Introduction
Last week, we gave a brief historical background of the National Insurance Scheme as a system of social security: (a) through which enough income is secured to take the place of earnings when they are interrupted by sickness or accident; and (b) to provide for retirement through age or sudden death of a breadwinner. The funds of the Scheme are to be invested so as to ensure maximum benefit to the economy of the country.
We looked at the current operations of the scheme and the benefits that are payable, in particular old age benefit. We also outlined the key findings and recommendations of the draft eighth actuarial report on the Scheme. Under the NIS Act, an actuarial review is required every five years.
Today, we continue our discussion of the Scheme by outlining the other main benefits payable as well as the recommendations contained in the actuarial report. Much of the information on the benefits payable has been extracted from the actuarial report.
Sickness benefit
Periodic payments are made to an insured person rendered incapable of work other than because of employment injury. The contribution requirement is 50 paid contribution weeks with at least eight weeks in the last 13 weeks. The insured person must have been employed immediately prior to the day the illness commenced. Two periods of illness not separated by more than eight weeks are treated as one. The amount of benefit is 70 per cent of the average weekly insurable earnings during the last eight weeks of the 13-week period immediately prior to incapacity.
In terms of medical care, the amount of the benefit is reimbursed at specific rates. There are, however, certain exceptions. For overseas expenses, the maximum is 80 per cent of the medical costs or ten times the insurable earnings ceiling, whichever is less. Recipients of invalidity and old age benefits are provided with drugs free of cost as well as free dental and spectacle care.
Maternity benefit:
Payments are made to an insured person or to the uninsured spouse of an insured person in the case of pregnancy or confinement. The contribution requirement is 15 paid contribution weeks with at least seven weeks in the last 26 weeks. The amount of the benefit is 70 per cent of the average weekly insurable earnings during the best seven weeks out of the 26 weeks. The duration of the benefit is 13 weeks starting no earlier than six weeks before the expected date of confinement. The claimant is eligible for payment for an additional 13 weeks if there were complications with the pregnancy.
There is also a maternity grant of $2,000 per live birth if the wife fails to qualify for maternity benefit but the husband’s contributions satisfy the above conditions.
Invalidity benefit:
Payments are made to an insured person who is rendered permanently incapable of work other than as a result of employment injury. The contribution requirement is 150 paid weekly contribution and 250 paid or credited contributions. For the insured person to be eligible, he/she is: (a) less than 60 years old; (b) an invalid; (c) likely to be permanently incapable of employment; and (d) not in receipt of sick benefit i.e. incapable of work for more than 26 weeks.
The amount of the benefit is 30 per cent of the average weekly insurable earnings over the best three years in the last five years before the commencement of invalidity, plus one per cent for every 50 weeks credited over 250. Twenty-five weekly credits are awarded for each year between the commencement of invalidity and age 60. The maximum benefit is 60 per cent of the average insurable earnings while the minimum currently stands at $17,932. The duration of the benefit is until age 60 after which it is converted into an old age pension.
Survivor’s benefit:
Payments are made in respect of an insured person who dies and who immediately before death was receiving old age benefit or invalidity benefit, or in respect of an insured person who dies otherwise than because of employment injury. The deceased at the time of death must have made at least 250 paid contributions or was in receipt of, or entitled to, invalidity or old age pension.
The benefit is awarded in the form of a pension that is payable to, or for the benefit of, the dependants of a deceased insured person. There are detailed rules concerning order of preference as well as eligibility. The amount of benefit for the widow or widower is 50 per cent of the weekly old age or invalidity pension, with a minimum of $6,668 per month.
Funeral benefit:
This is a one-time payment on the death of an insured person, or that person’s spouse. The deceased person or that person’s spouse must be registered with the Scheme and must have paid at least 50 contributions since entry into insurance. The amount of the grant currently stands at $25,080.
Recommendations of the eighth actuarial review
It will be recalled from last week’s article that: (a) the Scheme recorded a loss of $371 million in 2011; (b) the loss is projected to be greater in 2012; and (c) according to the draft actuarial report, the entire Fund will be exhausted in less than ten years if contribution rates do not increase and benefit reforms not made immediately. The report also indicated that that NIS is nearing crisis stage and that it does not provide an adequate level of coverage to the working and elderly population primarily due to poor administrative performance and not inadequate contribution or benefit rules.
The key recommendations of the actuary set out below were made in the hope of securing the financial viability of the Scheme.
Increase pension age from 60 to 65 on a phased basis: While it has the effect of reducing expenditure, this recommendation is unlikely to go down well among contributors to the Scheme. The latest information is that the average life expectancy is 69.2 years. It therefore means that on average contributors will benefit from an old age pension for only four years, compared with nine years as currently exists. A significant portion of the population would have joined the Scheme at age 16 and would therefore they will have to contribute 49 years to the Scheme before receiving an NIS pension. In addition, with a retirement age of 55 for the Public Service, contributors will have to wait another ten years before receiving a NIS pension, compared with five years as currently exists.
Increase the contribution rate from 13 per cent to 15 per cent: This is a modest increase to be shared by both employer and employee. The recommendation should therefore be supported.
Increase the wage ceiling from $143,455 per month to $200,000: While there may be some degree of reluctance by those who are affected, this recommendation should also be supported.
Freeze pension increases for two years until finances improve: While this is not an unreasonable sacrifice to make, it should be borne in mind that only those beneficiaries in receipt of the minimum pension will be affected. They are more deserving of pension increases to cushion the effects of inflation.
Increase the maximum 60 per cent benefit after 40 years of contribution instead of 35 years: This recommendation may also not go down well among contributors as it will result in some contributors losing out on the maximum benefit.
Increase the number of years for insurable wages to be averaged from 3 to 5: This has the effect of lowering the amount of the old age pension as the insurable earning will be less for earlier years. Again, there is likely to be some reluctance by contributors to agree to this recommendation.
Change basis for pension increases from minimum public sector wages to price inflation with a limit: This is unlikely to make any significant difference as the minimum wage is usually adjusted to take inflation into account.
Conclusion
The National Insurance Scheme is in a very precarious position in terms of its ability to ensure the long-term viability of the Scheme. For two consecutive years, the Scheme expenditure will outstrip its revenue. Each time this happens, the Scheme’s reserve base is being eroded. Drastic measures need to be taken to secure the financial health of the Scheme.
While the recommendations of the actuary are an attempt to bring the Scheme back to even keel, some of them may not go down well as they will have an adverse effect on the benefits contributors receive. The Scheme should therefore consider other alternatives.
Increasing the motor car allowance given to inspectors will provide an incentive to do more field inspections in an attempt to widen the contribution base, especially as regards self-employed persons. In addition, with an investment yield of negative 1.8 per cent after taking into account inflation, the Scheme needs to carefully consider options other than investing in Treasury Bills and Fixed Deposits. These are the main sources of investment.
Finally, the Scheme needs to reorganize itself to ensure a leaner and more efficient organization with linkages with the Guyana Revenue Authority. In this way, information can be shared with a view to widen the contribution base.
