KINGSTOWN, St. Vincent – Vincentians will have to wait another year to hear what their Unity Labour Party (ULP) government plans to do to guarantee the future financial health of the National Insurance Service (NIS) amid declining income and a risk of losing an EC$62-million investment.
But Opposition Leader Arnhim Eustace said on Tuesday that another year is too long and that action should be taken as soon as government receives a report on pension reform, expected later this year.
According to Prime Minister Dr. Ralph Gonsalves, the NIS cash flow will turn negative this year while replacement rates will approach their maximum levels over the next 20 years.
Gonsalves said in his budget address on Monday that the latest actuarial report suggests that under plausible assumptions, the NIS Reserves could run out by 2039 and could be paying out more money than it receives as early as 2025.
The NIS offers a generous pension of up to 60 per cent of average wages during a worker‘s three best years out of the last 15 years but the contribution rate of 8 per cent of wages s fairly low, he said.
Gonsalves, who is also Minister of Finance, however, said that the full impact of the system‘s generosity has not yet been felt because the NIS is fairly young and current beneficiaries retire well below the 60 years maximum.
“Thus to avoid the need for abrupt and disruptive adjustments in the future, it is of critical importance that we introduce the much needed parametric reforms and contribution rate increase as soon as possible,” he told Parliament.
He further said that Public Service pension payouts have doubled over the last seven years, growing at almost twice the rate of the salary bill.
“This is a non-contributory system and no provision has been set aside for paying future pensioners, nor have the future demands been comprehensively analysed,” he said.
He said that Public Service Pensions are even more generous than those provided by the NIS.
They allowing for a maximum replacement rate of 66.6 per cent of the average three best years.
The Public Service Pensions is in addition to the NIS pension and allows a combined replacement rates to approach 127 per cent, as the NIS matures, Gonsalves said.
“This is clearly not a sustainable proposition and it is paramount that we attempt to integrate the two pension schemes before these theoretical replacement rates are reached. A lasting and sustainable solution requires immediate, bold and decisive action.” Gonsalves said, adding, “Procrastination will only compound the problem.”
He said that his government would this year complete work on designing solutions to both the NIS and the Public Service Pension System.
The Eight Actuarial Review of the NIS is scheduled for the first half of this year and will identify the reform options, which we will be implementing in the coming years, Gonsalves said.
The Review was scheduled for completion last year but is delayed because a fire at the Financial Complex destroyed the Census data.
Gonsalves said that the report couldn’t be satisfactorily completed without up to date information on the labour market and the general population that should have come from the Census.
The government, Gonsalves further said, has started work in reviewing the reform options for the Public Service Pension System and the feasibility of a merger with the NIS.
“By the time of the next Budget presentation, I expect to present to this Honourable House a series of measures for a reform of the NIS and Public Service Pension System,” he told Parliament.
But Eustace, in his response to the budget on Tuesday, said that the NIS is too important to wait another year before action I taken.
“Whatever we do, and the government will hear from us on this side whenever the proposals are being made, I am recommending that we do not wait until next year’s budget to deal with this matter,” Eustace said.
“We cannot wait another full year for more provisions to be set off against the income from this fund. It has to be done as soon as the report is received. Indeed, we have to take some first steps to deal with this matter,” the former prime minister and minister of finance said.
“It is not joke; no joke at all! It is a matter of deadly serious importance,” he added.
“ You can’t have people coming out of their jobs, retired, having made their contribution, the employer having made his contributions and you are telling me you have not money to give them.
“You know where the money is going to come from? From the budget. the same budget that you are trying to consolidate now. You would have to find the money to pay the pension. So, let us make sure that the institution itself does not fail,” he said.
Eustace noted that NIS profits have fallen because of its EC$62 million exposure in the CLICO-British American Insurance debacle.
“This is one institution in our country that we have to take a very serious look at and it has to always be on the front burner,” he said
He described as “an awesome responsibility” the NIS’ commitment to providing pensions for the balance of a retirees’ life.
“It has to be here long after all of us have left the scene because we have given, by that legislation, the commitment to people’s pensions when they retire. And therefore, it behoves us … at all time to ensure the financial soundness, the finance health of the national Insurance Service,” he said.
“The NIS has to last, as far as I am concerned, until the end of the world,” Eustace further stated.