%) and the increase in the number of people working on the Island. There were approximately 53,000 working in the island and contributing - an increase of over 700 from 2007.

States Contribution reflects the funding provided by the States to top-up the contributions of the lower to medium range of wage earners (those earning between £8,604 and £40,728 per annum) to protect their benefit and pension entitlement. This is called supplementation and for 2008 the number of workers earning below the contribution ceiling during the year and requiring supplementation increased by 711 to 32,195 (2007: 31,484). The impact of this was an increase in cost of £3.2 million (5.5% ) from 2007 to reach £61.8 million for the year. In terms of both numbers supplemented and cost these figures were less than originally forecast which is partly reflected by the slowing down in the economy in the last quarter of 2008.

The graph below shows contributor numbers and supplementation over the last 5 years:

CONTRIBUTIONS AND SUPPLEMENTATION (£ and numbers) 2004 - 2008

160 70,000 140 60,000 120

50,000 100

40,000

£ m 80

30,000 60

20,000 40

20 10,000

0 0

2004 2005 2006 2007 2008

Class 1 and 2 Contributors  Contributors receiving Supplementation Contributions £m Supplementation £m

Minister's Report for 2008

Social Security Scheme

• Pension costs increased by 7% to £124.7 million (2007: £116.5 million). The increase was driven by two factors

- the increase in pensioner numbers from 2007 to 24,894 (2007: 24,202) and the annual earnings-linked up-rating.

• Incapacity Allowances increased by 1.9% to £36.9 million (2007: £36.2 million). These are payable when a person is unable to work through injury, ill-health or disability.

• Grants and Allowances The Department pays maternity allowance, maternity grant and death grant. These costs totalled £2.9 million for the year (2007: £2.7 million) and accounted for 1.8% of benefit expenditure in 2008.

Minister's Report for 2008

Social Security (Reserve) Fund

The Social Security (Reserve) Fund is the mechanism by which contribution rate and ceiling changes are smoothed over time. Without this Fund, pensions and benefits would need to be paid entirely on a pay-as-you-go basis. At present and for the foreseeable future, benefits will be funded out of annual revenues. The Fund increases certainty and enables longer term planning by employers, employees and the States of Jersey.

The net asset value of the Fund was £566.5 million at the end of 2008 - a decrease of £75.1 million on 2007. However, during the latter part of 2009, the value of the Fund investments has improved significantly and at 30  September  2009, after further deposits of £20 million, stood at £665.1 million. The Accounting Officer of the Fund is the Treasurer of the States. The Fund is performance managed by the Treasury and Resources Department through a Committee chaired by the Minister for Treasury and Resources. Investment advice is received from Hewitt Associates Limited.

The Social Security (Reserve) Fund is a very long term investor that does not currently require its assets to be readily available. Liquidity is not therefore a key component of the investment strategy except that the holding of liquid assets enables changes to be made easily.

The graph below shows the return achieved against the benchmark over the last 5 years:

RETURNS RELATIVE TO THE BENCHMARK 2004-2008

25 20 15

% Return 10

5 0

2004

Capital International Fund Capital International Benchmark Legal and General Fund

Legal and General Benchmark

2005 2006 2007 2008

Minister's Report for 2008

Health Insurance Fund

The Health Insurance Fund levies contributions on earnings to subsidise GP visits and prescriptions for residents.

• Contributions collected from employees and employers rose by £2 million to £27.5 million, an 8% increase (2007: £25.5 million) which reflects both the earnings linked up-rating in the contribution ceiling and the increase in the number of people working in Jersey.

• During 2008, the number of subsidised visits to  General Practitioners was in excess of 355,000, costing £5.4 million (2007: £6.3 million).

• The cost of subsidising prescriptions increased during 2008 to £15.6 million (2007: £11.7 million), the result of free prescriptions, the implementation of the island wide formulary and an increase in the number of prescriptions. The Department continues to work with General Practitioners on prescribing protocols and the selection of cost effective products.

The graph below shows the number of GP visits and prescriptions with the average subsidy paid over the last five years:

PRESCRIPTIONS AND GP VISITS SUBSIDY

1,600,000 £18

1,400,000

1,200,000 £15

1,000,000

800,000 £12

600,000

400,000 £9

200,000

0 £6

2004 2005 2006 2007 2008

Standard Subsidy per GP Visit £ No. of GP visits Subsidy per Prescription £ No. of Prescriptions

Minister's Report for 2008

Health Insurance Fund

The Net Assets of the Health Insurance Fund reached £72.1 million at the end of 2008 (2007: 63.4million). This Fund continues to perform well, however this should not be cause for complacency. This will assist in cushioning the financial impact of developments in medical technology and the challenge of future demographic changes.

The UK Government Actuary's Department (GAD) last carried out their review of the Fund as at 31 December 2002 and reported that it had grown strongly over the previous 5 years. The next report which is for the period ending 31 December 2007, will be published once available. The Investment Policy sets out the requirement that the Fund must meet at least 12 months' expenditure and at present the accumulated surplus exceeds this target by more than three times.

Minister's Report for 2008

Administration of the Funds

The Social Security Department administers the Social Security Fund and the Health Insurance Fund. The Social Security (Reserve) Fund is administered by the Treasury and Resources Department. Expenditure on administering benefits from these funds amounted to £7.3 million (2007: £5.2 million). This accounts for 3.9% (2007: 3.0%) of benefits administered. The majority of this increase is due to a one off development cost for the software package Nessie .

The pie chart below shows the category of expenditure within the total administration cost:

ADMINISTRATION COSTS £7.3 MILLION - EXPENDITURE ANALYSIS

Prescription

Pricing Staff

Postal 2.8% Development Premises Services 0.7% and Equipment

4.6% 2.6%

Stationery

2.2% Staff 42.6%

Professional Fees,

including Doctors

8.6%

Computer Costs 22.7%

Other 13.2%

Social Security Fund

The funding principles of the Social Security Scheme

The Social Security Scheme is financed on the Pay-as-you-go basis, with the expenditure on benefits and administration being met from current income.

The Social Security (Reserve) Fund is maintained for a dual purpose:-

1. as a reserve against adverse economic conditions or other contingencies
2. as a mechanism by which contribution rates may be levelled out over the years

Social Security requires long term planning. The rates of contribution required to meet the outgoings of the Scheme are determined not only by the level of benefits, but also by the relative number of beneficiaries and contributors. Independent actuarial reviews of the scheme are taken every three years to assist in this planning. The latest actuarial report as at 31st December 2003 concluded that the financial outlook for the Fund remains healthy in the short to medium term. This is largely due to the 0.5 per cent increases in the contribution rates each year from 1998 to 2002 and the increases in the upper earnings limit over and above earnings growth. Copies of the latest actuarial report are available from the States' Greffe. The report to 31 December 2006 will be available during 2009.

Social Security Fund

Statement of the responsibilities of the Social Security Minister of the States of Jersey in respect of the Financial Statements

The Social Security (Jersey) Law, 1974, requires that financial statements of the Social Security Fund and Social Security (Reserve) Fund shall be prepared in such form, manner and at such times as the Social Security Minister may determine. The Minister is responsible for preparing the financial statements.

In preparing the financial statements the Minister is required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable United Kingdom accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• prepare the financial statements on a going concern basis unless it is inappropriate .

The Minister is responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the Funds.

The Minister is responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Annual Report is available as a publication and on a website maintained by the States of Jersey. The maintenance and integrity of the website is the responsibility of the States of Jersey. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and accordingly, the auditors accept no responsibility for any changes that have occurred to the Annual Report since they were initially presented on the website. Visitors to the website need to be aware that legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in their own jurisdiction.

Social Security Fund

Independent Auditor's Report to the Minister for Social Security

I have audited the financial statements of the Social Security Fund and the Social Security (Reserve) Fund which comprise the income and expenditure account, the statement of total return, the statement of total recognised gains and losses, the balance sheets, the cash flow statement and related notes. These financial statements have been prepared under the accounting policies set out therein.

Respective responsibilities of the Minister and auditors

As described in the Statement of the Minister's Responsibilities, the Minister is responsible for the preparation of the financial statements in accordance with applicable Jersey law and United Kingdom Accounting Standards.

My responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Minister in accordance with the Social Security (Jersey) Law 1974 and for no other purpose. I do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by my prior consent in writing.

I report to you my opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Social Security (Jersey) Law 1974. I also report to you if, in my opinion, the Minister's Report is not consistent with the financial statements, if the Department has not kept proper accounting records, or if I have not received all the information and explanations I require for the audit.

I have read the other information contained in the Annual report and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Minister's Report and the statistical appendices.

Basis of audit opinion

I have conducted my audit in accordance with the International Standard on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Minister in the preparation of financial statements, and of whether the accounting policies are appropriate to the funds' circumstances, consistently applied and adequately disclosed.

I planned and performed the audit so as to obtain all the information and explanations which I consider necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud

or other irregularity or error. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In my opinion the financial statements give a true and fair view, in accordance with United Kingdom Accounting Standards, of the state of the Funds' affairs as at 31 December 2008 and of their transactions and cash flow for the year then ended and have been properly prepared in accordance with the Social Security (Jersey) Law 1974.

C Swinson OBE

Comptroller and Auditor General

Morier House, Halkett Place, St Helier, JE1 1DD 6 November 2009

Social Security Fund

Income and Expenditure Account for the year ended 31 December 2008

2008  2007

Notes  £000  £000  £000  £000 INCOME  1

Contributions  144,634  133,913 States contribution  61,842  58,627 Bank interest  1,878  1,513 Other income  126  105 Net income from Social Security

  (Reserve) Fund  -  5,983

208,480  200,141

EXPENDITURE  1

Benefits

Pensions

Pensions and survivors' benefits  124,671  116,506 Short term incapacity

Short term incapacity allowance  11,664  11,198 Long term incapacity

Long term incapacity allowance  10,462   9,132

Invalidity benefit  14,861  15,914

25,323   25,046

Grants and allowances

Maternity allowance  1,971  1,830 Maternity grant  508  482 Death grant  428  366

2,907  2,678 164,565  155,428

Administration expenses

Staff costs  4  2,649  2,506 Depreciation  7  1,906  2,061 Other administrative expenses  2,961  1,548 Net amount due to Social Security

(Reserve) Fund  511  -

8,027  6,115 172,592  161,543

Surplus of income over expenditure

  for the year  6  35,888   38,598 Transferred to

  Social Security (Reserve) Fund  511  (5,983) Retained Surplus for the year

  in the Social Security Fund  36,399  32,615

Continuing Operations

All of the fund's income and expenditure is derived from continuing activities.

Note of Historical Cost Profit and Losses

There are no material differences between the surplus of income over expenditure for the year and the retained profit for the year stated above and their historical cost equivalents.

The notes on pages 20 to 36 form an integral part of these financial statements.

Social Security Fund

Statement of Total Recognised Gains and Losses as at 31 December 2008

2008  2007 £000  £000

Surplus for the financial year  36,399  32,615 Appropriation (from)/to Social Security (Reserve) Fund  (511)  5,983 Transferred to Social Security (Reserve) Fund  (35,120)  (21,600)

Total recognised gains and losses  768  16,998

The notes on pages 20 to 36 form an integral part of these financial statements.

Social Security Fund

Balance Sheet

as at 31 December 2008

2008  2007

£000  £000  £000  £000

Fixed Assets

Tangible fixed assets  7  10,352   12,310 Debtors: amounts falling due

  after more than one year  8  914  105

Current Assets

Debtors  8  40,982  36,403

Cash at bank and in hand  24,184  33,386

65,166  69,789

Creditors: amounts falling due

  within one year  9  5,806  12,825

Net Current Assets  59,360  59,964 Creditors: amounts falling due

  after more than one year  10  -  (32) Net Assets  70,626   69,347

Funds Employed

Revaluation Reserves  11  719  719 Revenue Reserves  12  69,907  68,628

70,626   69,347 The Financial Statements on pages 16 to 55 were approved by the Social Security Minister, Deputy I. J. Gorst on

6 November 2009.

Deputy I. J. Gorst

The notes on pages 20 to 36 form an integral part of these financial statements.

Social Security Fund

Cash flow Statement as at 31 December 2008

2008  2007

Notes  £000  £000  £000  £000 Operating Activities

Net cash inflow from

  operating activities  14  25,112  28,748

Returns on Investments and

  Servicing of Finance

Bank interest received  1,947  1,451 Rent received  120  99

Net Cash inflow from Returns

  on Investments

  and Servicing of Finance  2,067  1,550

Capital Expenditure

  and Financial Investments

Payments to acquire tangible fixed assets  (284)  (1,472) Transfers to Social Security (Reserve) Fund  (35,120)  (21,600)

Net cash outflow from Capital expenditure

  and Financial Investments  (35,404)  (23,072)

Management of Liquid Resources

Decrease / (increase) in money held on deposit  15  10,300  (8,350) Increase / (decrease) in cash in year  2,075  (1,124)

Reconciliation of net cash flow to movement in net funds

2008  2007

Notes  £000  £000  £000  £000 Increase / (decrease) in cash in the year  2,075  (1,124)

Cash used to (decrease) / increase

  liquid resources  (10,300)  8,350

Change in Net Funds  (8,225)  7,226

Net Funds at 1 January  29,967  22,741 Net Funds at 31 December  15  21,742  29,967

The notes on pages 20 to 36 form an integral part of these financial statements.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

1.  ACCOUNTING POLICIES

1. Basis of Preparation

The financial statements are prepared on the historical cost convention, as modified by the revaluation of certain tangible fixed asset investments, in accordance with UK GAAP, so far as it is applicable to these financial statements. In the absence of any detailed guidance on the required format of financial statements the Minister for Social Security has determined the appropriate format of the accounts. The Reporting Manual for Government entities considers the question of accounting for specialised funds and requires that their presentation is agreed on a case by case basis with the relevant authority, which under the Social Security (Jersey) Law 1974 is the Minister for Social Security. The Minister considers that the format contained within these financial statements is the most appropriate to the circumstances of the Social Security Fund (the Fund ).

The preparation of financial statements in conformity with UK GAAP requires the use of certain critical accounting estimates. It also requires the Minister to exercise his judgement in the process of applying the Fund s accounting policies.

FRS17 sets out the standards for sponsors of occupational pension schemes to account for their liabilities in respect of those schemes. It requires sponsors to place on their balance sheet the surplus or deficit in the scheme as far as the sponsor is able to recover the surplus or make up the deficit. The annual change to the surplus or deficit is reported partly through the profit and loss account and partly through the Statement of Total Recognised Gains and Losses (STRGL).

The Fund provides pension benefits for the contributors of the scheme within the Island and hence could be seen to fall under FRS 17. However, there are a very wide range of opinions on the extent to which countries need to declare their pension scheme surplus or deficit and these have yet to be resolved. This view is supported by the UK Government Actuary Department (GAD) who have advised that they are unaware of any countries who report their pension scheme surplus or deficit on their balance sheet. Considering all of these factors and the nature of the Fund, the Minister has decided that it is not appropriate to include any pension scheme surplus or deficit on the Fund's balance sheet.

A summary of the more important accounting policies are set out below together with an explanation of any changes which have been made to previous policies on adoption of new accounting standards.

UK GAAP Disclosures

The Department has considered the disclosure requirements under UK GAAP and has adopted FRS26, 'Financial Instruments: Recognition and Measurement' and FRS29, Financial Instruments Disclosure'. FRS26 requires the investments to be carried using bid price. FRS29 requires disclosure as to the nature and risks arising from financial instruments to which the Fund is exposed and how these are managed.

2. ForeignCurrency

1. Functionaland Presentation Currency The performance of the Fund is measured and reported to the Department in sterling. The Minister considers sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in sterling, which is the Fund s functional and presentation currency.
2. Transactions and Balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

1.  ACCOUNTING POLICIES (continued )

3. Income

Income is accounted for on an accruals basis and includes the following categories:

1. Contributions

Contributions represent payments made by employers, employees and the self employed.

Social Security contributions are set at the rate of 10.5% of earnings (Employees, 5.2%; Employers, 5.3%). The financial statements include an estimation in respect of the contributions from insured persons, employers and the States of Jersey for the year ended 31 December 2008.

2. States' Contribution States' contribution is the sum paid by the States of Jersey to supplement the contributions of individuals with monthly earnings between the lower earnings threshold (2008: £717 per month) and the upper earnings limit (2008: £3,394 per month), to ensure that an individual's contribution record is maintained resulting in full benefit and pension payments.
3. Bank Interest Received Interest income is accrued on a time basis, by reference to the principaloutstandingand the interest rate.
4. Other Income Other income includes rental income which is received from sub-letting office space within the building.
5. Net income/(deficit) from Social Security (Reserve) Fund

In accordance with the Social Security Law (Jersey) 1974, the net revenue income/(deficit) on the Social Security (Reserve) Fund is transferred to the Social Security Fund at the end of the financial year. Excess funds held by the Social Security Fund are transferred to the Social Security (Reserve) Fund.

4. Benefits andadministrativeexpenses

Benefits

Benefits are paid to claimants who qualify for a benefit within the Social Security (Jersey) Law 1974 and meet the required conditions.

Benefits are recognised during the period when they become due and consist of the following:

1. Pensions Pensions and survivors' benefits are paid to those claimants and their survivors who are entitled to receive a State pension basedon the contributions madeduring their working lives.
2. Short Term Incapacity Benefit Short Term Incapacity Allowance is a daily benefit which is payable to claimants in receipt of a medical certificate who are unfit for work due to illness orinjuryand who meetcertain contribution conditions.
3. Long Term Incapacity Benefit Long Term Incapacity Allowance is a weekly benefit, payable as a compensation for a loss of faculty. As with Short Term Incapacity Allowance certain contribution conditions mustbe met before payment is awarded.
4. Grantsand Allowances

These include payments for Maternity Grant and Maternity Allowance as well as grants paid on the death of a person who has contributed to the Social Security Scheme.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

1.  ACCOUNTING POLICIES (continued )

4. Benefits andadministrativeexpenses (continued)

Administrative Expenses

Administrative expenses are accounted for on an accruals basis, with the exception of bad debts which are accounted for as set out in paragraph 1.8, and consist of the following:

1. Staff Costs Staff costs include salaries, wages paid to staffand pension contributions.
2. Other Administrative Expenses

Other administrative expenses include service costs, operating costs and bad debts.

5. Tangible Fixed Assets

Tangible fixed assets are stated at cost less accumulated depreciation.

Depreciation has been provided on all tangible fixed assets, other than freehold land, so as to write off the cost of these assets less their estimated residual values, on a straight line basis over their expected useful economic lives. The principal useful lives used for this purpose are:

Buildings  50 years Building Improvements  5 to 20 years Fixtures & Fittings  5 years Computer Development  8 years Computer Network  3 years

The carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in circumstances indicate the carrying value may not be recoverable.

6. CashatBankandinHandCash at bankand in handincludes cash, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
7. Trade Debtors

Trade debtors are measured at initial recognition at fair value and reflect contributions and services provided for which income is due as at 31 December 2008 and benefits due in 2008 which are paid in 2009. Contributions outstanding at the 31 December 2008 represent contributions for the last quarter (October to December 2008), together with contributions due from earlier periods.

Outstanding contributions are estimated using historical data adjusted for any contributions received. The calculation also includes the balance of instalment arrangements outstanding and the value of the third quarter 2008 arrears due from successful civil court action along with an estimate for the last quarter 2008 civil court action.

8. BadDebts

Class 1 and Class 2 contributions are written off as follows:

Class 1: A write off is made when the employer cannot contribute on behalf of their employee by virtue of being declared en desastre or bankrupt.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

1. ACCOUNTING POLICIES (continued )

8. BadDebts (continued)

Class 2: A write off is made when the individual has defaulted on an instalment arrangement and died.

An instalment arrangement is when the contributor has entered into a financial arrangement with the Department to reimburse outstanding contributions due from earlier periods.

A provision for bad debts is only made when an instalment is not received from a contributor.

Any bad debt write off is subject to Ministerial approval and apportioned between the Social Security Fund and the Health Insurance Fund.

9. Provision for LiabilitiesandCharges Provision is made in the financial statements in respect of obligations arising from past events where the predicted outcome of the event is considered probable and there is a reliable estimate of the amount of the liability.
10. FundsUnclearedatBank

The Fund does not have a facility for a bank overdraft. Funds uncleared at bank represent cheques issued not yet cashed on the benefit payment bank accounts. As the daily receipts are in excess of the cheques not yet cashed the bank accounts do not go overdrawn.

11. Loans Payable

The Health Insurance Fund does not operate a bank account, other than fixed deposit accounts. Consequently all receipts and payments in relation to the Health Insurance Fund are made through nominated Social Security Fund bank accounts and then reallocated to the loan accounts as appropriate. The loan account is repayable on demand.

12. Trade creditors

Trade creditors are measured at initial recognition at fair value.

13. Taxation

The Fund is exempt from Jersey Income Tax by virtue of Article 131 of the Income Tax (Jersey) Law 1961.

2. FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Financial assets and financial liabilities are recognised on the Fund's balance sheet when the Fund becomes a party to the contractual provision of the instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The Fund derecognises its financial assets when the contractual rights to the cash flows from the financial asset expire. The Fund derecognises its financial liabilities when the obligation specified in the contract is discharged, cancelled or expires.

1. Classification The financial assets are classified as 'loans and receivables'. The financial liabilities are classified as 'Other financial liabilities'.
2. Trade Debtors Trade debtors are measured at initial recognition at fair value.
3. Cash at Bank Cash at bankand in handincludes cash, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
4. Trade Creditor

Trade creditors are measured at initial recognition at fair value.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

3. FINANCIAL RISK MANAGEMENT

The Fund's activities expose it to liquidity and credit risk. The Social Security Department undertakes periodic risk reviews which involve identifying key risks, scoring item and documenting their mitigation.

1. Market Risk

No investments are held by the Fund. However, short-term bank deposits are held at fixed rates and therefore these are not subject to market price risk. These cash flows are primarily fixed in nature and are received from short-term highly liquid investments that are readily convertible and subject to an insignificant risk of changes in value.

2. Credit Risk

The Fund's principal financial assets are trade debtors and bank balances.

The Fund's credit risk is primarily attributable to its trade debtors. The Fund's objectives for managing the risk are to ensure that the trade debtors are recovered promptly and that the cash at bank is secure. Where monies are not received within their payment terms they are referred to the Social Security Compliance Section for recovery. In these instances instalment arrangements are made for repayment of monies owed or court action progressed.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies with a minimum rating of 'A' only accepted.

3. Liquidity Risk

The Fund's exposure to liquidity risk is low due to the volume of cash available to meet its short-term obligations. The Fund's objectives for managing the risk are to ensure that there are enough liquid resources to meet short-term liabilities.

Daily cash flow forecasts are undertaken and any liquidity risk identified as part of this process is addressed by managing the amounts placed on short-term deposit. The Fund manages its exposure to liquidity risk by monitoring the rolling forecast of the Fund's liquidity reserves on the basis of the expected cash in and out flows.

All liabilities are payable upon demand or in less than one year.

4. Fair value interest rate Risk

The Fund receives income from its fixed bank deposits. These cash flows are primarily fixed in nature. As a result there is negligible risk to the Fund in terms of fair value interest rate risk.

4. STAFF COSTS

Remuneration directly associated with administering the Fund for the year ended 31 December, analysed by category is as follows:

2008  2007 £000  £000

Directors  208  187 Other Employees  2,441  2,319

2,649  2,506 At 31 December the Department's equivalent number of full time employees (FTE) is 142 (2007: 129).

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

4. STAFF COST (continued)

Details of the Department's employees for whom their total remuneration, including pension benefits and overtime payments exceeded £70,000 for the year ended 31 December are as follows:

Remuneration

2008  2007

£70,000 to £89,999  5  4 £90,000 to £109,999  -  - £110,000 to £129,999  1  1

The above costs include remuneration for the Social Security Fund, Health Insurance Fund and States of Jersey benefits - all of which are administered by the Social Security Department.

Staff costs include pension contributions, 2008: £312,122 (2007: £300,232) in respect of staff employed to administer the Fund who are members of the States of Jersey Public Employees' Contributory Retirement Scheme (PECRS). PECRS membership is compulsory for all States of Jersey permanent employees 20 years of age and over (excluding teachers).

Contributions made to the States of Jersey Public Employees' Contributory Retirement Scheme, are charged to revenue expenditure in the period they are incurred.

5. PENSION SCHEME

5.1  Public Employees' Contributory Retirement Scheme (PECRS)

PECRS is open to all public sector employees (excluding teachers) over 20 years of age. Membership is obligatory for all employees on a permanent contract and therefore those paid from the Social Security Fund.

The Scheme is managed by a Committee of Management established by the States of Jersey which has five sub- committees to investigate and report on complex technical issues.

The last published actuarial valuation of the Scheme by Hewitt Associates Limited as at 31st December 2004, dated 13th March 2006, indicated that the Scheme had an actuarial deficiency of £17.4 million at the effective date of the valuation. As at 31st December 2008, PECRS had a market value of £924 million (2007: £1,107 million). The States of Jersey contribution to the Scheme in 2008 was £31.8 million (2007: £30.2 million).

The Actuaries concluded that this deficiency was temporary in nature and that it could be carried forward to the next Actuarial Valuation.

Since the Social Security Department is unable to readily identify its share of the underlying assets and liabilities of PECRS, under FRS17, contributions to the scheme will be accounted for as if they were contributions to a defined contribution scheme.

The latest draft actuarial valuation of the Scheme took place on 31 December 2007, and this year's FRS 17 disclosures are based on the results of this valuation.

PECRS is a final salary scheme but not a conventional defined benefit scheme as the employer is not responsible for meeting any ongoing deficiency in the scheme. As a result of that limitation on the States' responsibility as employer, the scheme deficit is disclosed but not recognised in the accounts of the States of Jersey.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

5.  PENSION SCHEME (continued)

1. Public Employees' ContributoryRetirementScheme (PECRS) (continued)

The States of Jersey in agreeing P190/2005 on September 2005 have confirmed responsibility for the past service liability which arose from the restructuring of the PECRS arrangements with effect from 1 January 1988. This liability amounted to £226.1 million at 31 December 2008.

The provisions to address the past service liability include an increase in employers' contributions equivalent to 0.44% of members' salaries as from 1 January 2002, raising the employers' contribution rate to 15.6% of members' salaries. Of the employers' contribution rate of 15.6% of members' salaries, a sum initially equivalent to 2% of the employers' total pensionable payroll is paid into the Scheme to meet the pre-1987 past service liability. The remaining 13.6% of members' salaries continues to fund the current service liability.

Over 82 years (from 2002) the past service liability would thereby be repaid, at which point the employers' contribution rate would revert to 15.16% of members' salaries.

Copies of the latest Report and Accounts of the States of Jersey and the Public Employees' Contributory Retirement Scheme are available from the States' Greffe.

2. Additionalinformation required by FRS 17

PECRS is a final salary scheme but not a conventional defined benefit scheme as the employer is not responsible for meeting any ongoing deficiency in the scheme. As a result of that limitation on the States' responsibility as employer, the scheme deficit is disclosed but not recognised in the accounts.

The Actuarial Valuation of PECRS was carried out at 31 December 2007. This valuation has been updated by Actuaries to 31 December 2008 in accordance with FRS 17, based on current obligations.

The assumptions and methodology required under FRS 17 differ considerably from the approach that has been used by the Actuaries of PECRS in providing Actuarial Valuations, used for funding purposes. These differences in methodology combined with the time that has elapsed since the latest Actuarial Valuation mean that the FRS 17 results are different to the position revealed in the latest formal published Actuarial Valuation.

The results of up to date Actuarial Valuations, rather than the results of the FRS 17 disclosures below, will be used to determine the quantum of any adjustments that may be needed to the benefits and contributions of the Fund.

Information on the scheme is presented in the accounts, reflecting the cost of the scheme to the employer. As the scheme limits the liability to the Fund, scheme surpluses or deficits are only recorded to the extent that they belong to the Funds.

The major assumptions used for the FRS 17 actuarial assessments at 31 December are:

2008  2007

% pa  % pa

Inflation  3.1  3.4 Rate of general long-term increase in salaries  4.4  4.7 Rate of increase to pensions in payment  3.1  3.4 Discount rate for scheme liabilities  6.0  5.8

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

5.  PENSION SCHEME (continued)

5.2  Additional information required by FRS 17 (continued)

The mortality assumptions used are based on the recent actual mortality experience of members within the PECRS and the assumptions also allow for future mortality improvements. The assumptions are that a member currently at the assumed retirement age of 63 will live on average for a further 23 years if they are male and for a further 25 years if they are female.

The following table reflects the financial position of PECRS, including all admitted bodies other than Jersey Telecom Group Limited and Jersey Post International Limited.

On the FRS 17 basis, the assets and liabilities of the scheme are:

Long-term rate  Long-term rate

of return  Value at 31  of return  Value at 31 expected at 31  December  expected at 31  December

December 2008  2008  December 2007  2007 (% p.a.)*  £000  (% p.a.)*  £000

Equities  7.6  548,082 Property  6.6  17,561 Corporate Bonds  5.5  268,034 Cash/Other  2.5  90,577

Combined  6.8#  924,254 Asset values for 2008 and 2007 are bid values

7.6  764,892

6.6  14,370

- -

5.9  326,074 1,105,336

* The expected return on assets by asset category is not a required FRS17 (Amended December 2006) disclosure item (only the total rate needs to be disclosed).

#The overall expected rate of return on scheme assets is a weighted average of the individual expected rates of return on each asset class.

Reconciliation of funded status to balance sheet

Value at  Value at 31 December  31 December 2008  2007

£000  £000

Fair value of scheme assets  924,254  1,105,336 Present value of funded defined benefit obligations  (1,306,089) (1,252,981)

Asset/(liability) as recognised on

  the balance sheet of PECRS  (381,835)  (147,645)

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

5.  PENSION SCHEME (continued)

5.2  Additional information required by FRS 17 (continued)

Analysis of profit and loss charge

Year ending  Year ending 31 December  31 December 2008  2007

£000  £000

Current service cost  37,482  39,997 Interest cost  72,927  62,799 Expected return on scheme assets  (74,793)  (73,098)

Expense recognised in profit and loss  35,616  29,698

PECRS, whilst a final salary scheme, is not a conventional defined benefit scheme as the employer is not responsible for meeting any ongoing deficiency in the scheme. Employer contributions are charged to revenue expenditure in the year they are incurred. As this scheme limits the liability of the States as the employer, scheme surpluses or deficits are only recorded within the States' accounts to the extent that they belong to the States.

Changes to the present value of the defined benefit obligation during the year

Year ending 31 December 2008

£000

Opening defined benefit obligation  1,252,981 Current service cost  37,482 Interest cost  72,927 Contributions Paid  11,261 Actuarial Gain *  (29,422) Net benefits paid out  (39,140)

Closing defined benefit obligation  1,306,089

* Includes changes to the actuarial assumptions

Changes to the fair value of scheme assets during the year

Year ending 31 December 2008

£000

Opening fair value of scheme assets  1,105,336 Expected return on scheme assets  74,793 Actuarial gains/(losses) on scheme assets  (260,192) Contributions by the employer  32,196 Contributions by scheme participants  11,261 Net benefits paid out  (39,140)

Closing fair value of scheme assets  924,254

Year ending 31 December 2007

£000

1,223,932 39,997 62,799 10,485

(48,945) (35,287)

1,252,981

Year ending 31 December  2007

£000

1,040,843 73,098

(14,050) 30,247 10,485

(35,287)

1,105,336

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

5. PENSION SCHEME (continued)

5.2  Additional information required by FRS 17 (continued) Actual return on scheme assets

Year ending 31 December 2008

£000

Expected return on scheme assets  74,793 Actuarial gains/(losses) on scheme assets  (260,192)

Actual return on scheme assets  (185,399)

The analysis of amounts in the Statement of Total Recognised Gains and Losses (STRGL)

Year ending 31 December 2008

£000

Total actuarial gains/(losses)  (230,770) History of asset values, defined benefit obligations and surplus/deficit in scheme

Year ending 31 December 2008

£000

Fair value of scheme assets  924,254 Defined benefit obligation  (1,306,089)

Surplus/(deficit) in scheme  (381,835) History of experience gains and losses*

Year ending 31 December  2007

£000

73,098 (14,050)

59,048

Year ending 31 December  2007

£000

34,895

Year ending 31 December  2007

£000

1,105,336 (1,252,981)

(147,645)

Year ending  Year ending 31 December  31 December 2008  2007

£000  £000

Experience gains/(losses) on scheme assets  (260,192)  (14,050) Experience gains/(losses) on scheme liabilities*  (23,258)  2,833

* This item consists of gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

6. SURPLUS OF INCOME OVER EXPENDITURE Surplus of Income is stated after charging/(crediting):

Notes Auditors' fees

Depreciation  7 Rental income from third parties

Rental income from related parties

2008  2007 £000  £000

71  79 1,906  2,061

(20)  (4) (100)  (95)

7. TANGIBLE FIXED ASSETS

Land,  Computer

buildings and  Fixtures and  development

  improvements  fittings  and network  Total

£000  £000  £000  £000

Cost

  At 1 January 2008  8,995  65  12,736  21,796

  Additions  43  43  Reductions  (95)  (95)

Land situated at 28 to 32 La Motte Street, St Helier, Jersey has been purchased for the Social Security Fund with title to this property registered in the names of the Attorney General and Greffier of the States on behalf of the Public of the Island .

In respect of the land & buildings, additions consisted of £43,000 for costs associated with the refurbishment of upper floors of Huguenot House and the extension of the ground floor front office of Philip Le Feuvre House. The reduction of £95,000 for land & buildings as above are due to a portion of the 2007 creditor for retention which was over and above the final settlement required.

During 2006, the property known as Huguenot House, which had previously been accounted for as Investment Property, was reclassified into Land and Buildings. This property was transferred at the current carrying value of £1.4 million which was deemed  to be an appropriate cost. Depreciation is then charged on this deemed cost over the remaining useful life of the building.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

8. DEBTORS

2008  2007 £000  £000

Trade debtors:

Contributors - individuals and employers Health Insurance Fund

Beneficiaries paid in advance

Prepayments in respect of benefits paid

  and services provided as agent

Jersey Post - funds held for the payment

  of Pension Order books

Bank interest and other income

Amounts due from the Treasurer of the States  in respect of supplementation, benefits

  paid and services provided as an agent Goods and Services Tax

Other debtors

31,896  26,215 623  - 6,548   6,653

2,391  2,012

197  205 11  80

20  1,172 31  - 179  171

41,896  36,508

Trade debtors include the following amounts 2008: £913,845 (2007: £105,000) due after more than one year. The Minister considers that the carrying amount of the trade debtors approximates to their fair value.

Contributions are due from smaller organisations (less than 80 employees) and employers for the fourth quarter and are stated net of the write off of bad debts, 2008: £13,347 (2007: £17,472).

As at 31 December the Fund provided for a bad debt provision, 2008: £24,780 (2007: £123,396). This was made for those contributors and beneficiaries entering into an instalment agreement with the Department.

2008  2007 £000  £000

Up to 3 months past due  1  27 3 to 6 months past due  -  3 6 to 12 months past due  -  15 Over 12 months past due  24  78

25  123

The Fund considers that none of the above are impaired.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

8. DEBTORS (continued)

As at 31 December, trade debtors of carrying value, 2008: £41.9 million (2007: £36.5 million) were past their due date but not impaired. The ageing is shown below:

2008  2007 £000  £000

Up to 3 months past due  40,977  36,373

3 to 6 months past due  5  9 6 to 12 months past due  -  21 Over 12 months past due  914  105

41,896  36,508

9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONEYEAR

2008  2007 £000  £000

Funds uncleared at bank

Loan payable: Health Insurance Fund

Trade creditors:

  Amounts due to the Treasurer of the States

   in respect of benefits paid

   and services provided as an agent

  Amounts payable to the Treasurer of the States   in respect of benefits paid and

   services provided as an agent

  Benefits payable

  Capital expenditure

  Other creditors

2,442  3,419

- 6,219

2,562  2,144

20  66 427  375 33  369 322  233

5,806  12,825

The Minister considers that the carrying amount of the trade creditors approximates to their fair value. The loan payable to the Health Insurance Fund is unsecured, interest free and repayable on demand.

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONEYEAR (continued )

Maturity of financial liabilities:

The maturity profile of the carrying amount of the Fund's liabilities, as at 31 December was as follows:

Other

financial

liabilities  2008  2007 £000  £000  £000

Up to 3 months past due  5,805  5,805  12,818 3 to 6 months past due  1  1  2 6 to 12 months past due  -  -  5 Over 12 months past due  -  -  32

5,806  5,806  12,857

10. CREDITORS: AMOUNTS FALLING DUEAFTER MORE THANONEYEAR

2008  2007 £000  £000

Other creditors  -  32

11. REVALUATION RESERVES

This relates to the revaluation of Huguenot House, an investment property, in 2002 by professional valuers in accordance with the Royal Institute of Chartered Surveyors (RICS) appraisal and valuation manual (the red book ). During 2006, this property was vacated, allowing the Department to utilise the property for its own operations. The property is no longer an investment property under Statement of Standard Accounting Practice 19 and is recorded as an asset held for use for Departmental operations and depreciated accordingly. The investment property is included in the financial statements at the revalued amount and the surplus or deficit arising on revaluation is transferred to the Revaluation Reserve.

2008  2007 £000  £000

As at 1 January and 31 December  719  719

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

12. REVENUE RESERVES

2008  2007 £000  £000

As at 1 January  68,628  57,613 Transfer to Social Security (Reserve) Fund  (35,120)  (21,600) Retained surplus for the year  36,399  32,615

As at 31 December  69,907  68,628

13. RELATED PARTY TRANSACTIONS

The Fund has the following commercial, arm's length relationships with the following companies which are strategic investments of the States:

1. Jersey Post International Limited

The States of Jersey hold all the ordinary shares in Jersey Post International Limited which became incorporated on 1 July 2006.

The Fund pays Jersey Post Limited for the beneficiaries who hold a pension order book or cash open cheque benefit payments. For this service Jersey Post Limited receives an administration fee as noted in the table below.

2. Jersey Telecom Group Limited

The States of Jersey hold all the ordinary shares and 9% cumulative preference shares in the Jersey Telecom Group Limited.

The Fund pays Jersey Telecom Limited for services relating to telecommunications as noted in the table below.

3. Jersey Electricity Company Limited

The States of Jersey hold all the ordinary shares in the Jersey Electricity Company Limited which represents 62% of the Company's total share capital as at 31 December 2008.

The Fund pays Jersey Electricity Company Limited for the supply of heat, light and power.

4. States of Jersey Treasury and Resources and other States Departments

The Fund also undertakes a number of transactions and joint undertakings with States of Jersey Treasury and Resources and other States Departments as noted in the table below.

Payments made in the year to 31 December to these related parties are shown below:

2008  2007 £000  £000

Jersey Post International Limited  220  179 Jersey Telecom Group Limited  4  8 Jersey Electricity Company Limited  45  35 States of Jersey Treasury and Resources

  and other States Departments  238  155 507  377

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

13.  RELATED PARTY TRANSACTIONS (continued )

Management and control of the Fund resides with the Minister for Social Security. Ownership of the Fund resides with the contributors and beneficiaries on a mutual basis.

The Fund receives income (States' contribution) from the States of Jersey to supplement the contributions of earners who fall below the upper earnings limit but above the lower earnings threshold 2008: £61,842,397 (2007: £58,627,017).

Staff employed by the States of Jersey who administer the Social Security Fund are also involved with the administration of States Funded Benefits and services related to employment. Where this administration is undertaken on premises owned by the Fund, a rental charge for the use of the premises is levied to the States of Jersey 2008: £90,300 (2007: £85,300).

Related Party costs for the year ended 31 December are analysed below:

2008  2007 £000  £000

States Funded Benefits  78,518  39,973 Services Related to Employment  2,678  2,507

81,196  42,480

Full details of all States Funded benefits and services administered by the Social Security Department can be found in the States of Jersey Financial Report and Accounts 2008 . Copies of the report will be available from the States Greffe.

Related party balances at the year end:

2008  2007 £000  £000

Amounts due to related parties:

Treasurer of the States  2,582  2,238 Jersey Telecom Group Limited  -  3 Jersey Electricity Company Limited  -  3 Jersey Post International Limited  25  12

2,607  2,256

Amounts due from related parties:

Treasurer of the States  51  1,172 Jersey Post International Limited  197  205

248  1,377

The Health Insurance Fund does not operate a bank account, other than fixed deposit accounts. Consequently all receipts and payments in relation to the Health Insurance Fund are made through nominated Social Security Fund bank accounts due to their relationship in respect of social security contributions and then reallocated to the loan accounts as appropriate.

During the year the Social Security Department made net payments from its bank accounts, of which the Social Security Fund is part, to the Health Insurance Fund, 2008: £6.730m (2007: £0.746m). At the year end the Health Insurance Fund owed, 2008: £0.624m (2007: was owed £6.219m).

Social Security Fund

Notes to the Financial Statements for the year ended 31 December 2008

13. RELATED PARTY TRANSACTIONS (continued )

The Social Security (Reserve) Fund is the investment vehicle by which contribution rate and ceiling changes are smoothed over time. The accounting officer of the Social Security (Reserve) Fund is the Treasurer of the States. Payments made in the year from the Fund were, 2008: £36.2m (2007: £21.6m); additionally the Social Security (Reserve) Fund appropriated from the Fund, 2008: £0.511m (2007: £5.983m to the Fund).

14. RECONCILIATION OF SURPLUS TO NET CASH FLOW

2008  2007 £000  £000

Surplus of income over expenditure for the year Net income appropriated from

  Social Security (Reserve) Fund

Net expenditure appropriated from

  Social Security (Reserve) Fund

Depreciation

Increase in debtors

Decrease in creditors

Bank interest

Rent

35,888   38,598 (5,983)

511  - 1,906  2,061

(5,488)  (3,066) (5,707)  (1,250) (1,878)  (1,513)

(120)  (99)

25,112   28,748

15. ANALYSIS OF CHANGES IN NET FUNDS

At 31 December  At 31 December

2007  Cash Flows  2008 £000  £000  £000

Cash at bank  2,286  1,098  3,384 Funds uncleared at bank  (3,419)  977  (2,442)

(1,133)  2,075  942 Liquid resources  31,100  (10,300)  20,800

Net funds  29,967  (8,225)  21,742

16. ULTIMATE CONTROLLING PARTY

Under the Social Security (Jersey) Law, 1974 the Minister of Social Security is the ultimate controlling party of the Fund. The Minister of Social Security is a member of the Council of Ministers of the States of Jersey and is responsible for safeguarding the assets of the Fund and for preparing the financial statements.

Social Security (Reserve) Fund

Statement of Total Return

for the year ended 31 December 2008

2008  2007

Notes  £000  £000  £000  £000 Income

Net (losses)/gains on investments

  during the year  6  (109,746)  31,005 Investment income  7  2  8,007

Bank interest  7  1  269

Expenditure

Investment management

  and custodian fees  8  (458)  (1,209)

Irrecoverable withholding tax  (1,006)

Other expenses  (56)  (78)

Net Income  (511)  5,983 Total return  (110,257)  36,988

Appropriated from/(to)

  Social Security Fund  511  (5,983)

Total (deficit)/return after appropriation

  to Social Security Fund  (109,746)  31,006

Statement of changes in Net Assets for the year ended 31 December 2008

Notes

Net assets at the start of the year

Prior year adjustment (as explained in note 15)

Net assets at the start of the year

Change in net assets before appropriation  to Social Security Fund

Funds received from Social Security Fund  13 Net assets at the end of the year

2008  2007 £000  £000

641,684  583,348

(252) 641,684  583,096

(110,257)  36,988 35,120  21,600 566,547  641,684

The notes on pages 43 to 55 form an integral part of these financial statements.

Social Security (Reserve) Fund

Portfolio Statement as at 31 December 2008

Percentage Market Value  of Total

Holding  31-Dec-08  Net Assets Units  £000  %

Unit Trust Bonds Overseas bond index All stock gilts index

Unit Trust Equities

UK equity index

North America equity

Europe equity index

Money market

Japan equity index

Asia Pacific (ex-Japan) development equity index

Portfolio of Investments Net Current Liabilities

Net Assets

12,317,450  30,217  5.33 7,798,387  29,110  5.14

59,327  10.47

44,792,353  223,041  39.37 20,234,483  115,677  20.42 13,186,922  84,495  14.91 40,817,096  49,163  8.68 26,384,442  23,568  4.16 2,058,619  11,350  2.00

507,294  89.54

566,621  100.01

(74)  (0.01)

566,547  100.00

Comparatives are not disclosed in accordance with the Statement of Recommended Practice - Financial Statements of Authorised Funds.

The notes on pages 43 to 55 form an integral part of these financial statements.

Social Security (Reserve) Fund

Balance Sheet

as at 31 December 2008

2008  2007

Notes  £000  £000  £000  £000 Fixed Assets

Financial assets at fair value  9  566,621  641,365 Current Assets

Account receivables  11  11  10

Cash at bank  43  499

54  509 Account payables: amounts falling due

  within one year  12  128  190

Net Current Assets/(Liabilities)  (74)  319 Net Assets  566,547   641,684 Represented by:

Net Assets attributable to the Fund  566,547   641,684

The notes on pages 43 to 55 form an integral part of these financial statements.

Social Security (Reserve) Fund

Summary of material portfolio changes

for the year ended 31 December 2008

Major purchases Name

Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General Europe (Ex-UK) Equity Index Legal & General N America Equity (Net US) Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General Europe (Ex-UK) Equity Index Legal & General Europe (Ex-UK) Equity Index Legal & General Europe (Ex-UK) Equity Index Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General Japan Equity (Net Wht) Legal & General N UK Equity Index

Legal & General N UK Equity Index

Legal & General Overseas Bond Index

Legal & General N UK Equity Index

All other purchases

Total purchases for the year

Holding  Cost Units  £000

2,022,075  12,800 1,194,400  7,200 1,018,019  5,115 821,607  3,873 698,242  3,291 517,046  2,850 444,579  2,650 417,802  2,648 466,072  2,451 334,955  2,400 379,305  2,228 295,670  2,210 452,525  2,150 417,774  2,099 236,657  1,650 2,140,204  1,573 223,594  1,428 283,638  1,425 765,359  1,250 250,488  1,248

13,911 76,450

The notes on pages 43 to 55 form an integral part of these financial statements.

Social Security (Reserve) Fund

Summary of material portfolio changes

for the year ended 31 December 2008

Major sales Name

Legal & General 2151 PMC Money Market Fund Legal & General Overseas Bond Index

Legal & General Japan Equity (Net Wht)

Legal & General Overseas Bond Index

Legal & General All Stocks Gilt Index

Legal & General Overseas Bond Index

Legal & General 2151 PMC Money Market Fund Legal & General All Stocks Gilt Index

Legal & General Overseas Bond Index

Legal & General Overseas Bond Index

Legal & General All Stocks Gilt Index

Legal & General Overseas Bond Index

Legal & General 2151 PMC Money Market Fund Legal & General Overseas Bond Index

Legal & General All Stocks Gilt Index

Legal & General 2151 PMC Money Market Fund Legal & General All Stocks Gilt Index

Legal & General Overseas Bond Index

Legal & General Overseas Bond Index

Legal & General Overseas Bond Index

All other sales

Total sales for the year

Holding  Proceeds Units  £000

4,034,598  5,115 1,816,057  3,873 4,247,103  3,291 1,600,570  2,650 800,557  2,648 1,335,868  2,451 1,757,759  2,228 633,232  2,099 1,035,320  1,650 869,872  1,573 431,650  1,428 788,251  1,425 984,849  1,248 729,895  1,163 290,328  1,005 707,393  897 232,339  805 416,945  756 399,749  733 352,888  640

3,770 41,448

The notes on pages 43 to 55 form an integral part of these financial statements.

Social Security (Reserve) Fund

Notes to the Financial Statements for the year ended 31 December 2008

1.  GENERAL INTRODUCTION

Fund purpose

The number of recipients of a State pension as a percentage of the working population is expected to increase over time. The purpose of the Social Security Reserve Fund (the Reserve Fund ) is to build up a reserve for the future provision of pension benefits for those in employment so as to reduce the impact of pensions on future generations, as well as to smooth contributions for social security benefits over time. To achieve these objectives, the Reserve Fund's assets and liabilities comprise financial instruments held in accordance with its investment objectives and policies. These may include:

1. Investments including equityandnon-equity shares, fixed income securities and floating securities.
2. Cash, liquid resources andshort term debtors and creditors that arise directly from the investment activities.
3. Hedginginstruments such as forward exchange contractsand traded options which the Reserve Fund may enter into, for the purpose of managing the risks arising from the ReserveFund's investment activities.