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Tuesday, March 18, 2025

Imbert worries about sustainability of National Insurance Fund

by

1378 days ago
20210610
Corporate headquarters for the National Insurance Board of Trinidad and Tobago.

Corporate headquarters for the National Insurance Board of Trinidad and Tobago.

NIBTT

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.


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