Eustace says PM ‘ducking’ pension reform issue

While Prime Minister Dr. Ralph Gonsalves and the Leader of the Opposition Arnhim Eustace are in agreement that the need for pension reform is urgent,{{more}} Eustace has called on Gonsalves to tackle the issue now, and not wait until the next Budget.

During his contribution to the Budget Debate on Tuesday, January 10, Eustace accused the Prime Minister of “ducking” the issue.

“Yesterday we saw the googly bowled by the prime minister – he didn’t want to touch it,” Eustace said.

One day earlier, in his presentation, the Prime Minister had outlined the problems in relation to both the National Insurance Services (NIS) and Public Service pension regimes.

The Prime Minister stated that the NIS currently has a low contribution rate of only 8 per cent of wages, while it offers what he termed “a generous pension” of up to 60 per cent of average wages, based on a worker’s three best out of the last fifteen years.

He explained that the full impact of the system’s generosity was yet to be realized, because the NIS was fairly young and current beneficiaries retired well below the sixty per cent maximum.

“Over the next twenty years, however, replacement rates will approach their maximum levels and cash flow will turn negative this year,” Gonsalves said, adding that the latest actuarial report suggested that under the plausible conditions the NIS reserves could be depleted by 2039, and benefits and administrative expenses will exceed income as early as 2025.

Similarly, he noted that the public service pension bill, which is a non-contributory pension system, had doubled over the last seven years, growing at almost twice the rate of the salary bill, with no provisions set aside for paying future pensioners.

“Nor have the future demands been comprehensively analysed,” the prime minister said.

He noted that the Public Service Pensions are “even more generous” than those provided by the NIS, allowing for a maximum replacement rate of 66 2/3 per cent of the average of three best years.

“Further, since civil servants participate in the NIS Scheme, and the pension is in addition to the NIS pension, this allows for combined replacement rates to approach 127 per cent, as the NIS matures.”

“This is clearly not a sustainable proposition, and it is paramount that we attempt to integrate the two pension schemes before these theoretical replacement rates are reached,” the Prime Minister declared.

“A lasting and sustainable solution requires immediate, bold and decisive action. Procrastination will only compound the problem,” he said.

But while noting that it was important to introduce pension reform as soon as possible and that work was expected to begin this year to design solutions to the problem, the prime minister said the Eight Actuarial review was scheduled to be completed during the first half of the year, but there was a delay due to the fire at the Census office, which destroyed the results from the census.

According to the prime minister, the Eight Actuarial review was dependent on information from the labour market and general population which is included in the information coming from the census.

“Additionally, we have already started work in reviewing the reform options for the Public Service Pension System and the feasibility of a merger with the NIS,” Gonsalves said, adding that members can expect him to present to the House a series of measure of reform by the next Budget presentation.

But Eustace contended that the NIS was an important institution and that the government could not allow it to go under.

He explained that the full extent of the decline of profitability of the NIS was startling, with the net income or profit of the NIS falling from $27 million in 2008 to a mere $5.6 million in 2010, information that was included in the International Monetary Fund’s (IMF) staff report included in the IMF’s website.

According to Eustace, while the fiscal situation continues to decline, the country will have to wait another year without any action.

“We heard him say that the fund is dwindling, but that is the people’s pension for life,” Eustace said. (DD)