Increased NIS subsidy to help fund studies for long term viability – President

Mar 30, 2014 News

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More than $226M is earmarked for the National Insurance Scheme (NIS) this year, and a significant portion of the money will be used for studies that will help chart the way forward in making the fund more sustainable.

Responding to media questions on the allocations contained in the 2014 National Budget Wednesday, President Donald Ramotar said that the administration is actively pursuing measures that will place the $30B fund on firmer footing.
Last year, for the first time, payouts for pension and other benefits outstripped revenues, worrying the managers of the fund. Chairing the Board of Directors is Head of the Presidential Secretariat, Dr. Roger Luncheon.
With Government plugging $110M in NIS last year, the $226M allocation this year, seems to signal serious intentions and concerns about the future of NIS.
Ramotar said that studies will be used to develop policies aimed at reversing the current situation.
Last year, NIS urged for agreements among stakeholders on key measures that will ensure the financial future of the entity.
NIS is the state-controlled body which has been managing the social insurance fund charged with paying pensions and other medical benefits. It is set to celebrate its 45th year in existence this year.
The fund has started targeting measures to significantly expand its contributor base and raise the rates. It is looking to better manage growth in benefits expenditure, particularly pensions.
Dr. Luncheon himself has insisted that even though the spectre of an imminent dire situation is highly exaggerated, the scheme’s financial viability does evoke apprehension among the informed.
“Essentially, the scheme’s expenditure growth is out-stripping revenue growth. Contribution income, the main ingredient of revenue was $11.32B in 2012 while benefits expenditure, the main ingredient of expenditure, was $11.33B,” Luncheon said in a statement late last year.
“As is known, long term benefits dominate the benefits profile with over 43,000 pensioners in payment at July 2013. The aging population, longer longevity has impacted significantly on this growth in benefit expenditure.”
The NIS Chairman believed the scheme may not have been rigid enough in insisting that more self-employed join up and contribute, as is the regulation.
At the end of 2012, the active population of employed contributors numbered 117,219, while the active population of the self-employed was only 8,791. “The self-employed situation of anomaly is evident in the face of the size of parallel economy in Guyana. Importantly, the contribution rate has seen occasional annual increases in the last decade.”
Against this background, NIS continues to offer a pension linked to minimum wages in the public service with a wide range of short-term benefits to contributors and pensioners.

“The end result is predictable. Expenditure growth exceeds that of revenue. The NIS fund is therefore being used to meet the operational deficits currently being incurred. As a result, the NIS fund has failed to show growth over the recent years as deficits in operational costs have been financed from the savings in the fund.”
In 2011, the fund was $30.4 billion while the 2012 unaudited fund was $30, 2 billion.
The 8th actuarial report, which is a mandatory review of NIS performance, on the scheme’s financial status, has disclosed details of the situation and made concrete proposals and recommendations about solutions, Dr. Luncheon said.
The NIS situation has raised even more concerns. “Nationwide public consultations at that time provided ample evidence of concern among stakeholders. A general principled approach must include increased revenue collection and controlled expenditure growth.”
Luncheon also pointed to the 2013 National Budget, in which the Minister of Finance, Dr. Ashni Singh proposed an increase in the contribution rate for both employed and self-employed persons to 14% and 12.5% respectively.
However, this did not help much in reversing the deficit.
“The Central Government absorbed and subsidised that increase for employed contributors whose incomes were less than $50,000.00. The impact of the contribution rate increase did not significantly reverse the deficit which was simultaneously being negatively influenced by the increasing cost of doing business by the scheme.”
The NIS Chairman assured that while there is little likelihood of a collapse of the scheme in the short to medium term, the current situation is not sustainable.
NIS itself which has investments in the Berbice River Bridge has reportedly lost US$30M which has been invested in CLICO, a regional insurance company which went bankrupt a few years ago. The money had been invested in CLICO’s Bahamas.

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