Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice-President of the Lending Services Division.
Mr Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.
Gift of Longevity
About five months from now, the National Insurance Scheme (NIS) will celebrate its 40th anniversary. Even though it is not a milestone of any prominence, the event carries significance in its own right. The NIS would have survived all sorts of scandal, actuarial apprehension and pecuniary abuse, including cheating, fraud and mismanagement. At age 40, it would be older than a large proportion of Guyanese who are too young to appreciate its existence but old enough to enjoy some of its benefits should that be necessary. But even at that level of maturity, the NIS cannot look to the future with confidence and finds itself caught in a trap of indecision and procrastination by the administration. It does not know if it will receive, by its upcoming jubilee, the gift of longevity that is wrapped in the recommendations of reform still lying partly exposed in the “in-basket” of the administration.
The NIS is no trivial financial arrangement that blows hot and cold with the mood of the day or upon the whim of an executive. It is an important safety net entwined with the sinew of trust to cushion Guyanese against the stark reality of age progression and the brutal realism of mortality. It offers security and protection to all Guyanese in the form of insurance and social security benefits.
In its relatively short life span, the NIS has helped thousands of Guyanese and its positive actions, despite inefficiencies and shortcomings, offer justification for its continued existence. A mother on maternity leave, a parent on qualifying sick or injury leave and a family prevented from falling into total financial ruin by a disabling injury to its sole provider, are some examples of how the NIS has come to the aid of Guyanese. Further, people for whom work is no longer an option can look forward to the long-term pension benefits that they receive.
Mandatory
Participation in the NIS is mandatory and anyone who works or is self-employed is obligated to contribute to the Scheme, except under certain qualifying conditions. Even so, the NIS gives individuals a chance to make voluntary contributions to the Scheme. At the present time, the combined contributions of employers and employees are made at the rate of 13 percent of insurable earnings. Employers are required by law to make, on behalf of employees, a contribution that is equal to 7.8 percent of the employees’ insurable earnings. Employees are required also to make a contribution of 5.2 percent of their insurable earnings, except those below the age of 16 and above the age of 60, in which case the employer alone makes an adjusted contribution. Self-employed persons have to make contributions at the rate of 11.5 percent of their declared earnings. In all cases, there is a limit to the income from which money is taken.
Loyal Participation
As is probably well known, the contributions made by employers and employees are the most important source of income for the NIS. Within the last five years, for example, the contributions from the participants in the Scheme made up 84 percent of the money received by the NIS. The rest came largely from investment income. Over the same period of five years, contributions grew at an annual rate of 8 percent. Judging from the relative importance of contributions, the loyal participation of Guyanese in the Scheme is very important to its efficacy.
It is not clear how well the general public understands this necessity. The NIS has no intrinsic value of its own. It exists not because of itself but because of possible work-related tragedy that could befall an individual or family at anytime. It is there to serve the needs of all participants and their beneficiaries who encounter the need to utilize its benefits. Yet, evidence about the size of the workforce and the number of contributors suggests that Guyanese do not completely embrace the obligation of fully funding the safety net created for their benefit.
Resistance
According to statistics released by the NIS, about 126,000 Guyanese contributed to the Scheme in 2007. At the same time, the Bank of Guyana (BOG) estimated that 250,000 Guyanese were gainfully employed in that same year. The relationship between these two numbers indicates that only half of the working population is contributing to the NIS. In other words, 50 percent of the workforce or 16 percent of the entire population are keeping the social safety net intact for the whole nation. Similarly low participation levels were evident in the years 2002 through 2006. This sizable delinquency rate is evidence of some form of resistance by Guyanese to getting involved in the NIS. The reason for the resistance is unclear but may be related to a lack of understanding of the value and purpose of the Scheme and the unfair burden being borne by a few Guyanese.
As is often said, perception is nine-tenths reality and an incorrect perception of the purpose and utility of NIS might be driving the resistance. From conversations with Guyanese, a possible contributing factor is the feeling among employers and employees alike that the contribution to the NIS is a tax. To many Guyanese workers, their gross income is already low and withholding some of it for future benefits that they might never enjoy is no compelling reason to make a contribution. To them, a bird in the hand is worth two in the bush. This logic makes sense when inflation is taken into account and Guyanese realize that a dollar today is worth more than a dollar tomorrow. This might also be sound logic to a population that has a life expectancy of 62 for men and 63 for women and who qualify for pension at age 60. Together, this reasoning makes it easy for participants to view the NIS contribution as nothing more than a punitive tax that will do them no good.
Advocate
After 17 years, it is not clear as to where the administration stands on preserving and strengthening the NIS. However, the onus is on the current administration to advocate the positive and more constructive vision of the national insurance programme. It should not underestimate the depth of the cynicism of Guyanese in any attempt to do so. The burden of carrying the Scheme is increasingly falling on the shoulders of fewer employers and workers. At some point, they too will push back if they have not already begun to do so.
The administration needs to be more visible in championing the cause of the NIS and soliciting the help of industry associations in its advocacy efforts.
The effort should be by way of educating Guyanese about the value of the NIS, especially since a more positive and constructive concept of the Scheme exists. By way of example, the combined contributions of employers and employees to the NIS could be viewed at as large deposits into a savings account. From age 16 to retirement, Guyanese are required to make at least 750 weekly contributions to NIS. This qualifies them for long-term benefits such as old age pension. It also makes them eligible for short-term benefits along the way to retirement.
The money that is set aside periodically accumulates over the years as happens in the case of a personal savings account or an endowment policy taken out with a private insurance company. The difference is, instead of the individual contributor putting the money into the savings account, the employer assumes that responsibility and deposits the money with the NIS. This course of action is no different from authorizing an employer to deduct payments monthly from an employee’s salary and sending it to a private insurance company. Like a private insurance company, the NIS, in turn, sends the money to the bank to earn interest or invests the money in some security to earn a high return. Upon retirement, Guyanese are able to withdraw money from the account with the NIS in the form of old age pension. The NIS contribution is therefore income deferred for use at a later time.
Decaying Capacity
The focus on contributions is just one side of the story. The severity of the delinquency in participation increases when juxtaposed to the level of spending by the NIS. The data reveal that between the period 2002 to 2007, for example, annual spending by the NIS has been increasing at the rate of 11 percent. With contributions increasing at the rate of 8 percent and expenditures increasing at the rate of 11 percent, there is an annual gap of three percentage points.
That gap signifies that the capacity of the NIS to deliver benefits to eligible participants is decaying annually and will come to a head if corrective action is not taken.
The administration is aware of this situation and, while there is still time to prevent a meltdown of the Scheme, delaying implementation of critical reforms aimed at improving income is not helpful.
Whether intentional or not, the nearly two-year foot dragging of the administration on making substantive changes to the operation of the Scheme cannot inspire confidence in participants. The delay is serving no useful purpose and is only raising questions about the commitment of the administration to preserving the NIS.
Hopefully, the administration will give the NIS the assurance it needs and a warm embrace when it turns forty given all that it has done and can continue to do for Guyanese.
