Prime Minister Ralph Gonsalves has defended the decision by the National Insurance Services (NIS), the state-own social security agency, to provide millions of dollars in loans to his government.
The NIS which is indeed of urgent reform to ensure its long term sustainability. The government, which guarantees the pensions the agency provides, holds 11% of the NIS’ investments.
In his Budget Address this month, Minister of Finance Camillo Gonsalves told Parliament that as of December 2022, the NIS had invested EC$267 million in the Vincentian economy “to support economic development”.
He said 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% of the total portfolio and local financial institutions, including commercial banks and credit unions, EC$103 million, or 22% of the investment portfolio.
Meanwhile, in his contribution to the Budget Debate, the prime minister said that the NIS’ international investments, “which have been conservative”, have been hit with the economic downturn in the United States and globally.
He said that while some people say that the government is borrowing the NIS’ money, the loan portfolio of NIS to the government is just 11% of their total investment.
Gonsalves said this is one of the lowest in the region, adding that the average is 30% “and in one country it’s as high as 60%.
“But interestingly, the local investment has performed above the actuarial requirements — perform at 6% instead of 4.5%,” the prime minister told lawmakers.
He said while the discussion regarding NIS pensions are separate and distinct from central government pensions, they intersect because the central government employees get two pensions.
One of these pensions is entirely from the government and the other is from the NIS and to which the employee as well as the employer have to contribute.
From the NIS, the employee would get a maximum of 60% of their salary in retirement.
“And for the government pension, it can reach up to 67%, which means both at the maximum can take you to 127% of your salary. Well, clearly, that is not sustainable,” Gonsalves said.
“I see people write and say they deserve it. I say, ‘Fine, you deserve it. But who going pay for it? The next generation?'” he said.
He questioned whether the future workers would want to foot his responsibility. “So what is going to happen?”
Gonsalves said the situation with the pensions arose from “the greedy bill that the NDP (New Democratic Party) brought that unraveled an earlier provision”.
The prime minister was referring to a set of laws brought by the NDP administration in 2000 that led to his Unity Labour Party (ULP) staging mass protests and forcing early elections.
Gonsalves said:
“The NDP had put in place that the new people who were coming on after a particular year would only get one pension, the NIS pension. but when the greedy bill came and he was scrambling they jettisoned that, they revoked that law.
“And I remember asking them if they can just do that without the proper study as to the implications. I was glad that the workers were getting this benefit. Yeah, it’s throwing out the baby with the bathwater. Well, the chickens are coming home to roost, so to speak. So, here we are.”
He said that under most “generous” pension systems, the retiree gets a maximum of 85% of their salary.
“So one of the options — and Camilo pointed it out but only one — for new people coming in, you wouldn’t have a possibility of 127 [per cent of your salary in retirement]. Maybe 85. So, have your NIS pension and you get that top up, which will take you to that because if you keep it at 127 for both, it’s not going to be sustainable,” the prime minister said.
He said he was putting in raw numbers the choices before legislators on the pension reform issues.
Gonsalves cited the law governing investment by the NIS and said that the investments were in keeping with the law.