The Seventh Actuarial Review of the National Insurance Scheme (NIS) recommends that it ignore calls to lower the pensionable age to 55, as it may be time to consider raising it to ensure future viability, echoing a recommendation in the recent NIS Reform Committee Report.
The review, completed recently, said that even with a weak financial outlook for NIS, “the board and the government appear to be under pressure to make changes that will lead to increased benefit costs.”
One such change is the lowering of the pensionable age from 60 to 55. “This suggestion should not be considered as it goes against global thinking regarding national pension systems and it will worsen fund finances,” the review said.
It said the issue of reducing the pension age from 60 to 55 had been raised for several years, especially in the light of the fact that the retirement age for civil servants and several other workers in Guyana is 55.
“In the Sixth Actuarial Review, the possibility of consolidating the two pensions paid to civil servants was raised. Instead of reducing the pension age to facilitate these persons, it may be more practical for government to consider raising its pension age to be the same as the NIS pension age, as part of the consolidation process,” the review said.
It said too that around the world, national pension systems are increasing the age at which full pensions are paid. “Such moves are consistent with increased longevity among workers as well as the financial challenges that these pension systems face. Even if the contribution requirement for an age 55 Old Age Pension is maintained at 750 weeks, it is not advisable that the pensionable age be reduced at all. In fact, the board may begin to consider increasing the pensionable age as one option of reducing the growth of long-term costs,” the review said.
The Seventh Actuarial Review comes on the heels of the NIS Reform Committee’s report, which was approved by Cabinet and whose recommendations await Cabinet’s final decision. One major recommendation from the Reform Committee was the raising of the pension age from 60 to 65. However, this has been met with much consternation.
“It is hoped that this report that has been prepared by the Reform Committee will help guide the board and the government in making timely and appropriate changes that will enhance the relevance and sustainability of the National Insurance Fund,” the review said.
Recommendations
The review recommended that the NIS adopt a certain funding objective such as a reserve in 2030 that is one or two times annual expenditure and then devise a schedule of contribution rate increases aimed at achieving the stated funding objective.
It also recommended that the NIS carefully consider any changes to Old Age Pension provisions that would increase costs and if such changes were made, enact other changes that would create some limited savings. The review recommended that the defined benefit structure be maintained but that certain parameters be reviewed.
It said the NIS should remove all gender differences from Survivors Benefit provisions and allow children of deceased insured persons to more easily qualify for a pension.
The scheme should invest assets in a manner that is consistent with the recently approved Prudential Investment Framework but also in line with the selected funding objective. The review called on the scheme to take immediate steps to improve the administrative efficiency and effectiveness.
No immediate rate adjustments
It said that although expenditure now exceeds contribution income and another contribution rate increase can be justified, “it may not be wise to make another adjustment immediately given the low or possibly negative real rates of return on assets.
“Therefore, it may be better in the long-run if the NIS seriously considers a gradual move towards a pay-as-you-go state with reserves of no more than two times annual expenditure. Once the desired level of funding is reached, the contribution rate could then be increased each year thereafter so that the desired funding ratio can be maintained.”
Slow growth
The review said that slow economic growth, high inflation and low returns on investment contributed to further deterioration of the National Insurance Fund during the review period 2002 to 2006. “Even with a 1 per cent increase in the contribution rate in 2004, total expenditure surpassed contributions in 2006 and although the fund grew to $26.75 billion at the end of 2006, its size relative to annual expenditure fell from 4.0 in 2001 to 3.5 in 2006,” the review said.
It said that the National Insurance Fund plays a very important role in providing useful income protection to many workers, retired persons and their families. “However, it continues to be affected by a sluggish economy, low wages, several design weaknesses and inefficient administration,” it said. “The NIS, which is almost 40 years old, is at a stage where immediate measures need to be taken to maintain public confidence in the ongoing sustainability of the scheme.”
The review’s assessment of policy and design indicators of Guyana’s primary social security system suggests that current contribution and benefit provisions provide reasonable and adequate coverage to most insured persons.
This, it said, remains the case due to the annual adjustments to pensions and the wage ceiling. “However, only slightly more than half of the workforce contributes to the National Insurance programme and thus the NIS has little impact on the lives of many residents.”
