Government examines possible pension reform

Government will be redoubling its efforts in 2011 to deal with the issue of pension reform.{{more}}

Prime Minister Dr Ralph Gonsalves, in his budgetary speech on Monday, January 24, said that the National Insurance Services (NIS) had accumulated significant reserves.

At the end of 2010, these reserves had amounted to $432.1 million or the equivalent of 23 percent of Gross Domestic Product (GDP), with the ratio of pensioners to contributors only at 13 per cent, the prime minister revealed.

He, however, noted that it was anticipated that the financial health of the NIS was going to deteriorate as the system matures.

“The system has a low contribution rate, a young retirement age and generous replacement rate, in comparison to other countries in the region, so outlays and administrative costs will gradually surpass contributions and investment earnings,” Gonsalves outlined as the deciding factors that warranted the need for pension reform.

Describing the issue as a “political hot potato”, the prime minister further explained that the cost of providing pension and other benefits to beneficiaries in the NIS and the public service pension system had been escalating within recent years.

He pointed out that retiring benefit payments under the public service pension system in 2005 amounted to $24.1 million and that the payments had increased to $45.28 million five years later in 2010.

Gonsalves also noted that the benefit payments at the NIS had also been increasing at an even faster rate during the corresponding period.

The problem was likely to worsen, since public servants also participate in the NIS.

Therefore, the public service pension, which is in addition to the NIS pension, would begin pushing replacement rates to 127 percent of income as the NIS matured.

“In sum, the current structure of the National Insurance Services and the public service pension system are clearly unsustainable,” Gonsalves said, adding that that was why his government had identified strategies for possible reform.

These include a gradual increase in the contribution rate for the long-term benefit branch of the NIS; a gradual increase in the retirement age to 65 years; a change in the calculation of survivor benefit to protect families of young workers; aligning the NIS and public service system retirement ages and a possible merge of the public service pension system with the NIS.

Gonsalves said that during the year, his government would be advancing the reform agenda by way of two initiatives.

Firstly, the 8th Acturial Review will be conducted from which should come a number of recommendations for implementation of the reforms, and the secondly, the government was expecting the long awaited completion of a study on the merger of the NIS with the public service pension system, the prime minister explained. (DD)