Over the next five years, the National Insurance Scheme (NIS) should target moving 30 per cent of its assets/ investments into a foreign investment that includes both regional and extra-regional sources.
This is one of the investment recommendations coming out of the National In-surance Reform Committee’s report, which is with Cabinet for consideration.
But the phasing of such a move should take into consideration monetary and ex-change rate stability, the study cautioned. Its major recommendation is extending the pensionable age from the present 60 years to 65. The report was drawn up in the aftermath of several actuarial reviews which warned of the liquidity jeopardy that the scheme faced.
The November 2007 report said that the portfolio mix should be correlated with the expenditures of payment for benefits. “For instance, if the payment of longer term benefits is equivalent to 60 per cent of expenditure, then longer term investment should be around 60 per cent. Consideration should also be given to financial market conditions. There can be some tilt towards short term investments when interest rates are high and vice-versa,” the report said.
The NIS is one of the six investors in the US$40M Berbice bridge project, slated for completion this year.
The report said that the investment policy for the NIS reserves should be based on prudent principles and the appropriate quantitative restrictions and that it should take into account the concepts of risk management, diversification and dispersion, currency matching, and duration and maturity.
The report said that the Board of Directors should have full discretionary power to direct, allocate, rebalance or liquidate the funds investment in compliance with the terms of this investment policy. The Board upon the recommendation of the investment committee shall initiate or delegate all investment transactions.
The report recommended that the National Insurance Social Security Act and the Cooperative Financial Act that currently place NIS investment decisions in the hands of the Minister of Finance should be amended.
“This cumbersome process resulted in loss of opportunity for the NIS and a reduction of the asset value. These Acts should be amended to place such decision making in the hands of the Board that is appointed by the Government with the Minister of Finance having oversight responsibility,” the report said.
According to the report, an Investment Manager should be appointed who reports to the Board on behalf of the Investment Committee appointed by the Minister of Finance. It said that the Investment Committee should comprise four persons that the Minister appoints with the appropriate skills and representation of the major stakeholders.
Safety, liquidity and yield should be the Scheme’s investment objectives, the report said. “Safety of the principal is the principal objective of the Fund’s investment programme. Invest-ments must ensure the preservation of the Capital in the overall portfolio. Liquidity – the portfolio must be flexible to meet all cash requirement. The portfolio should be structured so that investments mature concurrently with cash needs,” the report said.
The study said that the financial viability of the Scheme is dependent on the growth of the reserves which project a yield or real rate of return of 3 per cent.
On social investment, the report noted that the NIS approves loans or commits monies to projects which in themselves are not lucrative investments but nevertheless confer significant benefits to society. “These investments should not be more than 10 per cent,” the report said.
The report said that there should be at least quarterly reviews of the NIS investments by the Board. “These reviews should measure performance against targets (quarterly and annual). These reviews should be presented to the Minister of Finance,” the report said.
It said too that in assessing the performance of a Scheme’s investments two issues would have to be considered – the extent to which reserves are backed by investment assets or the efficiency with which assets are invested, i.e. actual rates of return.
The study pointed out that there should be clear and appropriate benchmarks to allow the governing body of NIS investments to assess performance, update asset allocation strategy and to make adjustments to investment policy and strategy.
The chairman of the NIS reform project is economist Rajendra Rampersaud and the report was submitted under his name. Four sub-committees worked on various elements set out by the terms of reference.
