Main estimate 2023 to 2024: estimates memorandum for Foreign, Commonwealth & Development Office overseas superannuation

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 2023 to 2024)	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	26.0	15.0	138.18%	15.2	138.18%
Net Cash Requirement	42.0	-3.6	-7.9%	-3.6	-7.9%

1.4 Key drivers of spending changes since last year

The provision sought under Resource AME is higher than last year because of the Treasury-set interest rate on scheme liabilities increasing from 1.55% to 4.15%.

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 table below shows Resource AME spending trends for the last six years and plans presented in Estimates for 2023 to 2024. As AME is re-forecast on an annual basis, there are no future plans beyond the current Estimate.

Year	£ 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	11.1
2021 to 2022 outturn	9.5
2022 to 2023 plans	11.0
2023 to 2024 plans	26.0

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.

Resource AME Plans for 2023 to 2024 is higher than last year because of the Treasury-set interest rate on scheme liabilities increasing from 1.55% to 4.15%.

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 2023 to 2024 (2022 to 2023: £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	24.1	8.8	15.3	174%	1.4
A		Expected credit losses under IFRS 9 ‘Financial Instruments’	1.9	2.2	-0.3	-13.7	N/A
A	Total		26.0	11.0	15.0	[no data]	[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	42.0	45.6	-3.6	-7.9%	N/A
Total		42.0	45.6	-3.6	-7.9%	[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 £67.0 million at 31 March 2022. No new contingent liabilities are expected in 2022 to 2023 or 2023 to 2024.

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.