The asset base of the National Insurance Services (NIS) fell by EC$24 million to EC$476 million in 2022.
Minister of Finance Camillo Gonsalves further said in his Budget Address that some EC$6.2 million were drawn down from NIS reserves to support the recurrent and social security expenses
This, he told lawmakers, was largely due to the “volatility and uncertainty of market factors, including interest rates and equity prices”.
Gonsalves said these market factors had a debilitating impact on evaluation of the NIS international bond and equity portfolio.
As of December 2022, the international segment of the investment portfolio stood at EC$107.4 million or 23% of the total portfolio.
“This sub portfolio which generated strong double-digit performance in 2020 and 2021, suffered losses of approximately $18.1 million as a result of downturns in both stock and bond markets internationally,” Gonsalves said.
Presenting the EC$1.4 billion fiscal package that lawmakers went on to approve, the finance minister said that institutional investors, including the NIS, witnessed the worst bear market in stocks since 2008.
“The US stock market (Wall Street) ended a three-year winning streak in 2022 and all three major stock market indices registered their biggest one-year percentage declines since the 2008 financial crisis”, Gonsalves told Parliament.
He said the S&P 500 posted a 19.4% fall in 2022, NASDAQ finished down 33% and the Dow Jones lost 8.7% of its value for 2022.
Bonds fared even worse than stocks in 2022, Gonsalves said.
“Inflation, massive rate hikes and a super-strong US dollar left bonds unattractive to investors. The 30-year US Treasury bond yield for example, sank to its worst return in a century.”
He said that as part of “prudent risk management and strategy”, the NIS diversified its investments across local, regional and international financial markets.
“At the end of the fiscal period, the NIS’ exposure to local, regional and international economies stood at $267 million — for local 58%; $89 million regional or 19% and $107 million dollars or 23%, respectively.”
Gonsalves said that as regards international investments, the NIS experienced realised losses of EC$9.9 million and unrealised losses of EC$8.2 million.
“However, these losses were cushioned by the investments in local and regional financial securities, including fixed deposits, loans and government bonds which fared far better than Wall Street fared last year,” he said.
“The local and regional investments collectively posted positive returns of 6%, which outperformed the actuarial hurdle rate of 4.5%.”
The minister praised the social security agency for its “pivotal role in contributing to economic and social stability under its social protection programmes” amidst last year’s challenges.
“The NIS has held true to its mandate and provided some degree of financial security for our nation’s retirees and workers. For instance, the workers who face social problems and risks associated with sickness, employment, injury, old age and death, receive existential security through the NIS programmes.”
He said the NIS continued to ameliorate new pensioners whose pensions fell below the minimum pension levels.
To this end, the NIS programme provided income to support 21,000 Vincentians in 2022 by paying $84.5 million in social security benefits, representing an increase of $2.3 million from the previous year.
He said 7,133 contributory old age pensioners received $66.7 million, among whom the NIS assisted 1,323 persons by topping up their actual pensions to the minimum pension level.
Further, 906 retirees receive EC$1.5 million under the National Provident Fund programme; 396 non-contributory old age pensioners receive EC$700,000; 207 contributory pensioners, received invalidity pensions of EC$1.2 million; 1,627 beneficiaries received survivors benefits in the sum of $6.6 million.
The minister said 10,501 insured persons received $2.9 million in sickness benefits; 461 women received maternity benefits totalling $1.5 million and 241 insured received $300,000 under the employment injury benefit branch.
He said that as of December 2022, the NIS had invested EC$267 million in the economy to support economic development.
The investment spread across the central government, which amassed EC$51 million or 11% of the total investment portfolio, statutory corporations and state-owned entities — EC$23 million or 5% and local financial institutions including commercial banks, credit unions, EC$103 million, or 22% .
Gonsalves said the NIS mobilised contribution income of EC$73.4 million in 2022 compared to EC$68.3 million in 2021.
For the public sector, government contributions marginally increased from EC$26.5 million to EC$26.8 million, and the contribution for statutory corporations grew from EC$9.1 million to EC$9.5 million.
In the case of the private sector employers, the contribution moves from EC$31.1 million dollars to EC$35.5 million.
“The improvement in contribution and arrears collection reflected a growth in the active insured population from 41,521 to 43,307. Additionally, average annual insurable wages increased from $24,400 to $25,092,” the finance minister told Parliament.
He said the active employers population grew by 3%, moving from 2,064 to 2,135.
“I indicated earlier however, that while it increased from two years ago to last year, it still has not reached its 2019 levels,” Gonsalves said.
He said investment income, and a small proportion of the reserves supplemented the contribution income to meet social security benefits and administrative expenses.
“In the review period, the investment portfolio generated EC$15 million in financing to fund recurrent expenditure,” he said.
“The situation reflects the maturing nature of the social protection system and the need for further parametric reform,” the finance minister told lawmakers.