NIS 11th Actuarial Review makes recommendations to further secure Public Social Security

The National Insurance Services (NIS) 11th Actuarial Review has presented the institution with a set of policy options regarding parametric and administrative reform recommendations to further safeguard the future of the public social security in St. Vincent and the Grenadines (SVG).

The actuarial review is in keeping with conditions set out in the St Vincent and the Grenadines National Insurance Act, which requires an actuarial review to be carried out at three-year intervals.

The 11th Actuarial Review was prepared as at December 31, 2019, with the final report submitted in August 2021. However, similar to most countries across the globe, SVG was affected by the Covid-19 pandemic and as a result the decision was taken to postpone plans for an earlier release of the report so that implications from the pandemic could have been accounted for.

A number of key challenges facing social security in SVG were outlined in the actuarial review as well as a set of recommendations to address them.

Among the challenges are the ageing population of Vincentians driven by reducing birth rates and increasing life expectancy; compliance challenges in the rural and Grenadines areas; low contribution rates relative to high benefit replacement rates; low and unequal coverage for informal and self-employed workers; limited suitable regional investment opportunities; costly access to international securities (tax & expenses); and susceptibility to external shocks.

Noting other challenges, the 11th Actuarial Report projects expenses will exceed contribution income each year; total expenses were projected to first exceed total income in 2021, which occurred, and depletion of the Fund is projected to take place between 2033 and 2036 if there are no changes in contribution rates and benefit provisions.

A key message from the actuary states: “The Fund is not financially sustainable over the medium and long-terms at current benefit provisions and contribution rate”. Additionally, “The outlook for the NIF is closely linked to the size and age distributions of the general population and indicators such as contribution collection rates and yield on investments”.

To this end, pension reforms, a critical public policy priority, will seek to preserve the sustainability of the retirement income system, which is currently threatened by the ageing population; constantly fluctuating economic conditions; and increasing labour informality.

Regarding the proposed parametric reforms, the policy options include changing future benefit provisions; changing financing structure by increasing contribution rates or contribution base; restructuring the pension system in a fundamental way, or a combination of all recommendations.

The main recommendations in the parametric reform bracket are focused on reducing the long term social security costs of the NIS. For instance, material savings from benefit reforms can only be realized from changes to Age pension provision. Regarding this proposal it is recommended that there be a reduction of the maximum age/invalidity pension percentage rate from 60% to 55%; do not award early pensions to insureds who have not substantially retired; gradually increase the age at which reduced age pensions are awarded from 60 to 62; increase the reduction factors that apply to EAP from ½ per month to as much as ¾ per month in an effort to discourage early pensions; and hasten the increase in pensionable age so that 65 is reached in 2026 instead of 2028.

The 11th Actuarial Review also recommended that the financing structure increase the contribution rate to at least 15% over the next 10 years, which should have started from 2022. This is proposed to be critical to ensuring Fund solvency for at least the next 25 years.

The financing structure reform also calls for efforts to make NIS registration and payment of contributions mandatory for all self-employed and informal sector workers.

The 11th Actuarial Report was peer reviewed by the Reserve Advisory and Management Partnership (RAMP) of the World Bank in March 2023. It was then tabled in Parliament in June 2023. RAMP is a programme developed within the World Bank Treasury that seeks to build human capital, delivers asset management services and convenes a network of practitioners, which serves over 70 members, including central banks, as well as international financial institutions, pension funds and sovereign wealth funds.