The National Insurance Board (NIB) fund could go broke in the next 12 years because it is out of alignment with no long term sustained initiatives to generate rates of higher return.
The fund now stands at some $25 billion, but to be sustainable it needs to be topped up to some $75 billion so as to ensure efficient payments could be made in the coming years.
This was one of several issues brought to the fore during yesterday’s Joint Select Committee on Finance and Legal Affairs meeting, where officials from the NIB, Ministry of Finance and Bacon, Woodrow and De Souza Ltd appeared.
NIB executive director Niala Persad-Poliah said fund depletion was a reality, adding reform was needed to ensure there was enough money to pay future generations.
“The combined measures of freezing the minimum pension, increasing the contribution rate to 15.6 per cent and gradually increasing the retirement age is expected to gradually delay the liquidation of the fund to 2029. It was proposed that the retirement age be increased to 65. Any changes to the retirement age is one that requires policy changes at the very national level,” Persad-Poliah said.
She said consultation had already begun with stakeholders from the business and labour sectors, adding that discussions had also begun with the Finance Minister since 2015.
Persad-Poliah also provided comments on behalf of NIB chairman Michael Toney, who was absent.
She said in his comments Toney raised come critical issues, including that proper fund management alone would not save the entity.
“The fundamentals of the pay as you earn system is not properly aligned...that is the right level of contributions to meet the right level of benefits.
“Our national insurance system is out of alignment and we have limited time to fix or adjust it before the fund is exhausted,” the NIB chairman warned in his comments.
Toney said with such misalignment the system relied on the fund and income derived there from to reconcile any shortfall that would arise until the system is brought back into alignment.
“The fund will eventually be exhausted if the system is not put back into alignment. Even with the best fund investment strategy and performance, if proper alignment between contributions and benefits is not achieved in the fastest possible time the balance on the fund will be depleted and the NIS would have failed to do what it is designed to do,” Toney said.
Tim Kimpton, of Bacon Woodrow and De Souza Ltd, said the additional $50 billion must come from somewhere, which could include either contributions or from foreign investment.
But the committee heard from the NIB that to have external investments the law must first be amended.
However, saying the NIB’s status quo was not sustainable in the long term, Kimpton added: “There isn’t a proper clearly articulated long term strategy for what national insurance is meant to do.”
He said the question that must be addressed should be what could the country afford long term.
“Can we afford as a country to pay something approaching 25 per cent of the pay for national insurance or is that just too expensive? Does that leave people with insufficient money to meet their grocery bills?” Kimpton asked.
The committee’s chairman, Sophia Chote, expressed concern regarding the general governance of the NIB and its relationship with the Finance Ministry.
But the ministry’s deputy permanent secretary, Jennifer Lutchman, said the entity was a statutory body which was governed by its own acts. However, Lutchman said if an issue was red-flagged it was immediately brought to the attention of the Finance Minister.