GEISHA KOW­LESSAR-ALON­ZO

geisha.kow­lessar@guardian.co.tt

While the Na­tion­al In­sur­ance Board (NIB) pro­vides ser­vices to over 588,000 peo­ple and of­fers 23 ben­e­fits it faces se­ri­ous sus­tain­abil­i­ty chal­lenges and risks of re­serve ex­haus­tion, whether it is from the ex­pen­di­ture of the Na­tion­al In­sur­ance Sys­tem (NIS) ex­ceed­ing its in­come or from the as­sets of the Na­tion­al In­sur­ance Fund be­com­ing de­plet­ed with­in the next 25 years ac­cord­ing to Fi­nance Min­is­ter Colm Im­bert.

Speak­ing at a we­bi­nar ti­tled, “Pen­sions and Health Care Sys­tems in Latin Amer­i­ca - Chal­lenges posed by Age­ing, Tech­no­log­i­cal Change, and In­for­mal­i­ty,” host­ed by CAF De­vel­op­ment Bank of Latin Amer­i­ca, Im­bert said the root cause of the fund be­com­ing de­plet­ed is the life ex­pectan­cy in T&T which like many oth­er coun­tries, has in­creased steadi­ly over the last 50 years while birth rates have de­creased.

“The NIB has thus pro­ject­ed that by 2066 the 60 plus pop­u­la­tion in T&T will be al­most dou­ble its cur­rent size while the group we re­ly on to sus­tain the fund – the 16-year to 59-year age group – will de­crease by at least 25 per­cent,” Im­bert not­ed.

He ex­plained that the NIS Re­tire­ment Pen­sion was in­tro­duced in 1975 and in 1977 the first pay­ment of this pen­sion was paid to 1,143 peo­ple at a cost of TT$2 mil­lion, or about US$800,000 at the time.

“By way of con­trast in 2017, 40 years lat­er, ac­cord­ing to the 10th Ac­tu­ar­i­al Re­port of the Na­tion­al In­sur­ance Board (NIB), Re­tire­ment Ben­e­fit Ex­pen­di­ture cost TT$3.8 bil­lion or over US$550 mil­lion, paid out to 108,116 ben­e­fi­cia­ries,” Im­bert added.

He said the chal­lenges of a de­plet­ed fund is not unique to this coun­try.

Im­bert said ac­cord­ing to the Or­gan­i­sa­tion for Eco­nom­ic Co-op­er­a­tion and De­vel­op­ment (OECD), glob­al­ly, the main chal­lenges faced by re­tire­ment sys­tems in­clude, longevi­ty, the lack of easy ac­cess to pen­sion arrange­ments, low lev­els of fi­nan­cial lit­er­a­cy and low long term growth.

“While I am hap­py that bar­ring un­fore­seen cir­cum­stances, we can look for­ward to many more years in our lives, I am al­so ful­ly aware of the ef­fects that a longer ex­pect­ed life will have on the re­tire­ment sys­tem of a coun­try, and the im­pli­ca­tions of longevi­ty risk,” Im­bert said.

He said that this short­fall in re­tire­ment re­sources by the in­di­vid­ual, ul­ti­mate­ly in­creas­es the oblig­a­tion on the State for sup­port, adding that it af­fects both the so­cial pen­sion sys­tems as well as the oc­cu­pa­tion­al pen­sion sys­tems.

Im­bert said ac­cord­ing to the 10th Ac­tu­ar­i­al in­ves­ti­ga­tion in­to the NIS, the pro­por­tion of peo­ple over 60 be­ing sup­port­ed by the NIS has been in­creas­ing over the years from 11.1 per cent dur­ing the 2005 to 2007 pe­ri­od to 14.2 per cent in 2013 to 2016.

This age­ing pro­file, he added, cou­pled with longer life ex­pectan­cy means the NIS is ex­pect­ed to pay more for a longer pe­ri­od.

Im­bert not­ed that the Gov­ern­ment has al­so been ac­tive­ly mon­i­tor­ing and ex­plor­ing the pos­si­bil­i­ty of the full in­cor­po­ra­tion of in­for­mal work­ers in­to the NIS.

“The costs and ben­e­fits of in­cor­po­rat­ing self-em­ployed per­sons in­to any na­tion­al pen­sion scheme must be very care­ful­ly ex­am­ined, since there would in all like­li­hood be a sig­nif­i­cant cost at the be­gin­ning of any such move

“The ben­e­fits of this ap­proach in­clude much need­ed cov­er­age for the most vul­ner­a­ble in so­ci­ety, and it is felt that the new con­tri­bu­tions from the in­for­mal sec­tor will al­so pro­vide much need­ed sup­port for the long-term sus­tain­abil­i­ty of the NIS,” Im­bert said.

An­oth­er ad­van­tage of the in­clu­sion of the in­for­mal sec­tor, he added, is the larg­er and more di­ver­si­fied pool of re­sources to sup­port fu­ture claims.

Im­bert said whilst it may ap­pear that this pro­pos­al is a win-win sce­nario for all stake­hold­ers, the im­ple­men­ta­tion of this ini­tia­tive does present its own chal­lenges.

“In gen­er­al terms, low-in­come in­for­mal work­ers have lit­tle ex­tra mon­ey to put aside for re­tire­ment and the re­sult­ing pen­sion may be too low for their fu­ture needs.

“Ad­di­tion­al­ly, if they do man­age to save, they pre­fer to keep their sav­ings in a more liq­uid form to sup­port them­selves dur­ing hard times or to sup­port oth­er goals, such as fund­ing their chil­dren’s ed­u­ca­tion,” Im­bert added.

He al­so not­ed that the un­cer­tain na­ture of the jobs in the in­for­mal sec­tor al­so mo­ti­vates many in the sec­tor to keep their sav­ings in a liq­uid form as op­posed to a long-term fi­nan­cial ve­hi­cle like the NIS.

The need for the pop­u­la­tion to un­der­stand the fi­nan­cial prod­ucts avail­able is vi­tal, Im­bert added.