Minister of Finance, Camillo Gonsalves, is assuring the Vincentian public that there is “no need to panic”, as the government prepares to implement measures to reform the National Insurance Services (NIS).
This assurance came on Thursday, July 13, during the delivery of a Ministerial Statement in the House of Parliament by Minister Gonsalves. The statement related to the NIS and pension reform in St Vincent and the Grenadines (SVG).
It was based on the 11th actuarial review of the NIS, and an independent analysis of this review, which was conducted by the World Bank’s Reserve Advisory and Management Partnership (RAMP).
This analysis by the World Bank’s team was conducted in-country during the period March 16&17, 2023.
With the NIS funds projected to be depleted around 2034, Minister Gonsalves said “with more retirees in the country, and living longer than before … and with an unsustainably generous pension design, we must urgently reform.”
“There is no need to panic, but equally, there is no time for complacency.”
He pointed out that the NIS is “almost 40 years old … our system has matured and is once again in need of reform.”
The 11th actuarial review which was laid in the House of Assembly in February, 2023, revealed that the NIS’ “financial situation is deteriorating as the plan matures.
It’s fund ratio is declining and it’s reserves are now being used to finance recurrent expenditure, and total expenditure exceeds total income.”
The review also realized that with the present contribution rate of 10%, NIS funds may only last for the next 15 or so years.
The review further noted that “the fund is financially imbalanced, as the expenditure rate exceeds the statutory contribution rate.”
The contribution rate of 10% was also deemed to be “ less than the general average premium rate of 20%” the December 2019, actuarial review stated .
If the contribution rate is not increased and benefit reforms not made, the NIS reserves could be depleted by 2034.
“If reserves are exhausted, there will only be two plausible sources of income to meet benefit payments.”
This could be higher contribution from employers and workers and special transfers from the government.
Minister Gonsalves said depletion of the funds will not mean that the NIS has ceased to exist, but that the government will have to find additional funds, as there would be no savings.
“There is no cheap and available source for such funds; reform is therefore necessary,” the Finance Minister cautioned.
The Minister pointed out that St Vincent and the Grenadines has the second lowest NIS contribution rate within the OECS; Montserrat has the lowest rate of 9%.
Minister Gonsalves said some regional countries already have a pension age of between 65 and 67 years. He however pointed out that “St Vincent and the Grenadines is not slated to reach the 65 year old bench mark until the end of 2027.”
Some of the high priority recommendations in the 11th actuarial review include: increasing the NIS contribution rate to at least 15 per cent progressively over the next 10 years; mandatory contributions from self employed and also from the informal sector; consider the increase of pensionable age to 67 by the year 2032; reduce the minimum old age replacement rate from 60% to 55% and discourage early retirement pensions through adjusted calculations.
Minister Gonsalves stressed that the independent analysis which was done by the World Bank’s team “highly recommend “ that the NIS should adhere to the recommendations of the 11th actuarial review with a view to addressing the imbalances highlighted therein.
On a more positive note, Minister Gonsalves stated that NIS finances improved somewhat in the first quarter of 2023, with it’s net loss reduced from$10.7 million to $1.07 million.
There was also an increase in contribution income, rising from $14.4 million to $16.1 million in the first quarter of 2023.
The minister stressed that it is “simply not true” for people to say that the government is raiding the NIS coffers.
As the minister has put it, “reform is an urgent and unavoidable imperative.”