NIS PERSPECTIVE ON PENSION & PENSION REFORM

PREPARED BY: DORSET CROMWELL

DEPUTY DIRECTOR

NIS

OVERVIEW The NIS a legal entity by People Law No. 14 of

1983 Provident Fund which was established in 1969

Benefits include sickness, maternity, funeral, employment injury & pensions.

Contribution of 9% required Allocation to the three benefit branches;

Short-term, Employment Injury and Long-term

Distribution as follows; 1.3%, 0.3% and 7.4% LTB accounted for 82.6% of expenditure in

2010

OVERVIEW 2010 Reserve stood at $697,010,447

Average 10 year increase of 10.3% Average 5 year increase of 9.2%

Reserve as a percentage of GDP of 49.7% Rate of growth Expenditure ratio 16.6 years Up to 2010 collection totaled $694.5M

Earned $381.4 M in investment income

Benefit expenditure totaled $322.9 M $248.6M on pensions and other Long-term

benefits

FINANCIAL OVERVIEW AMOUNT OF RESERVE

Table 15 - Financial projection: Actuarial Balance (in millions), 2009-2069

2009 Year-end Reserves 661Plus PV of Future Contributions 2903

Minus PV of Future Expenditures 5992Equal PV of Surplus/ (Shortfall) (2428)

Actuarial Balance (% of PV of insurable earnings) -7.5%Actuarial Balance (% of 2010 GDP) 171%

GAP of

18.6%

PENSION COST Examined pension history of 696 former age

pensioners Contributed $4.9 million Payments totaled $23.2M Average repayment period of 1 year and 7

months Max repayment of 4 years and 1 month Pensioners received 31.8 times contribution

made

DESIGN CONSIDERATION

Ideal replacement rate in retirement NIS replacement rate Current maximum of 49%. 60% in 2022 What prudent approach? Individual plans

each giving 70-80%; Cost to employers? Cost of doing business in

country? Or integrated pension system/retirement

planning system

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PENSION REFORM

Parametric reform measures offers a more viable and prudent approach to pension reform; Adjustment to ceiling Normal Retirement Age Contribution rate Accrual Rate Career Average Pension vs. Final Average

Pension Eligibility requirements Access to capital markets

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PENSION REFORM

However NIS has ceiling of $3,500 increase to $5000 in 2014 Real replacement rate for person above the ceiling Impact of low ceiling on quality of pensions.

Max replacement rate of 49% If salary is $7000 RR will be 24.5%; at $8000 RR will be

21.4%

Ceiling should be high enough not to disadvantage middle to high income earners Ceiling does not stifle National Savings

The timing and magnitude of the increase in the ceiling should be legislated

The same should happen with pension increases 8

PENSION REFORM

Globally improvement in life expectancy Has lead to increasing NRA Adjust age of first payment in keeping with

demographic shifts Number of employer have age 65 as

retirement age Both salaries and pension paid

Coordination of various NRA Shift in NRA for 60 to 65 extends the life of

NIS from 2041 to 2048 Increase over 20 year period 9

PENSION REFORM- RETIREMENT AGE IN SISTER SCHEMES

Anguilla, BVI and the Bahamas NRA is 65 Belize and Bermuda NRA is 65 Jamaica NRA is 65 for men & 60 women Dominica, St. Vincent & Antigua NRA is 60.

Each have actuarial recommendation to move to 65

Barbados is 66 on its way to 67 St. Kitts NRA is 62 St. Lucia is 63 on way to 65

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CAREER EARNINGS VS. FINAL AVERAGE SALARY

0

Years of Contributions

Ins.

Ear

ning

s

“THERE IS NO LASTING PEACEWITHOUT SOCIAL JUSTICETHERE IS NO SOCIAL JUSTICEWITHOUT SOCIAL SECURITYTHERE IS NO SOCIAL SECURITYWITHOUT SOUND FINANCING”-ILO

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