NIS nearing crisis stage – actuarial report
The National Insurance Scheme (NIS) is nearing a crisis stage, according to the latest actuarial report, and a number of steps have been urged for immediate execution including the raising of the contribution rate from 13% to 15% no later than January next year, hiking the wage ceiling to $200,000 per month and a phased raising of the pension age from 60 to 65.
Dated October 18, 2012, the draft eighth actuarial review of the NIS poses a major problem for the government as it points out that no remedial action had been taken since 2008 when the 7th actuarial review had proposed a number of reforms. Moreover, a NIS reform committee had made reform recommendations in 2007 but there was no meaningful change. Since 1992, the NIS has been chaired by the Head of the Presidential Secretariat, Dr Roger Luncheon and he has been severely criticized by several commentators for not leading policy changes. The NIS’s finances had further been clouded by the impairing of its $5.8B investment in CLICO several years ago.
Done by Actuarial and Financial Consultants, Horizonow, the Executive Summary of the actuarial report noted that in 2011 the NIS experienced its first ever deficit in its 42-year-old history of $371M. A larger deficit is envisaged this year and the report said that with assets of just over two times its annual expenditure the “entire Fund will be exhausted in less than 10 years if (the) contribution rate increases and benefit reforms are not made immediately”.
It added that the changes required to place the NIS on a stronger footing are extensive. “Tough decisions will be required. There is very little room to meet the many requests for additional benefits. To ensure that required reforms are implemented soon the support of all aspects of society will be required. The NIS should therefore engage all stakeholders and the public at large very early in reform discussions”, the review said.
The review listed many recommendations for immediate implementation.
-Increase the contribution rate from 13% to 15% no later than January next year
-Up the wage ceiling to $200,000 per month
-Freeze pension increases for two years or until the contribution rate is increased
-Move up the pension age from 60 to 65 in a phased manner
-Make changes to old age benefit provisions such as:
I) Revise pension accrual rates so that the maximum 60% benefit is attained after 40 years of contributions instead of 35
2) Lift the number of years over which insurable wages are averaged for old age pension calculations from 3 to 5
3) Amend the basis for pension increases from the minimum public sector wage to price inflation with a limit.
-Equalize benefit rules for males and females where differences still subsist
-Hike the minimum survivor’s pension to 50% of the minimum old age pension and up the maternity grant to at least $5,000
-Forge links with government departments that issue licences and permits so that these are only issued if persons are NIS-compliant. This was something that had been recommended sometime back and the NIS was supposed to have been working on this.
-Immediately upgrade or source a new Information Technology system. The NIS had previously acknowledged problems with its IT system but it appears that no changes were implemented.
-Strengthen and enforce penalties for late or non-payment of contributions and move to new measures such as garnishing
-Revamp the Prudential Investment Framework to account for the current investment climate and NIS’s projected finances. The NIS’s investment policy has come under fire over investments in CLICO and other ventures.
-Publish annual audited financial statements and periodic actuarial reviews and discuss the challenges facing the NIS and the reform options openly with the public.
-Establish good governance practices in line with those of the International Social Security Association (ISSA).
In what would be seen as a criticism of the scheme’s governance, the review said that “Good Governance practices are essential for the success of any organization” and it commended the ISSA’s good governance guidelines to the NIS.
“It is strongly recommended that the NIS review and use these tools prepared specifically for social security schemes to help guide its transformation into an efficient and sustainable system that will be able to deliver on its promises for decades to come”, the review said.