How can the short­fall in the T&T Na­tion­al In­sur­ance Scheme (NIS) be ad­dressed?

The Caribbean Ac­tu­ar­i­al As­so­ci­a­tion (CAA) is set to dis­cuss T&T’s NIS sit­u­a­tion at the Hy­att Re­gency dur­ing its an­nu­al con­fer­ence to­day.

How­ev­er, Caribbean Ac­tu­ar­ies have not­ed that the warn­ing signs that the scheme’s in­come has been falling short of its pay­out have been around for some time.

“It’s a five-year cy­cle for ac­tu­ar­i­al re­views. The last one was done for 2016 to 2021. The lat­est one has not been pub­lished yet. But we can tell from the Na­tion­al In­sur­ance Board’s an­nu­al re­port that ex­pen­di­ture is now greater than con­tri­bu­tions.

“And to me that’s not un­com­mon in the Caribbean sys­tems be­cause over time costs in­crease. And if you don’t cur­tail ex­pen­di­ture, and you don’t in­crease your con­tri­bu­tion rate, then you’re go­ing to have a sit­u­a­tion where you have to start dip­ping in­to your re­serves to help pay the ben­e­fits,” said ac­tu­ary, Derek Os­borne, in a phone in­ter­view with the Busi­ness Guardian ahead of the con­fer­ence.

“I be­lieve that the last time the re­view sug­gest­ed by mid-2030 the fund will be de­plet­ed,” Os­borne said.

The un­der­ly­ing mes­sage is ob­vi­ous, some lev­el of change is re­quired for NIS and the Na­tion­al In­sur­ance Board: “Cer­tain­ly if the NIB wants to pay pen­sions, ten years from now, some re­form has to hap­pen. There­fore the econ­o­my has to pick up in a way that’s go­ing to pro­duce a lot more con­tri­bu­tion in­come.”

But the in­di­ca­tors are the con­tri­bu­tions are on the de­cline for mul­ti­ple rea­sons.

First­ly, T&T’s ag­ing work­force has meant that more peo­ple are like­ly to draw from it soon, rather than sup­ple­ment it.

For­mer Min­is­ter in the Min­istry of Fi­nance Mar­i­ano Browne ex­plained that even the re­cent move to in­crease the re­tire­ment age would be a stop-gap mea­sure as op­posed to a long-term so­lu­tion.

“The de­ci­sions are ei­ther you in­crease the con­tri­bu­tions to the fund from those who are work­ing, and you change the re­tire­ment age. Those are the two ob­vi­ous ones that have to be done.

“But there are some longer-term im­pli­ca­tions, the longer-term im­pli­ca­tions are that as coun­try ages, the so­cial se­cu­ri­ty sys­tem and gov­ern­ment’s ex­pen­di­ture are like­ly to in­crease. When peo­ple get old­er, they need more health­care. So­cial se­cu­ri­ty is a key is­sue,” said Browne.

He ex­plained that for the fund to con­tin­ue to be sus­tain­able, there would need to be a change in mind­set from the av­er­age cit­i­zen as he not­ed the ex­pec­ta­tion that the fund would be there to pro­vide in their lat­ter days has lulled many in­to not tak­ing re­spon­si­bil­i­ty for their re­tire­ment plan­ning.

“We talked about the re­tire­ment age, we talked about pay­roll, the pay­roll or what­ev­er in­creas­ing the con­tri­bu­tion mar­gin. The third is­sue, and this is very im­por­tant—we’ve been talk­ing about pen­sion re­form for 25 years but we have nev­er done it—is cal­i­brat­ing the in­sur­ance sys­tem with pri­vate in­sur­ance schemes.

“Now, what do we mean by that? Well, tech­ni­cal­ly, peo­ple have been look­ing at the NIS as though it were your sole source of re­tire­ment in­come. The an­swer that is it can’t be and that in­di­vid­u­als have to save more dur­ing the course of their life­time, to be able to han­dle their re­tire­ment re­quire­ments,” said Browne.

“The first one is that you have to save re­gard­less of what your in­come is. That is on you, that’s your re­spon­si­bil­i­ty. The sec­ond part of that is that gov­ern­ments there­fore have to do more to im­prove the per­for­mance of the econ­o­my,” he added.

Browne al­so recog­nised that dig­i­tal plat­forms and the rise of en­tre­pre­neur­ship may have al­so led to low­er con­tri­bu­tions.

“What we’ll find is that you will have a num­ber of self-em­ployed peo­ple who don’t qual­i­fy for NIS but tech­ni­cal­ly may qual­i­fy for the old age pen­sion. Now, who pays that? The an­swer is gov­ern­ment.

“Where does that come from? It comes from tax­a­tion rev­enue. But if these peo­ple who are self-em­ployed are not con­tribut­ing to NIS, the re­al­i­ty is that they are un­like­ly to make a con­tri­bu­tion or make the same amount of con­tri­bu­tions to PAYE ei­ther.

“That then puts ad­di­tion­al dif­fi­cul­ties on a small num­ber of peo­ple who are work­ing with­in the sys­tem.

“Peo­ple who are mak­ing con­tri­bu­tions and peo­ple who are pay­ing tax. So you have peo­ple who have been work­ing, but tech­ni­cal­ly do not both­er the sys­tem, earn­ing their in­come dif­fer­en­tial­ly would then now make so­cial se­cu­ri­ty claims,” said Browne.

How­ev­er, Browne ac­knowl­edged that po­lit­i­cal de­ci­sions have al­so cre­at­ed some of the is­sues that plague the fund cur­rent­ly and if these is­sues are to be ad­dressed, de­ci­sions would have to be made away from the elec­tion plat­form.

“That brings us to some crit­i­cal is­sues here. Both the Se­nior Cit­i­zen Grant and the Na­tion­al In­sur­ance pen­sion have been sub­ject to po­lit­i­cal de­ci­sions. In oth­er words, peo­ple have been made of­fers when it comes around elec­tion time.

“The of­fers do not bear any re­la­tion to the ca­pac­i­ty of the fund to fi­nance those con­tri­bu­tions over the long term. So what you get is a po­lit­i­cal lot­tery. Do you want to vote for the per­son who is go­ing to make the best con­tri­bu­tion (to the NIS) or is go­ing to in­crease the old age pen­sion?” said Browne, al­lud­ing to mul­ti­ple elec­tion cam­paigns which saw the in­crease of gov­ern­ment pen­sion as ma­jor man­i­festo promis­es,

“Well, from where I sit, as a for­mer min­is­ter, I’d have to say that you have to ba­si­cal­ly take politi­cians out of that equa­tion al­to­geth­er. And don’t al­low them to make those kinds of de­ci­sions.”

Os­borne said ad­just­ments to the re­tire­ment age would have to be the first port of call for ad­just­ment as well as an ad­just­ment gov­ern­ing the rules of ear­ly re­tire­ment.

“In Trinidad, you have a sit­u­a­tion where even though the pen­sion age is 65 of­fi­cial­ly, peo­ple are al­lowed to go at age 60. If they stop work­ing or stop work­ing for a while and they ap­ply with no re­duc­tion fac­tor. So one of the so­lu­tions is to im­ple­ment a re­duc­tion fac­tor for those who go be­fore age 65.

“Or pos­si­bly elim­i­nate 60 age, as the ear­ly pen­sion and maybe make it 62 or 64 or even 65 es­sen­tial­ly start­ing pen­sions lat­er. Right now un­for­tu­nate­ly al­most every­body gets the min­i­mum pen­sion for­mu­la. There’s not much you can do with this for­mu­la. Every­body gets the min­i­mum,” said Os­borne.

How­ev­er, Browne said there would be push­back to such moves as there had al­ready been ob­jec­tions from unions con­cern­ing the in­creased re­tire­ment age.

Os­borne said it was in­cum­bent that the unions learn that these ad­just­ments are among three ma­jor pil­lars for the sus­tain­abil­i­ty of the fund.

“One is ben­e­fit ad­e­qua­cy. An­oth­er one is con­tri­bu­tion af­ford­abil­i­ty. And the third one is long-term sus­tain­abil­i­ty. So when I hear the cry of unions and cer­tain peo­ple to say that ben­e­fits need to ex­ceed a cer­tain amount, that’s all well and good.

“But then if you keep as you’re do­ing now in ten years, 20 years’ time some­thing has to give,’ said Os­borne, adding “and then you keep hop­ing that the econ­o­my will con­tin­ue to grow and cre­ate new jobs. So we’re go­ing to have a sweet spot with re­gard to those three things, ben­e­fit ad­e­qua­cy, con­tri­bu­tion af­ford­abil­i­ty, long term sus­tain­abil­i­ty.”

Browne once again not­ed that an­oth­er pos­si­ble op­tion would be some ad­just­ments to our im­mi­gra­tion poli­cies so that the num­bers of con­trib­u­tors could in­crease.

“The stud­ies every­where show that im­mi­gra­tion is ben­e­fi­cial at all lev­els. Tar­get­ed im­mi­gra­tion is even bet­ter be­cause what it means is that you’re help­ing you’re look­ing at the struc­ture of the econ­o­my and the struc­ture of the labour force and mak­ing in­formed in­ter­ven­tions so you can grow the ar­eas of max­i­mum con­tri­bu­tion,” said Browne.