The latest actuarial review of the National Insurance Service (NIS) has removed the “high priority” recommendation of the previous report that two of the three members of the investment committee be non-board members of the NIS.
The “high priority” recommendation in the 11th Actuarial Review of the NIS as of Dec. 31, 2019, was removed from the 12th report of the NIS as of Dec. 31, 2022, although it was not implemented.
The government has begun implementing changes to the state-managed social security agency that are expected to sustain it to 2060, up from 2035, the year by which it was projected to run out of money if reforms were not undertaken.
However, Minister of Finance Camillo Gonsalves has told Parliament that the actuary no longer recommends changes to the investment committee.
He was responding to a question from East Kingstown MP, Fitz Bramble, who noted that the 11th actuarial review of the NIS highlights the importance of a well-designed, well-governed and properly administered system.
Bramble asked Gonsalves to report on the status of the adoption of the high-priority recommendation in the 11th actuarial report to “Revise the composition of the Investment Committee by replacing two of the three Board Members with non-board members”.
Before giving the answer that he had prepared, Gonsalves said that Bramble, would not have had the opportunity to read the 12th actuarial report “because you just got it”.
Gonsalves handed out the report to lawmakers just before the meeting of the national assembly on Thursday.
The law mandates that the review be conducted every three years and the report be tabled in Parliament.
However, it is the second time that the Unity Labour Party (ULP) administration is tabling the report in Parliament since coming to office in March 2001.
The finance minister said that the actuary does not see the “board member–non-board member issue as on equal footing with the very urgent and necessary amendments to guarantee the stability and sustainability of the NIS.
“And as such, that recommendation does not appear in the 12th report,” Gonsalves said.
Gonsalves said many of the recommendations in the 11th and 12th reviews are the same.
“… but that recommendation is not present,” he said, further stating that concerning the 11th actuarial review, the government proposed implementing critical reform measures that would improve the National Insurance Fund’s financial sustainability.
These included increasing the contribution rate and adjusting benefit provisions.
“However, the recommendations regarding the revision to the composition of the Investment Committee was not included in the suite of recommendations for adoption in 2024.”
The finance minister said one of the principal purposes of the actuarial review is for the actuary to advise and recommend to the board possible amendments to the fund’s provisions.
“These amendments are mainly in benefit design and financial arrangements, mainly the financing to ensure financial sustainability, benefit adequacy, contribution affordability and the intergenerational equity of the fund,” Gonsalves said.
“With these generally accepted principles, it is clear that the actuary provides advice and recommendations and not requirements for adoption by policymakers,” Gonsalves further stated.
He said that as such, the board and minister of finance can adopt recommendations from the actuary and have flexibility as to the sequencing of those recommendations.
Gonsalves said there are examples cited globally where policymakers do not adopt all recommendations of actuarial reports.
“Further, in the 11th review of the National Insurance Fund, the actuary stated, ‘While all recommendations are considered important and necessary, some may be delayed temporarily if further dialogue with stakeholders is considered necessary.’
“This is evidence obviously of the policymakers’ discretion in that regard,” Gonsalves said.
He said the key message of the 11th actuarial review of the National Insurance Fund, quoting the actuary was, “The fund is not financially sustainable over the medium and long term at current benefit provision and contribution rates.”
“To this end, the actuary strongly recommended that the contribution rate increase is critical in the near term, to ensure funds solvency for the next 25 years.”
He said the actuary emphasised that material savings from benefit reforms can only be realised from changes to age pension provisions.
“And these are the reforms that we announced and are enacting,” he said, referring to an incremental increase of contribution rates from 10 to 15%, beginning in June .
Gonsalves acknowledged that the 11th actuarial review recommended the revision of the composition of the investment committee by replacing two of the three board members with non-members of the NIS board.
“However, this advice focuses on a particular concept of practice for enhancing investment skills and experience and improving independence rather than on recommendation to improve the financial sustainability of the fund.
“For this reason, the actuary indicated that the recommendation was excluded from the 12th actuarial review because policymakers are to focus on measures that directly improve the fund’s financial sustainability, benefit adequacy, contribution affordability and intergenerational equity,” Gonsalves said.
He said the government adheres to the current legislation, noting that the composition of the board is governed by legislation so any change would require an alteration in legislation.
“The government adheres to the current legislation regarding the composition and terms of reference of the National Insurance Investment Committee.
“Further, the government is satisfied with the competence, independence and performance of the National Insurance Investment Committee and sees no need for an urgent or immediate amendment to the legislation regarding the composition of this said committee.”
He said the current provision of the composition of the committee has been adopted by many other social security programmes across the Caribbean.”
However, Bramble asked what had changed between both reports “that led to the removal of such an important recommendation”.
Gonsalves said the actuary has highlighted “the critical nature of the reforms necessary for the sustainability of the fund and the adjustments that are necessary to have the fund functioning well for all Vincentians over the next couple of decades.
“Because of that, and because this change will involve a change in legislation, because it is not a universal practice across the Caribbean, and because it is the preference of some actuaries versus other actuaries, it was excluded here.
“And we were told in this report by the actuary to focus on the things that will bring money and sustainability into the fund. We will consider all that we think are useful to deliver on the mandate of the NIS, but we will not engage in box-checking,” Gonsalves said.
“We will engage in reforms that add to the sustainability, the viability and the intergenerational equity of the fund. And those are the things we’re focusing on right now. We’re not focusing on changing legislation for the sake of changing legislation.”