NIS and sustainability

Delivering an address on Friday on the occasion of the 44th anniversary of the National Insurance Scheme (NIS), its Chairman, Dr Roger Luncheon for the first time acknowledged that its recurring and projected deficits were not sustainable.  Expenditure for 2012 was $11.33B while income was $11.32B meaning that the Scheme will be dipping into its insurance fund with the likelihood of a further deterioration in the size of the annual deficit.

Cryptically, Dr Luncheon said “the interventions are obvious but consensus among stakeholders and decision makers is a paramount necessity.”

Unfortunately, the Scheme has reached this point precisely because action has been of “paramount necessity” for many years but Dr Luncheon and his government have failed to act.

Actuarial science is meant to weigh financial dynamics in schemes like the NIS to determine whether their outflows are sustainable and can be underpinned by income streams while building reserves that can further enhance benefits.

Dr Luncheon’s government has ignored several actuarial reports which have warned about the impending deficit and the need to lift contributions and rope in the self-employed. Even now, Dr Luncheon’s presentation on Friday radiated no recognition of urgency to action or a framework within which this can be achieved.

Indeed, it is now a year since Mr Derek Osborne of Horizonow in his Eighth Actuarial Review made urgent recommendations to claw back ground for the NIS, but the government is still to act except for an increase in the contribution rate. Worse yet, it is now more than five years since a committee appointed by a PPP/C government produced a comprehensive report with sweeping recommendations but it is still to be acted on. Dr Luncheon’s government has not had the courtesy of presenting a comprehensive response to this report and justifying which recommendations would be implemented and which ones won’t be. One of the major recommendations in the 2008 report was lifting the age of retirement to 65, a position repeated by Mr Osborne in last year’s report.

Both the private sector and the unions have raised concerns about the Osborne report and one of their key reservations has been the record-keeping of the NIS and administrative issues. Not even this has Dr Luncheon’s government made a good faith effort to address in the last year.

Its inaction and malaise on the NIS makes it even more difficult for the government to find common ground with stakeholders. With no majority in Parliament and opposition from sections of civil society to some of the major reform proposals, the government will have a difficult time crafting a solution. It is, however, its responsibility to chart the way forward and to ensure that the social security system ‒ reputedly with 43,000 pensioners on board ‒ and on which tens of thousands have come to rely is protected from further degradation and can begin stabilizing. There is no more time to waste. Perhaps the government could reconvene as best as it could the 2008 review committee to help steer discussions on the phasing of reforms and to hold consultations with civil society.

On Friday, in his message, Dr Luncheon also made an admission which may have wider ramifications. He said that at the end of 2012, the active population of the employed contributors totalled 117,219 while the active population of the self-employed was only 8,791 and then added:

“The self-employed situation of anomaly is evident in the face of the size of parallel economy in Guyana.” The parallel economy remains robust and continues to operate outside of the formal structures despite whatever actions the government has taken. It is pivotal to the Scheme’s future that more of the informal economy is taken in. What is the government’s strategy in this area?

There are two other issues which should be on the agenda. Given the deep association over 21 years by Dr Luncheon with the Scheme and the ignoring of previous actuarial reports, it is difficult to see how real policy reforms can be implemented if he continues to remain in his position.

Second, the NIS is still short of $6B as a result of its disastrous investment in CLICO (Guyana). Nary a word is heard on this these days. As unpalatable as it will be, there must be a formal agreement to restore this amount to the troubled Scheme.

Contributors to the NIS will grow increasingly worried about the state of the Scheme particularly in the light of Dr Luncheon’s remarks. It is yet another festering crisis that the government refuses to address or has no clue about. Whatever the reason, the government needs to start ensuring the sustainability of the Scheme.

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