– review finds
The inefficiency in the National Insurance Scheme (NIS) has resulted in a large portion of the workforce not making contributions and some elderly persons not receiving their pensions.
In response, Finance Minister Dr Ashni Singh has said that there is need for the issues to be addressed at a quicker pace, while pledging government’s commitment to keeping the NIS afloat though he admits that there are no easy solutions.
The hardship yielded by NIS’ inefficiency is one of the damning findings contained in the draft eighth actuarial review of the NIS, which was done by Horizonow and was submitted to the Government of Guyana in October. This review is to be discussed by local stakeholders with the author later this month.
Addressing administrative efficiency, the author said that this relates to how well the tasks are done and how much it costs to execute them. “In both respects, NIS is underperforming,” the review argued. It said that foremost among the critical underperforming areas is the matter of contributions as it relates to collection and record posting.
“These have led to (a) large portion of the workforce not making NIS contributions and many elderly insureds either not receiving a pension, being awarded a smaller pension than what they are entitled to and having to wait years to receive it,” the review stated.
Many pensioners have complained over the 25 years that Stabroek News has been in business about intractable problems in getting their pensions. The problems fall generally into two categories. Many pensioners are told that their records cannot be found. Pensioners at age 60 and above are then made to revisit old employers to seek to recompose records and return to the NIS.
Even then there is much running around and sometimes pensioners give up.
A second problem is that eligible pensioners are often told that they do not qualify for a monthly pension and are encouraged to accept a one-off lump payment, which is far below the accrued monthly benefit they would have received. Some pensioners fall for this given the run-around that they are subjected to. Incomplete records would also result in pensioners receiving a lower pension than entitled to.
Editorials in Stabroek News have over the years called for contributors who have attained the minimum number of contributions for a pension, to be given a certificate by the NIS verifying this, so as to avoid pensioners in their later years having to endure frustrations at the scheme because of its poor record keeping.
Said the review: “The unavailability of complete and reliable data and the difficulty often involved in accessing certain data is another weakness. Major enhancements to the IT system are critical to enhancing efficiency.”
Reducing operating cost
The review also said that it must be noted that with staff-related costs taking up more than 64% of operating costs, significant savings can only come from reducing staff.
It noted that 14.6% of contribution income was spent on operating costs over the last decade. It said that while this was not excessive by regional standards, a lower rate would have been expected by virtue of the relatively larger number of contributors relative to most other Caribbean countries.
The review said that while there is no single target for social security systems, lowering the operating cost to 10% of contribution income over five years via increased collections and reducing operating costs should be fixed as a core objective.
As a means of improving efficiency, the review also said that the government should consider moving towards a single collection agency for all taxes and NIS contributions.
“Not only should such an organization be less costly to run it should also be able to collect more revenue given its access to various sources of information,” the review said. It added that using a single agency to distribute pensions – NIS, old age non-contributory state pensions and civil service pensions – would also lead to overall cost savings to the NIS and the government.
The review has said that the NIS is approaching a crisis and that the government has to take urgent steps to implement change. These include raising of the contribution rate from 13% to 15% no later than January next year, hiking the wage ceiling to $200,000 per month and a phased raising of the pension age from 60 to 65.
The Executive Summary of the actuarial report noted that in 2011 the NIS experienced its first ever deficit in its 42-year-old history of $371M. A larger deficit is envisaged this year and the report said that with assets of just over two times its annual expenditure the “entire Fund will be exhausted in less than 10 years if (the) contribution rate increases and benefit reforms are not made immediately.”
On Thursday, Dr. Roger Luncheon, Head of the Presidential Secretariat and Chairman of the NIS Board, denied that the Scheme was in trouble, while saying that its fate would be dependent on the implementation of needed reforms.
“Is this NIS a sinking ship that is ready to go down? Nonsense. As we sit here today, the scheme is healthy… I intend to draw pension for a good lil while… We are willing to concede that uncertainty prevails and unless we agree and we implement those reforms, then we will start talking about dire times,” Luncheon told reporters at his weekly post-Cabinet press briefing.
Luncheon, who has chaired the NIS Board since 1992 and has faced criticism during his tenure, admitted that past recommendations for the reform of the Scheme were selectively implemented and that some should have been given greater attention.
No easy answers
Meanwhile, Finance Minister Singh told the Government Informa-tion Agency (GINA) on Thursday that there is a need for accelerated progress to be made in improving administrative efficiency at the Scheme, particularly as it relates to timely processing of benefit payments and updating and maintenance of accurate contribution records. The minister stated that the management of the scheme has been working diligently to address these issues, GINA noted.
Singh also said that the government will never let the NIS fail, while emphasising that it is firmly committed to finding viable and lasting solutions to the challenges, while minimising the impact of solutions on workers, employers, and pensioners.
According to GINA, Singh said “there are no easy answers or solutions” to the issues identified by the actuarial report. It further reported him as saying that “opposition mouthpieces in all of their politically motivated pronouncements have conveniently sidestepped the reality that some of the report’s recommended solutions, such as increasing the contribution rate, increasing the wage ceiling, freezing pension increases, and raising the pensionable age, will all cause hardship to the beneficiary and contributing populations, including both employees, employers and self-employed contributors.”
He added that the “opposition mouthpieces should state clearly what their party’s position is on these specific recommendations including the ones that will cause hardship to workers.” In particular, he said AFC and its spokespersons should state clearly what their party’s position is on increasing contribution rates and raising the pensionable age.
At the same time, Singh stated that the PPP/Civic government remains firmly committed to consulting with the widest range of stakeholders on the full set of issues facing the NIS, in order to identify sustainable solutions that would benefit from strong national ownership.
Singh, GINA said, argued that a number of well-known factors have contributed to the current situation faced by the NIS, including the phenomenal growth in benefits paid by the NIS to its beneficiaries, which he said has outstripped the growth in contributions received.
“The minister pointed out that total benefit payments have grown phenomenally from a paltry $272 million in 1991 to $10.7 billion in 2011.
What is particularly significant is that, in 1991 administrative expenditure amounted to $142 million equivalent to 52% of benefit payments. In striking contrast, in 2011 administrative expenditure amounted to $1.5 billion equivalent to 14% of benefit payments,” it said.
Singh added that if one looked at recent years from 2007 to 2011, total benefit payments made by NIS increased by 46 % to $10.7B, with some categories of benefit payments rising even more rapidly, such as old age benefit payments which rose by 64 % to $7.8B over the same period. At the same time, he said the NIS’ total contribution income increased more slowly by 33% to $10.8B over the same period, during which the administrative expenditure rose by 20%.
“These developments reflect a number of realities, including the fact that more persons are recognising the value of NIS benefits and are making claims, life expectancy has been rising and as a result the pension receiving population has been increasing steadily, and the cost of providing coverage in such areas as medical benefits has been increasing rapidly,” GINA said, while adding that the contribution rate increases over the years have been “very modest.”
Singh also said the NIS Board and management have been endeavouring to augment contribution income with investment income by seeking out higher return investment opportunities without compromising the quality of the investment portfolio.
“It is for this reason that such investments as those made in the Berbice River Bridge Company Inc (BBCI) were made,” GINA said, adding that in the case of the BBCI investments, rates of return as high as 11% were being earned, “compared to the paltry rates of return that were being earned on some investments made by the scheme prior to 1992.”
GINA also said that the scheme’s investments in Clico also represented a part of this effort to earn higher rates of return, given the levels of return that Clico investments were paying at the time. “In relation to the Scheme’s investments in Clico, the minister reiterated the government’s previously expressed assurance that the government will ensure that the NIS does not lose the amounts it invested in Clico,” it said.
NIS’s finances have further been clouded by the impairing of its $5.8B investment in Clico (Guyana). The actuarial review noted that when Clico was placed under judicial management in February 2009, the NIS held $5.8B or 18% of its investments in Clico’s Corporate Flexible Premium Annuity plans.
The report said that the investments had maturities of up to five years but that since 2009 no interest has accrued on the deposits. It was pointed out that in 2011, title for a Clico property, the Camp Street building which now serves as the headquarters of the Guyana Revenue Authority and is valued at $600M, was transferred to the NIS. “To date, no provisions or asset write-downs for sums invested in Clico have been made given that a unanimous Parliamentary Resolution was passed in 2009 guaranteeing State support for the recovery of the NIS investment in Clico. It is necessary that the Government of Guyana clearly indicate the timeline and nature of the guarantee and whether it will be met with cash, bonds, real estate (or) another financial instrument,” it said.
