NIS quandary: Hike contributions or drop benefits
Stabroek News
June 10, 2004
The National Insurance Scheme (NIS) is to come under review in a bid to revive its fortunes and a warning has been sounded that contributions will have to be upped or benefits cut to improve the situation.
The review was decided after Cabinet considered the sixth actuarial report on the entity's performance which will be made public subsequently, Cabinet Secretary Dr Roger Luncheon said yesterday.
According to Luncheon, among other things the report noted the current ratio of contributor to pensioner is 4:1 and is expected to move to 1.5:1 by the time the scheme matures at around 60 years.
This trend, he said, was worrying to government since it realised that for the scheme to continue to meet its commitments it would either have to reduce its benefits or impose higher contribution rates to offset the growing demand.
It was exactly this consideration that resulted in an adjustment to the level of contribution from 12% to 13%, announced as part of the Finance Minister's budget presentation, Luncheon said.
The scheme, which has been in existence since 1969, is witnessing a decrease in contributors even as greater numbers are reaching pensionable age.
The scheme's income growth is much smaller than the increase in expenditure from the payment of benefits, especially the long-term ones like old age pension.
Income garnered from investment is also falling, even though the NIS is making a surplus and is investing that surplus, this newspaper has gathered.
The NIS had announced its plans to increase contribution rates in a phased-in manner over the coming years as recommended in the fifth actuarial review done in 1999, for the organisation's sustainability, as projections indicate that the population of contributors is on the decline while those to whom pensions will have to be paid are on the increase.
In response to this bleak prognosis, the board of the NIS had taken a decision to raise its contribution level by a notional attachment to the five percent minimum wage increase that the Government offered. For the period 2000 to 2003 the rates were to be increased from 12% to 14.7% and for 2004 - 2006, 16.2%.
General Manager of the NIS Patrick Martinborough told Stabroek News during an interview last year that putting off the implementation of the increased rates for too long would have led to the scheme making too steep an increase in rates. "It should be done gradually," he had said.
He had said that the biggest expenditure for the NIS is the payment of pensions. He said that eight percent of the population falls within the pension bracket and he expects that contributions will have to increase to match expenditure, one of the recommendations of the actuaries.
Martinborough had told Stabroek News that the scheme needed to have proper and safe means of investing money. He had pegged income from investment at being 15% of the scheme's total income. This is compared with the 80% from contributions. "If we get more returns on investment the pressure on contributions would not be that great," he said when interviewed. "We have to look for safe, high-yielding forms of investing." The General Manager had said that most of the investment is in the form of fixed deposits. He commented that the Fixed Deposit rate and the Treasury Bill rate are on the decline. He said too that among the recommendations of the actuary in the fifth actuarial report is that the NIS seek more lucrative investments.
The NIS is also working to have its administrative costs lowered. Alluding to instances of fraud, the Cabinet Secretary said the scheme manages a comprehensive regime of internal and external audits apart from having a vigilant board of directors who are in touch with the managing of the institution. He said they were keen to pay critical attention to such instances although the immediate impacts on the scheme have been minimal. What has impacted on the scheme, he said, is the rise in self-employed persons and the difficulties in recruiting these in appropriate numbers to offset the declining contributions.
He also pointed to arrears accumulated by employers, in some instances intentionally, after collecting from employees as another cause for concern.