News
Sean Douglas
THE fund held by the National Insurance Board (NIB) will be completely done within eight years, by the fiscal year 2033-2034, unless significant interventions are made, warned the 11th Actuarial Review of the National Insurance System (NIS) as of June 30, 2020.
The report was formally laid in the House of Representatives over a year ago – April 19, 2024 – but was only recently made public.
Fewer workers have been entering the workforce to contribute to an ever-expanding pool of retirees, as many past NIB actuarial reports have warned, reflecting a global trend which reached crisis levels decades ago in countries with an ageing population like Japan.
All eyes were on the NIB after Prime Minister Kamla Persad-Bissessar’s recent promise to pay arrears and higher salaries agreed for 2014-2016 by the former administration but never implemented.
The most recent NIB actuarial report in 2020 forecast the system’s expenditure exceeds contributions by the year 2020-2021. Expenditure then exceeds contributions plus investment income, while assets start to decrease by the same year, 2020-2021. The report starkly warned, “Assets are exhausted: 2033-2034.” The report says at present the NIS is “unsustainable.”
The report noted 67,000 fewer workers contributing to the NIB over five years, from 542,500 in the year 2015-2016 to 475,000 in 2019-2020.
Parallel to this annual decline of 3.2 per cent in NIB contributors was a 1.0 per cent annual increase in pensioners/claimants, the report said.
In 2010, TT had 43 workers from whose salaries deductions could be made to fund a group of ten existing state beneficiaries such as pensioners. However ten years later, TT had merely 27 workers per ten beneficiaries. For every dollar earned by a worker in 2010, nine cents deducted was enough to pay all beneficiaries, but a decade later almost 16 cents had to be deducted from every dollar of wages. Where workers’ deductions fund an existing pool of beneficiaries, it is known as a pay-as-you-go (PAYG) scheme.
The report continues to sound the alarm that has been raised since the 7th actuarial report in 2005 about an expanding pool of claimants funded by a shrinking number of workers.
The 7th report, peeking into the future, had warned of Ageing Population Syndrome.
“Population projections conducted by the actuaries reveal that while the size of the general population is expected to increase by around 11 per cent by 2055, the number of pension-age persons will practically triple, the number of children will significantly decrease by around 21 per cent and the number of workers will decline by around ten per cent.”
Projections by actuaries for the NIS predicted the pensioner support ratio would move from about four contributors per pensioner in 2006 to one contributor per pensioner by 2055, the 7th report said. Subsequent reports reiterated these fears, up to the 11th report.
The 8th report in 2010 listed a contributor-to-beneficiary ratio of 4.3, meaning 43 workers to fund ten recipients.
The 9th report in 2014 listed the ratio as 3.7, meaning 37 workers supporting every ten beneficiaries.
The 11th report in 2020 said for 2015-2016 the ratio was 3.2, where 32 workers funded ten retirees. It added that in 2019-2020 the ratio was 2.7, whereby 27 workers maintained ten retirees.
The reports also showed the increase in the percentage of total workers’ wages needed to fund beneficiaries, the PAYG ratio.
The 8th report recorded the PAYG rate as 9.1 per cent, the 9th said 12 per cent, the 11th said 13.2 per cent (in 2015-2016) and then 15.6 per cent in (2019-2020).
Each report also made long-term forecasts.
The 7th report predicted a ratio of “one” – whereby ten workers would be maintaining ten beneficiaries – by 2055.
The 9th report similarly predicted 11 workers maintaining ten workers by 2063.
Further, the 8th report predicted the PAYG ratio rising from 9.1 per cent in the year 2010-2011 to 29.8 per cent in the year 2059-2060. More so, the 9th report expected the ratio to move from 13.8 per cent in the year 2013-2014 to a whopping 35.7 per cent in the year 2062-2063.
These trends are further expounded on in the last actuarial report for 2020.
The 2020 actuarial report said the first step to make the NIS system sustainable was to raise the PAYG contribution rate from 13.2 per cent to 17.2 per cent. Secondly it suggested increasing the retirement age and freezing the minimum pension. The report urged reducing the pension payable to a client if it is taken before age 65, suggesting a six per cent reduction for each year a person retires before age 65. It suggested bringing self-employed workers into the NIS system, and eliminating the current dual coverage or double compensation paid to workers for workplace accidents.