NIF adds new staff, restructures after report
The managers of the public pension fund valued at over $100 billion by assets, the board of the National Insurance Fund (NIF), having fallen under public scrutiny with a critical report from the Auditor General’s Department in 2017, is said to be once again focused on ensuring proper financial administration.
It is now targeting the pursuit of “a vigorous investment policy to maximise returns on investment of the fund, the diversification of asset holdings and the protection of the integrity of the fund,” as outlined by oversight body the Ministry of Labour and Social Security (MLSS).
The NIF is funded by national insurance contributions and is the source from which pensions and other benefits under the National Insurance Scheme (NIS) are paid.
In the 2017 compendium of findings, the auditor general charged the NIF with actions affected by conflict of interest in investment decision-making and stated, the “NIF did not faithfully conduct due diligence in deciding on equity investments to properly inform investment decisions and financial exposure. Between February 2015 and September 2017, NIF purchased shares in eight companies at an approximate cost of $783 million. However, we found no evidence that the qualitative and quantitative assessments were done, as the investment proposals were not presented.”
Collette Roberts Risden, permanent secretary (PS) in the MLSS, told the Jamaica Observer in the second week of September 2022, that all changes recommended for the fund have now been implemented, with the consequence that risk has been reduced in operations.
The new arrangement gives Risden-hunter point man responsibilities, with cash transfers for investment decisions to gain her final approval.
Among the changes recommended and implemented, she stated, are a “clear separation of duties and adherence to investment policy with any variations approved by MOFP [the Ministry of Finance and Planning]; all investment decisions, save and except for repos, are presented to the board for approval; and it was also recommended that before actual transaction are made, that is transfer of cash/payment, a copy of the board decision is presented or included in the payment documents of final transaction approval that is then approved by the permanent secretary.”
New hires
The fund has also hired a risk manager and internal auditor specific to the NIF. These two people help to independently assess risk and ensure compliance, Risden-hunter told the Business Observer.
The fund has also revised its investment policy, although this was not clarified further by the permanent secretary.
As regards process change, Risden-hunter said that there have been changes in procedures for how applications are processed and payments, also resulting in segregation of duties, staff changes, change in administrative procedures and the implementation of a new system to track applications from start to point of payment.
The net asset value of the NIF was reported at $120.7 billion as at March 31, 2019, which is an increase of 13.67 per cent over financial year 2018. The net asset value of the fund for April 2020 is not yet available.
However, as at March 31, 2020 it stood at approximately $112.22 billion (unaudited), an increase of 4.41 per cent over March 2019.
Colette Roberts Risden told the Business Observer on May 22, 2020 “from our unaudited financials for March 2020, investment income inclusive of unrealised gains and losses has declined year over year.” This was primarily due to the fall in the prices of equities and global bonds, brought about by the COVID crisis.”
At last report, more than 74 per cent of the state pension fund’s portfolio was in government securities, and another 15 per cent was in real estate, inclusive of hotel properties. The Melia Braco in Rio Bueno, Trelawny, is one such property which was shuttered during the pandemic and is now being prepared for sale.
Roberts Risden said that as at March 31, 2020, overall revenue from dividends, interest income and rental income, derived from these asset classes, increased by 4.2 per cent over the similar period in 2019.
In the 2021 Public Bodies of Jamaica report, the fund indicated that for the period ending March 2022, the fund was expecting a net surplus of $8,938.46 million (2020/21 $11,344.60 million). It also said its staff complement would increase to 29 from 24.
Apart from managing the investment portfolio created from the NIS contributions, the NIF also remits 20 per cent of NIS contributions to the NHF. In the Government report it promised to “Continue to manage the investment portfolio to minimise risk by investing in a diversified portfolio of investment assets as well as continuous assessment of the bond market and improving loan recovery; and continue to manage the real estate portfolio which consists of residential, commercial offices, resort holdings, developmental lands and retail properties.”
It also aimed, it said to improve corporate governance by implementing a governance structure for the NIF, aligning organisational design with current and future business requirements and enhancing employee learning and development.
More inflows
One year after the auditor general’s report, in 2018, Cabinet approved several measures to enhance the NIF’S sustainability and boost the adequacy of the accompanying benefits.
Measures include increasing the contribution rate from five per cent to 5.5 per cent, effective April 1, 2019, which the employer and employee will share equally, at 0.25 per cent each.
Additionally, the NIS insurable wage ceiling was increased for purposes of calculating the contribution amounts from $1.5 million to $3 million, in January 2021; while the NIS insurable wage ceiling was increased for purposes of calculating contribution sums from $3 million to $5 million, in January 2022.
An actuarial report, as at March 31, 2016, indicated that without an increase in the contribution rate and/or other related parameters, the NIF would have negative cash flow by 2029.