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This report provides an overview of the National Insurance Scheme (NIS) and its financial status, analyzes the current pension system, and offers recommendations for pension reform. It discusses the reserve amount, pension costs, design considerations, and the impact of various reform measures. It also compares retirement ages and career earnings in sister schemes.
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NIS PERSPECTIVE ON PENSION & PENSION REFORM PREPARED BY: DORSET CROMWELL DEPUTY DIRECTOR NIS
Overview • The NIS a legal entity by People Law No. 14 of 1983 • Provident Fund which was established in 1969 • Benefits include sickness, maternity, funeral, employment injury & pensions. • Contribution of 9% required • Allocation to the three benefit branches; Short-term, Employment Injury and Long-term • Distribution as follows; 1.3%, 0.3% and 7.4% • LTB accounted for 82.6% of expenditure in 2010
Overview • 2010 Reserve stood at $697,010,447 • Average 10 year increase of 10.3% • Average 5 year increase of 9.2% • Reserve as a percentage of GDP of 49.7% • Rate of growth • Expenditure ratio 16.6 years • Up to 2010 collection totaled $694.5M • Earned $381.4 M in investment income • Benefit expenditure totaled $322.9 M • $248.6M on pensions and other Long-term benefits
FINANCIAL OVERVIEW Amount Of Reserve GAP of 18.6%
Pension Cost • Examined pension history of 696 former age pensioners • Contributed $4.9 million • Payments totaled $23.2M • Average repayment period of 1 year and 7 months • Max repayment of 4 years and 1 month • Pensioners received 31.8 times contribution made
Design consideration • Ideal replacement rate in retirement • NIS replacement rate • Current maximum of 49%. 60% in 2022 • What prudent approach? Individual plans each giving 70-80%; • Cost to employers? Cost of doing business in country? • Or integrated pension system/retirement planning system
Pension reform • Parametric reform measures offers a more viable and prudent approach to pension reform; • Adjustment to ceiling • Normal Retirement Age • Contribution rate • Accrual Rate • Career Average Pension vs. Final Average Pension • Eligibility requirements • Access to capital markets
Pension reform • However NIS has ceiling of $3,500 increase to $5000 in 2014 • Real replacement rate for person above the ceiling • Impact of low ceiling on quality of pensions. • Max replacement rate of 49% • If salary is $7000 RR will be 24.5%; at $8000 RR will be 21.4% • Ceiling should be high enough not to disadvantage middle to high income earners • Ceiling does not stifle National Savings • The timing and magnitude of the increase in the ceiling should be legislated • The same should happen with pension increases
Pension reform • Globally improvement in life expectancy • Has lead to increasing NRA • Adjust age of first payment in keeping with demographic shifts • Number of employer have age 65 as retirement age • Both salaries and pension paid • Coordination of various NRA • Shift in NRA for 60 to 65 extends the life of NIS from 2041 to 2048 • Increase over 20 year period
Pension reform- Retirement Age in sister schemes • Anguilla, BVI and the Bahamas NRA is 65 • Belize and Bermuda NRA is 65 • Jamaica NRA is 65 for men & 60 women • Dominica, St. Vincent & Antigua NRA is 60. Each have actuarial recommendation to move to 65 • Barbados is 66 on its way to 67 • St. Kitts NRA is 62 • St. Lucia is 63 on way to 65
“There is No Lasting PeaceWithout Social JusticeThere Is No Social JusticeWithout Social SecurityThere Is No Social SecurityWithout Sound Financing”-ILO
