ST. VINCENT (Jan. 24):- Leader of the Opposition Arnhim Eustace believes that the privatisation of the National Commercial Bank last year along with other considerations have put the National Insurance Services (NIS) under threat.
Both he and Prime Minister and Minister of Finance Dr. Ralph Gonsalves agree that the NIS has to be reformed if it is to remain financially viable.
Gonsalves, in his budget presentation on Monday, Jan. 24, tabled his government’s proposals for reforming the NIS.
“In sum, the current structure of the National Insurance Services and the Public Services Pension System are clearly unsustainable,” Gonsalves said.
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He further noted that since public servants participate in the NIS, the Public Service Pension is in addition to the NIS pension, allowing pensions to approach 127 per cent of income, as the NIS matures.
Gonsalves said his government’s proposals for possible reforms to the overall pension system in St. Vincent and the Grenadines include:
- A gradual increase in the contribution rate for the long-term benefit branch of the NIS;
- A gradual increase in the retirement age to 65 years;
- A change in the calculation of survivor benefit to protect families of young workers;
- Aligning the NIS and Public Service System retirement ages;
- A possible merger of the Public Service Pension System with the NIS.
Gonsalves said that his government will this year “redouble its efforts in advancing this reform agenda” by receiving specific recommendations for implementation of parametric reform after the EighthActuarial Review, in addition to completing a study for the merger of the NIS with the Public Service Pension System.
He said that at the end of 2010, NIS reserves amounted to EC$432.1 million, 23 per cent of GDP, while the ratio of pensioners to contributors was only 13 per cent.
He, however, told legislators that the financial health of the institution “will deteriorate as the system matures”.
“The system has a low contribution rate, a young retirement age and generous replacement rate in comparison to other countries in the region. So outlays and administrative costs will gradually surpass contributions and investment earnings,” he said.
Gonsalves spoke of escalating NIS and Public Service Pensions, noting that in 2010 retiring benefits were EC$45.28 million, up from EC$24.1 million in 2005, or an annual increase of 3.4 per cent.
Further, benefit payments at the NIS have been increasing at an even faster rate over this same period, Gonsalves said.
Eustace, debating the budget on Tuesday, Jan. 25, said that EC$62 million of NIS funds are tied up in the British American Insurance financial debacle.
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He further said that with the sale of the National Commercial Bank (NCB), the government will be enticed to borrow from the NIS even as the number of contributors dwindles with the declining economy.
“All three are threats to the financial viability of the NIS. In addition to that, even before this happened … one had an eye on the increasing cost of pensions. There was a time in the early stages of the NIS … when persons who reached age 60, by the time they had retired for 18 months, they had got back in pension all their contributions and the NIS had to look after them for the rest of their lives,” Eustace said.
He, however, noted that as the scheme, which began in 1987, matures, it will take longer for pensioners to receive from the NIS the sum total of their contributions to the social security initiative during their employment years.
“This is a very important factor in social security and it is something that we do not pay any attention to. It is a very serious matter. All we are concerned about as individuals is that we get our money,” said Eustace, a former prime minister and minister of finance.
“But just imagine, you work [24] years since 1987, when the NIS was started, until a couple years ago and in 18 months, you get back all that you contributed and the NIS has to carry you for the balance of your life,” he further said.
“…we are not having NIS for now. It is there for good and you have to be able to meet your obligation to those persons who have made their contribution. So, we have a situation where the NIS has to be looked at very closely. I have been saying publicly for some time now that our NIS contributions are going to go up and in addition the retirement age in this country will have to change,” Eustace told Parliament.