GEISHA KOW­LESSAR-ALON­ZO

Two lead­ing ac­tu­ar­ies are urg­ing the Gov­ern­ment to take de­ci­sive ac­tion to safe­guard the fu­ture of T&T’s Na­tion­al In­sur­ance Scheme (NIS), rec­om­mend­ing an in­crease in both the re­tire­ment age and the con­tri­bu­tion rate as es­sen­tial steps to­ward long-term sus­tain­abil­i­ty.

As Fi­nance Min­is­ter Dave Tan­coo pre­pares to de­liv­er the 2026 na­tion­al bud­get, he is ex­pect­ed to ad­dress the in­creas­ing­ly frag­ile state of the NIS, which is un­der mount­ing pres­sure from the coun­try’s rapid­ly ag­ing pop­u­la­tion and the widen­ing gap be­tween what the NIS re­ceives and what it spends.

With few­er young con­trib­u­tors and re­tirees liv­ing longer, the sys­tem is fac­ing a de­mo­graph­ic and fis­cal im­bal­ance that, if left un­ad­dressed, could lead to fund de­ple­tion with­in the next decade.

The ac­tu­ar­ies,Derek Os­borne and Stoke­ley Smart, warn that with­out bold, in­te­grat­ed re­forms, the NIS will strug­gle to meet its oblig­a­tions and pro­tect fu­ture gen­er­a­tions of re­tirees.

Os­borne, an ac­tu­ary and part­ner, re­tire­ment and fi­nan­cial con­sult­ing, in­ter­na­tion­al (Caribbean), TELUS Health em­pha­sised that the sys­tem’s cur­rent gen­eros­i­ty—par­tic­u­lar­ly in re­tire­ment ben­e­fits—far ex­ceed what the 13.2 per cent con­tri­bu­tion rate could sus­tain­ably sup­port.

His warn­ing aligns with the find­ings of the 11th Ac­tu­ar­i­al Re­view, which projects full de­ple­tion of the Fund by fis­cal year 2033/2034 un­less de­ci­sive and far-reach­ing re­forms are en­act­ed.

The re­port not­ed an an­nu­al av­er­age de­cline in con­trib­u­tors of 3.2 per cent be­tween June 2016 and June 2020 cou­pled with a 1.0 per cent in­crease in claimants (re­tirees).

Smart, di­rec­tor of the Ac­tu­ar­i­al Sci­ence Pro­gramme, UWI St Au­gus­tine, echoed these con­cerns, point­ing to T&T’s de­mo­graph­ic shift from a youth­ful pyra­mid to an in­vert­ed struc­ture, with more re­tire­ment ben­e­fi­cia­ries.

With few­er young con­trib­u­tors and more re­tirees liv­ing longer, the NIS is now pay­ing out ben­e­fits for longer pe­ri­ods than it was de­signed to han­dle.

Smart warned that un­less re­forms are en­act­ed, the fund could col­lapse with­in the next eight to ten years, as stat­ed in the re­view.

Os­borne called for a fun­da­men­tal over­haul of the NIS, urg­ing pol­i­cy­mak­ers to re­align ben­e­fits with de­mo­graph­ic re­al­i­ties and long-term af­ford­abil­i­ty.

He out­lined that there are on­ly a few re­form mea­sures that could in­crease in­come and/or re­duce ex­pen­di­ture in the fu­ture, adding that each of these should be con­sid­ered, in­clud­ing:

* In­creas­ing the con­tri­bu­tion rate

* Lat­er start age of pen­sion:

(a) elim­i­nate pen­sions be­fore 65 al­to­geth­er;

(b) set the first age for a re­duced pen­sion if ful­ly re­tired at 62 or 63,

(c) in­crease pen­sion­able age from 65 to 66/67 as the first age for an unre­duced pen­sion

*Small­er av­er­age new pen­sion: change the pen­sion for­mu­la

*No pen­sion in­creas­es for sev­er­al more years

Smart al­so not­ed that to mean­ing­ful­ly ad­dress the loom­ing fi­nan­cial cri­sis fac­ing the NIS, four crit­i­cal steps must be tak­en—not in iso­la­tion, but as part of a co­or­di­nat­ed re­form strat­e­gy.

First, the re­tire­ment age must be in­creased to re­flect longer life ex­pectan­cy and ex­tend­ed work­ing years. While the ex­act age ad­just­ment re­quires ac­tu­ar­i­al analy­sis, it is clear that the cur­rent thresh­old is no longer sus­tain­able, he said.

Sec­ond, the con­tri­bu­tion rate must be raised to en­sure the in­flow of funds match­es the grow­ing out­flow of pen­sion pay­ments.

Third, the ben­e­fit struc­ture must be re­cal­i­brat­ed—this could in­volve re­duc­ing the av­er­age pen­sion pay­out or de­lay­ing pen­sion in­creas­es—to bet­ter align with the sys­tem’s fis­cal ca­pac­i­ty.

Fi­nal­ly, the in­clu­sion of self-em­ployed and in­for­mal sec­tor work­ers in­to the NIS con­tri­bu­tion base is es­sen­tial.

This ex­pan­sion would not on­ly broad­ens the rev­enue pool but al­so en­sures that all work­ing in­di­vid­u­als have ac­cess to re­tire­ment se­cu­ri­ty.

To­geth­er, these mea­sures form a com­pre­hen­sive frame­work to sta­bilise the fund and safe­guard its fu­ture.

To ef­fec­tive­ly ad­dress the chal­lenges posed by an ag­ing pop­u­la­tion, the NIS must un­der­go struc­tur­al re­forms that align ben­e­fit lev­els with long-term fi­nan­cial sus­tain­abil­i­ty.

Os­borne fur­ther iden­ti­fied that the cur­rent NIS struc­ture of­fers re­tire­ment ben­e­fits that are more gen­er­ous than the 13.2 per cent con­tri­bu­tion rate could sus­tain­ably sup­port, not­ing that this gap would be­come a greater is­sue as the pop­u­la­tion ages and few­er work­ers sup­port more re­tirees.

“Even with mod­est re­forms, the fund will face long-term chal­lenges un­der cur­rent de­mo­graph­ic trends. A fun­da­men­tal re­view of the NIBTT sys­tem is need­ed to align ben­e­fits with long-term af­ford­abil­i­ty, sus­tain­abil­i­ty and de­mo­graph­ic re­al­i­ties,” he stressed.

Re­gard­ing the in­te­gra­tion of in­for­mal sec­tor work­ers in­to the NIS con­tri­bu­tion base, this presents both an op­por­tu­ni­ty and a chal­lenge.

Os­borne said ex­tend­ing na­tion­al in­sur­ance cov­er­age to self-em­ployed per­sons un­der this mod­el could ex­ac­er­bate fis­cal strain.

“There­fore, al­low­ing in­for­mal sec­tor work­ers/self-em­ployed per­sons to join NIBTT un­der the cur­rent struc­ture would im­pact the Fund’s sus­tain­abil­i­ty. Giv­en the na­ture of in­for­mal sec­tor em­ploy­ment, a dif­fer­ent struc­ture with flex­i­ble con­tri­bu­tions, and pos­si­bly in­di­vid­ual ac­counts, could be cre­at­ed for them,” he ex­plained.

Ad­min­is­tra­tive costs, of­ten a fo­cal point in pub­lic sec­tor re­form, are not a ma­jor con­cern for the NIBTT.

“Un­der the var­i­ous mea­sures used to as­sess ex­pense ra­tios for NIB schemes (per­cent­age of con­tri­bu­tions, per­cent­age of con­tri­bu­tions + ben­e­fits, per­cent­age of in­sur­able wages or per­cent­age of re­serves), the NIBTT is a rel­a­tive­ly low-cost op­er­a­tion. In 2023/24, ad­min­is­tra­tive costs were 5.7 per cent of con­tri­bu­tion in­come and 0.8 per­cent of in­sur­able wages. Fur­ther, re­duc­ing NIB costs by up to 25 per cent (which can be chal­leng­ing) would not change the out­look for the Fund giv­en the mag­ni­tude of ben­e­fit ex­pen­di­ture,” he ex­plained.

Im­prove com­pli­ance

Com­pli­ance en­force­ment was iden­ti­fied as a key area for im­prove­ment.

Os­borne ad­vised the two best ways to im­prove com­pli­ance would be to en­force con­se­quences against non-com­pli­ant em­ploy­ers and have gov­ern­ment de­part­ments con­firm full NIB com­pli­ance pri­or to the re­newals of busi­ness li­cens­es or per­mits.

In­vest­ment strat­e­gy is an­oth­er pil­lar of re­form.

While the NIBTT’s in­vest­ment pol­i­cy state­ment pro­vides a frame­work, Os­borne not­ed that the fund’s yield—2.4 per cent in 2022/23 and 3.6 per cent in 2023/24—re­mains be­low op­ti­mal lev­els.

Re­bal­anc­ing the port­fo­lio, par­tic­u­lar­ly in­creas­ing lo­cal eq­ui­ty ex­po­sure and re­duc­ing cash hold­ings, could en­hance re­turns.

How­ev­er, even a con­sis­tent six per cent an­nu­al re­turn would on­ly de­lay de­ple­tion by one year, re­in­forc­ing the need for struc­tur­al re­form over re­liance on in­vest­ment per­for­mance.

“As risk and re­turn are di­rect­ly re­lat­ed, it can be chal­leng­ing to find sig­nif­i­cant in­vest­ments with that pro­file. The NIB has an in­vest­ment pol­i­cy state­ment in place which guides the in­vest­ment of the NIB fund. The 11th AR in­di­cat­ed that the lo­cal eq­ui­ty al­lo­ca­tion was slight­ly be­low the range in­di­cat­ed in the IPS whilst the cash hold­ing were near the top of the range. There could be an op­por­tu­ni­ty to re­bal­ance here.

Not­ing that 11th AR pro­ject­ed the fund’s de­ple­tion is to take place in 2033/2034, he said the ac­tu­al per­for­mance to date has been bet­ter than the pro­jec­tions..

How­ev­er, Os­borne stressed this would not ma­te­ri­al­ly change the out­look for the fund, adding that even with the best of leg­is­la­tion and in­ten­tions, get­ting more than 20 per cent of the in­for­mal sec­tor to reg­u­lar­ly con­tribute would be a sig­nif­i­cant achieve­ment, so im­ple­ment­ing gov­ern­ment mea­sures, such as con­firm­ing NIB com­pli­ance , could be one so­lu­tion.

In 2024, to­tal NIB costs were around 18.6 per cent of in­sur­able wages, some 5.4 per cent above the 13.2 per cent con­tri­bu­tion rate.

Ta­ble:

The con­tri­bu­tion and pen­sion re­forms be­ing rec­om­mend­ed to the NIBTT are sim­i­lar to re­forms made across the Caribbean in the last twen­ty years.

Fol­low­ing are cur­rent NIB con­tri­bu­tion rates in oth­er Caribbean coun­tries.

The cur­rent con­tri­bu­tion rate is rep­re­sent­ed by the length of the green bar while the ex­tra blue bar for some coun­tries rep­re­sents leg­is­lat­ed in­creas­es over the next few years.

On­ly three of the 15 coun­tries have not raised their con­tri­bu­tion rate in twen­ty years.

On­ly one coun­try with a re­tire­ment age be­low 65 has not in­creased its nor­mal pen­sion age. A few ex­am­ples of large re­forms in re­cent years in­clude:

● Montser­rat & An­tigua Bar­bu­da elim­i­nat­ed the ear­ly pen­sion at age 60. Now the ear­li­est age pos­si­ble for a re­tire­ment pen­sion is 65.

● Grena­da in­tro­duced an in­come test for those who claim Re­tire­ment ben­e­fit and still work. If they earn more than 60 per­cent of the wage ceil­ing, the pen­sion is sus­pend­ed or not award­ed. In the Ba­hamas the lev­el is 50 per­cent of the wage ceil­ing while in Bar­ba­dos and Be­lize no em­ploy­ment in­come is al­lowed if the pen­sion is to be paid.

● Grena­da al­so in­creased its pen­sion­able age from 60 to 65 by one year each year which means that some­one who was 59 in 2023 has to wait un­til 2029 to re­ceive an unre­duced NIB Re­tire­ment pen­sion. This dras­tic mea­sure was one of many re­forms im­ple­ment­ed in 2024 to en­hance long-term sus­tain­abil­i­ty.

The Ba­hamas, Bar­ba­dos, Grena­da and the Turks and Caicos Is­lands in­clude an un­em­ploy­ment ben­e­fit in their ben­e­fits pack­age: