A deadline of 2024 has been recommended for the implementation of pension reform.
The need for pension reform has been a talking point of the government for over a decade, and now a two-year deadline is being recommended for necessary changes to be implemented.
Executive Director of the National Insurance Services (NIS), Stewart Haynes told media representatives at a consultation last Tuesday, November 22 that 2024 is the absolute latest date recommended for reform.
After this, “draconian measures” may have to be introduced.
“The NIS is currently unsustainable in the medium and long term if there are no changes to the system. Based on management and the external actuaries’ [conclusion] those measures would have to be implemented before 2024 otherwise we are looking at draconian changes thereafter,” Haynes told members of the media at last Tuesday’s consultation.
In his presentation He highlighted the issues with the Public Service Pension System, a non-contributory benefit system which is wholly funded by government.
Under this system, civil servants receive an annual entitlement of two percent for each year of service and is capped at 67 percent. At age 60 NIS benefits, capped at 60 percent, take effect, which equates to a benefit system of 127 percent of the salary received upon retirement being paid to civil servants.
He said the “rich pension” is creating a financial burden on the government and can lead to an “inter-generational risk” for the Fund.
“… now if we combine civil servants, under the public service pension system and the Social Security [benefits] that potentially reaches 127% … that person will get more money in retirement than when they were working. If we don’t correct this, my 12 year old daughter will have to pay the price.”
Haynes said the “parallel” design of the Public Service Pension System and the NIS system need to be harmonized with a ceiling of 67 percent of civil servants final salary and for NIS, the five highest years of contribution being recommended.
He added that the more time which passes without changes being implemented means that the measures to correct the designs in the system would be extreme.
“Instead of contribution rates gradually increasing, draconian measures could be jumping contribution rates to 20 percent.”
Haynes said a number of reform options have been put forward.
“The accrual rate is currently two percent; government can consider reducing that to one percent, however it can only be reduced for future service; our retirement age for the Public Service Pension System can be aligned with Social Security. A mandatory employee contribution, this could be another option for reducing future cost of pensions plans.”
He pointed to reforms taken in other Organisation of Eastern Caribbean States (OECS) countries such as St. Lucia, where public pensions systems were gradually phased out. He noted that SVG’s 10 percent contribution rate falls below the regional average of 11.8 percent and said there is the option of increasing this rate.
Of the reform options that were implemented in the past, including increasing the NIS contribution rate from eight to ten percent and the gradual increase of the retirement age from 60 to 65, Haynes said the early pension age is a feature that is critical for some Vincentians.
“…we had to keep the early pension option because those persons have no employers’ pension and based on our soft survey, 85 percent of our pension population is receiving NIS as their only source of income.”
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