Please do not panic. This is the plea from executive director of the National Insurance Board (NIB) Niala Persad-Poliah as she tried to allay the fears of citizens following recent revelations that if changes are not made to this country’s national insurance system, funds will be completely depleted by 2030.
The Ninth Actuarial Review of the National Insurance System was published in June 2015.
It covered the three-year period up to June 30, 2013, and presented a projection of the financial situation of this country’s national insurance system for the next 50 years.
“From 2019-2020, assets will rapidly decrease and the NIS funds will be completely depleted in 2029-2030 if nothing is modified in terms of contributions or benefits,” the actuarial reviews warned.
Workers contributing to NIS have been expressing concerns about their monthly contributions.
However, Persad-Poliah sought to assure the public that this was not cause for concern as this country’s national insurance system is “strong”. Reform of the system is, however, needed.
“There is no need for fear and panic in the minds of citizens at this time. The NIS is strong but reform is needed. Contributors who are paying into the system, those who are yet to receive benefits and even those who are in receipt of benefits should not be concerned. But we must all recognise that reforms are needed to the system so as to preserve the fund for generations to come.”
The actuaries have sounded warnings that urgent action is required to update the system and ensure it is relevant to the income security needs of the country.
They projected that the number of people at pensionable age in the country will grow to over 400,000 by 2063, up from the current figure of 200,000.
The working population between 16 to 59 who supports the retirees through their contributions will decrease by almost 25 per cent over the same period.
To address these issues among the recommendations made in the review is that the country’s retirement age be increased to 65 and an increase in the contributions made by citizens.
The three short-term changes recommended by the actuaries are an increase of the maximum insurable earnings (MIE) which is the band of income of an insured person that is currently insured from $12,000 to $13,600, an increase in the contribution rate from 12 per cent to 13.2 per cent, and a freeze in the $3,000 minimum pension.
The MIE has already been increased and a gradual increase of the contribution rate already began last year, Persad-Poliah said.
These two short-term measures have pushed back the date of the system being completely depleted by six years to 2036, she said.
The long-term changes recommended by the actuaries are an increase in the retirement age gradually from 60 to 65 over the period 2025 to 2060, a further increase in the contribution rate to 22.8 per cent by 2061, and the implementation of a mechanism to automatically adjust system parameters namely the minimum pension, the earned pension, the MIE and the contribution rates.
NIB will have to reform or sell off assets
Persad-Poliah said the time for reform was now. If not, the NIB may need to start selling off its assets to foot the bill, she said. The NIB’s assets up to 2012 was $22 billion.
“The time for reform is now. The system projects that we will need to start selling assets by 2020 in order to meet shortfalls between income and benefit payments.
“Although we have assets to meet shortfalls until 2030, any sizeable sale of assets has the potential to disrupt our fledgling securities markets and we wish to avoid this.
“We therefore recommend that further contribution rate increases be considered in the near future, the minimum pension continue to be frozen, and the retirement age be increased over time,” Persad-Poliah said.
According to the conclusion of the actuarial review, the $3,000 minimum pension from national insurance is “too generous”.
Persad-Poliah said no recommendation has been made to reduce this amount.
“The minimum pension of $3,000 represents 115 per cent of the minimum wage. Internationally, the norm for minimum pensions range between 40 per cent-80 per cent of minimum wage.
“No recommendation has been made to reduce this amount but it is recommended that it be ‘frozen’ over time to ensure that it reverts to its original intent of protecting the most vulnerable retirees.
“This must also be viewed in the context of cost. The contribution rate now required to cover expenditure is 13.2 per cent versus approximately 8.5 per cent if only earned pensions were paid,” Persad-Poliah said.
Persad-Poliah said the recommendation to increase the pensionable age over time to 65 would have a negligible impact in the short term.
“Increasing the retirement age still allows persons the option of retiring at age 60 with a reduction in their earned pension. This reduced pension will still be subject to the minimum of $3,000,” she said.
“The only persons who will be immediately impacted are those who qualify for pensions above the minimum.” This currently stands at three per cent of all retirees.
“Given this negligible impact in the short term, we can even consider a more aggressive timeline for increasing the retirement age,” Persad-Poliah said.
Seeking citizens’ support
The NIB is seeking the support of all citizens to ensure that the recommendations are implemented and she assured that everything will be done above board and in a transparent manner.
“Please do not panic. We need the support of all citizens, all stakeholders—Government, business and labour to make the changes. We wish to also assure the public that the NIB is well-managed, well-governed, transparent and accountable. We have shared with the public all the recommendations before us for consideration and will continue to do so,” she said.
“Any changes being made to your NIS will involve you and will be done with your knowledge and with advanced notice,” Persad-Poliah said.
Over the last financial period, the NIB collected $4.2 billion in contribution income and paid out $4.5 billion in benefits.
“We must continue to place emphasis on our compliance efforts aimed at maximizing our collections and ensuring that what we collect is wisely invested. We are also looking toward technology to reduce operating costs, while at the same time, enhancing our efforts at service and ease of doing business with the NIB,” she said.
The NIB’s financial statements for the last three years have not been laid in Parliament as yet and therefore are not available to the public.
“The annual reports for 2013, 2014, 2015 and 2016 were all completed on time and submitted to the Minister of Finance to be laid in Parliament within two months of his receipt in accordance with the National Insurance Act. All our statutory commitments of reporting to the Minister of Finance have consistently been met over the years,” Persad-Poliah said.
“These documents can, however, only be made public when they are laid in Parliament. We recognise the need for these reports to be made public and for the all citizens to have access to these reports, and will continue to work with the Minister of Finance for these to be laid in Parliament,” she said.
ABOUT THE NIS
•This country’s national insurance system was introduced in April 1972.
•The system is financed by contributions from employers and employees and is designed to cover employees against events of age, invalidity, death, sickness, maternity, occupational accidents and injury.
•The number of contributors to the system in 2016 was estimated at over 516,000 people, representing 80 per cent of this country’s labour force.
•The NIS pension is currently $3,000 and there are currently 155,000 beneficiaries, including survivors.
