With respect to the National Insurance Scheme Actuarial Review that was recently performed and published, based on my profession, which involves insurance and investments practice, I can clearly see the reason for great concern by Mr Derek Osborne, the Chief Actuary of Horizonow consultants Ltd.
As we all know, the NIS is the main financial support for many, with special emphasis on the elderly in Guyana, hence the need for all to be concerned. From my observation, the mismanagement of the NIS clearly started over a decade or more ago, but only came out in the last two reviews.
First we have to examine the appointment and composition of the NIS Board according to the Act, by the Minister. What expertise do the Chairman and Board members have in analyzing and making investments of funds for the NIS? Were the decisions made in the interest of the Scheme due to lack of knowledge or were they politically motivated? There are three areas of concern that we have to address and these are revenue collection, planned investment of the revenue collected and the payment of benefits, both short and long term. Deficiency in any of these areas, can affect the other. However, sound and planned investment is of utmost importance , since we are not only looking at losing capital invested, but also losing investment income that would be needed to pay future benefits.
The question now is, does the NIS have an investment group or company that they work with or that advises them. Obviously, you cannot put a baker to run a bank, the result would be bankruptcy, especially in an uncertain economic climate.
After the NIS was formed in 1969, I can recall there were numerous businesses which included cooperatives, throughout the country, and to my recollection there were officers who visited employers and guided clerks to ensure compliance and guarantee contributions. One can say that in the early stages of the formation of the NIS, it was the capital accumulation phase with fewer benefits being paid out. This period did not create any alarm in the country about the financial stability of the NIS. As the years advanced we started to see high migration out of Guyana, which one can say would reduce the amount of claims, both short and long term, to the NIS. From this analysis one can also say that the NIS would have more money to invest. Now, what were the investment objectives and strategies in the first two decades and how do these compare to the last two decades to date?
What caught my attention immediately from the actuarial report is the NIS investment in the bankrupted Clico causing it to lose US$30 million dollars. These losses were not only capital, but expected income that was and is needed to pay benefits to Guyanese young and old. In making sound investments, the investor should look into the financial history of the business to be invested in. A ten year period is used in the USA. In the case of the National Insurance Scheme, investments should be diversified to meet the various time horizons for the income needs of the Scheme.
Secondly, Clico as an insurance company is similar in nature to the National Insurance Scheme, but with even greater risks, which call for longer actuarial study periods. This I see was a very bad investment, and the question is, were or are there similar such investments made by the NIS Board?
Over the years the composition of employment in the country has changed, which should affect revenue, but on the other hand according to my information benefits that are being paid out are also reduced, since when persons both local and overseas make claims and the employer or business is no longer is existence, NIS officers use this opportunity not to approve full benefit payments. This is also another area for potential fraud which I would not elaborate on here.
This is not the first actuarial report to be presented to parliament and it seems that there is some complacency with the Chairman of the Board and the Cabinet in acting on the findings of these reports.
Do they want the NIS to fail? Do they want to force more people into poverty? Do they want another white elephant structure like the co-operative bank as a showpiece? I can only ask questions.
Apart from the actuarial review it appears that there is need for a complete investigation into the management of the NIS, as well as the functioning of the board, including the collection of revenue, to ensure compliance by all employers.
This investigation should be done by an independent body without political loyalty and the findings should be made public since it is the workforce at large that has to benefit from the success or failure of the National Insurance Scheme. Large employers should not be exempt from paying their full share of contributions based on political affiliations, and if there is none then there should be an investigative unit set up to ensure compliance along with all the recommendations from the actuary.
Should the NIS Board continue its role of mismanagement and with the recommendations to increase the pension age to 65 along with the increase in rates, if the trend from prior to 2007 continues, the NIS would be in no better financial standing in the years ahead and would surely collapse as pointed out.