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Vincentians to pay more in NIS contributions

Vincentians to pay more in NIS contributions

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Vincentians will pay more in National Insurance Services (NIS) contributions next year and will see some benefits increase, as the government pushes ahead with pension reform.{{more}}

As of January 1, 2014, NIS contribution will rise two percentage points to 10 per cent — up from the current 8 per cent.

Employers and employees

will share the contribution equally, Prime Minister

Dr Ralph Gonsalves announced in the Budget Address

yesterday.

Gonsalves, who is also Minister of Finance, told Parliament and media audiences that across the region St Vincent and the Grenadines, Antigua and Barbuda, and Turks and Caicos had the lowest contribution rates — 8 per cent.

The average was 9.44 per cent, he said.

The changed were informed by an actuarial review of the NIS last year and were done according to International Labour Organization’s (ILO) guidelines for executing a social security scheme.

The review said the NIS is projected to have sufficient funds available to cover expenses until 2035.

The source of these funds was projected to be derived from contribution income until the year 2014 and contribution and investment income from 2015 to 2024 and thereafter.

“If reform measures are not implemented, the funds in

the reserve account will be

used to meet projected expenses, eventually fully depleted by the year 2036,” Gonsalves explained.

The review also determined that benefits and administrative (PAYE) costs of the NIS was projected to increase rapidly, as the number of pensioners and the value of pensions that was earned increased and that the scheme’s dependency ratio was projected to quadruple in years to come.

“Long term financial sustainability would require that at a minimum the scheme has a period of equilibrium for 15 to 20 years, during which income can cover expenses and a minimum level of reserves of 15 years is maintained.”

The review also recommended that Cabinet approve measures including increasing the pensions-in-pay which were awarded before January 1, 2011; increase Maternity Grant to $660, Funeral Grant to $4,525, the NAAP Funeral Grant to $2,263 and the Employment Injury Funeral Grant to $4,525, all to take effect in January 2014 and to maintain the Insurable Earnings ceiling at the current level of $1,000 per week, or $4,333 per month.

The review, the prime minister said, also recommended a number of parametric reforms.

These include a gradual increase in the number of years required for pension eligibility from the current level of 500 weeks to 750.

This change will be implemented over a period of 12 years, beginning January 2016, when the required weeks will be increased to 550 weeks and increasing thereafter, until 2028.

However, the minimum number of contributions will remain at 500 weeks for the time being, Gonsalves said.

The prime minister said the retirement age will be gradually increased to 65 — from 60 — starting from January 2016, when the retirement age will be increased to 61 years. By 2018, the retirement age will have increased to 65 years, Gonsalves said.

“Persons who are aged 58 and older as at December 2013 would retire at age 60 and therefore would not be impacted by this change,” Gonsalves said.

He explained that this increase was necessary in order to reflect the increasing life expectancy and as a result, pension payments will be delayed and paid out for a shorter period of time. It is expected to lessen the financial burden on working populations to ensure sufficient funds will be available to pay out the increasing number of old age pension benefits.

To change the rate of pension entitlement for each year’s service, under the current system, he explained, a pensioner would receive a pension of 30 per cent for the first 500 weeks of contribution and 1 percent for each 50 weeks of contribution in excess of 500 weeks.

“Under the proposed system, persons would receive 30 per cent for the first 750 weeks of contribution and 1.2 percent for each 50 weeks of contribution in excess of the first 750 weeks of contribution,” Gonsalves said.

Other reforms outlined include changing the reference wages used to calculate pension from three of the last 15 years to the best five years ever.

And the prime minister said he proposed to amend the Income Tax Act to increase the threshold for income tax exemption on pension income from $20,000 to $40,000, effective January 2014.

“This increase in the exemption threshold for pension income is necessary, as the pension by the National Insurance Services has been increasing and the maximum pension granted by NIS now exceeds the current threshold,” he said.

“Mr Speaker, I believe that this package of measures will strengthen the NIS and take care of people’s concerns going into the future,” Gonsalves said.

Gonsalves said during a radio consultation on the Budget last year that pensions had been identified as “the major challenge,” as his administration prepared the estimates of income and expenditure for 2013.

He said then that pensions were growing at about 5 per cent annually.

“It is the fastest single growing item: retiring benefits, pensions and NIS contributions,” Gonsalves said in November.

The government had been considering, since 2011, its option for reforming a system that qualifies public servants to receive separate pensions from both the National Insurance Services and the central government.

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