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.