More contributors, rate increases likely to solve NIS’s financial woes – Chairman
Managers of the National Insurance Scheme (NIS), which is facing concerns over its long term viability, has urged for agreements among stakeholders on key measures that will ensure the financial future of the entity.
NIS is the state-controlled body which has been managing the social insurance fund charged with paying pensions and other medical benefits. It is now celebrating its 44th anniversary.
Immediately, NIS is targeting measures to significantly expand its contributor base and raise the rates. It is looking to better manage growth in benefit expenditure, particularly pensions.
NIS Chairman, Dr. Roger Luncheon
According to Chairman, Dr. Roger Luncheon, even though the spectre of an imminent dire situation is highly exaggerated, the scheme’s financial viability does evoke apprehension among the informed.
“Essentially, the scheme’s expenditure growth is out-stripping revenue growth. Contribution income, the main ingredient of revenue was $11.32B in 2012 while benefits expenditure, the main ingredient of expenditure, was $11.33B,” Luncheon disclosed in a release yesterday.
“As is known, long term benefits dominate the benefits profile with over 43,000 pensioners in payment at July 2013. The aging population, longer longevity has impacted significantly on this growth in benefit expenditure.”
The NIS Chairman believed the scheme may not have been rigid enough in insisting that more self-employed join up and contribute, as is the regulation.
At the end of 2012, the active population of employed contributors numbered 117,219, while the active population of the self-employed was only 8,791. “The self-employed situation of anomaly is evident in the face of the size of parallel economy in Guyana. Importantly, the contribution rate has seen occasional annual increases in the last decade.”
Against this background, NIS continues to offer a pension linked to minimum wages in the public service with a wide range of short-term benefits to contributors and pensioners.
“The end result is predictable. Expenditure growth exceeds that of revenue. The NIS fund is therefore being used to meet the operational deficits currently being incurred. As a result, the NIS fund has failed to show growth over the recent years as deficits in operational costs have been financed from the savings in the fund.”
In 2011, the fund was $30,410,427,000 while the 2012 unaudited fund was $30,214,987,000.
The 8th actuarial report, which is a mandatory review of NIS performance, on the scheme’s financial status, has disclosed details of the situation and made concrete proposals and recommendations about solutions, Dr. Luncheon said.
The NIS situation has raised even more concerns. “Nationwide public consultations at that time provided ample evidence of concern among stakeholders. A general principled approach must include increased revenue collection and controlled expenditure growth.”
Luncheon also pointed to the 2013 National Budget, in which the Minister of Finance, Dr. Ashni Singh proposed an increase in the contribution rate for both employed and self-employed to 14% and 12.5% respectively.
However, this did not help much in reversing the deficit.
“The Central Government absorbed and subsidised that increase for employed contributors whose incomes were less than $50,000.00. The impact of the contribution rate increase did not significantly reverse the deficit which was simultaneously being negatively influenced by the increasing cost of doing business by the scheme.”
The NIS Chairman assured that while there is little likelihood of a collapse of the scheme in the short to medium term, the current situation is not sustainable.
“The interventions are obvious but consensus among stakeholders and decision makers is a paramount necessity. In Barbados, a similar situation attracted such consensus on their way forward, under which their scheme rallied without stakeholders’ discord and divisiveness.”
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