Let’s hear about NIS, too, Dr Clarke
IF HE doesn’t have it in mind, Nigel Clarke must put on his agenda, for public review at Budget time, the state of the National Insurance Scheme (NIS). Stakeholders want to know if the threat of it going broke soon has been reversed, and what the actuaries have to say on the matter.
It was to prevent the scheme’s collapse that the NIS contribution rate was increased by a half a percentage point at the start of the current fiscal year, and is to rise a similar amount in April, shared equally between employers and employees. The hikes will lift payroll contribution to the fund to 5.5 per cent of insurable incomes. Further, starting next January, the cap on the amount of pay on which NIS contributions are calculated will increase from J$1.5 million to $3 million, before moving to J$5 million in 2022.
Unfortunately, the broad public hasn’t had the full benefit of the 2016 actuarial report, to which Finance Minister Clarke made reference in establishing the new schedules for contributions. However, the one done in 2013, to which people generally had access, outlined the danger faced by the scheme.
As long as a dozen years ago, the NIS was paying out more to beneficiaries than it received in contributions. By 2013, the differential was as high as 30 per cent. That gap, as remained the case in the 2018-19 financial year when NIS collected J$17.9 billion in contributions and paid out $19.4 billion, was covered from investment income.
That situation, however, was unsustainable. Indeed, the 2013 review projected that, if the trajectory of the time was maintained, the NIS would have a negative cash flow by 2025. It would go broke by 2033. And on a 50-year horizon, the scheme, taking into account only current pensioners, would have a deficit of J$65 billion. That deficit rose to J$384 billion, when its obligations to all potential beneficiaries were taken into account.
However, when Dr Clarke announced the payment adjustments nearly 14 months ago, the prognosis was just a little less bleak. The negative cash flow was projected to manifest itself four years later, in 2029, and the scheme wouldn’t be bust until 2037, rather than 2035.
This state of affairs isn’t because the NIS has been wantonly dishing out largesse to contributors. For, on average, the analysis showed, the scheme replaced only 11 per cent of income. Part of the problem is that contributors paid too little on too small a proportion of their incomes. Which is what the recent adjustments were aimed at addressing.
SMALL PROPORTION
At the same time, despite the law’s intention of making the NIS universal, only a relatively small proportion of Jamaica’s more than one million employees are part of the scheme. Relatively few younger workers, many of whom are informally employed, contribute to the scheme. This exacerbates the sustainability of the fund, given Jamaica’s demographic trend of a population becoming increasingly grey.
All of this makes a close watch on the NIS, and a rationalisation of its operations, important.
In this respect, between Minister Clarke, who has responsibility for the island’s fiscal management, and Labour and Social Security Minister Shahine Robinson, they must report on the plan to merge the NIS, which oversees the welfare elements of the scheme, and the National Insurance Fund, its investment arm. Does Government still believe this is the most rational way to proceed?
There should be an update, too, on the “reverification of pensioners” and the cleaning up of the database of employers, so as to better forecast payment contributions, which was promised by Ms Robinson three years ago.
More critically, Dr Clarke, or perhaps Prime Minister Andrew Holness, must provide a larger long-term vision of the NIS, including of the level of replacement income they perceive it, in time, paying to beneficiaries.
The opinions on this page, except for The Editorial, do not necessarily reflect the opinions of The Gleaner.