Flawed maths in union’s NIS pension calculation

THE EDITOR: In a letter on Thursday, a union official lamented a proposal before the National Insurance Board “to modify the payment of the minimum pension of $3,000 when workers retire at the age of 60. They want to reduce the pension by six per cent per year for every year a worker retires before age 65. If you retire at 60, that means your pension will be reduced by 30 per cent. You will, therefore, be losing $1,000 on your pension if this recommendation is accepted.”

Now, I completely agree with his concerns and would not support any reduction in pension payment. As the cost of living rises, even thinking about reducing NIS pension should not be an option. However, I’m sorry to point out that his maths is not as precise as it should be.

Even if we accept that “six per cent for five years equates to 30 per cent” (which it isn’t, I’ll explain shortly), 30 per cent of 3,000 is 900, not 1,000, as he claims. (Then, again, union officials are prone to exaggeration to make a point.)

In the following, I give the figures to the nearest dollar, after the precise calculation is done.

We start with 3,000. After one year, a reduction by six per cent gets you to 2,820. After year 2, six per cent reduction of 2,820 gets you to 2,651. After year three, six per cent reduction of 2,651 gets you to 2,492. After year four, six per cent reduction of 2,492 gets you to 2,342. And after year five, six per cent reduction of 2,342 gets you to 2,202.

(For those who know about raising a number to a power, eg 2^3=2x2x2=8, we can get there in one shot: 3000x(1-0.06)^5 = 3000x(0.94^5)) = 2202.

So, after five years, your $3,000 pension would have been reduced to $2,202, a reduction of 26.6 per cent. Better than $2,100, but surely still completely unacceptable.

NOEL KALICHARAN

via e-mail