NIB faced gap of $1.2b last year between income, benefits paid

Economist Dr Vaalmikki Arjoon.  -
Economist Dr Vaalmikki Arjoon. -

DAYS ahead of next Monday's budget day, a new report by the National Insurance Board (NIB) looks set to reignite debate on the vexed question of the retirement age. The report said last year a deficit in the National Insurance Scheme (NIS) had to be plugged with funds, variously quoted as $1.259 billion or $1.36 billion.

Almost all NIB earnings were used to plug a billion-dollar deficit between contributions it received and benefits paid out to recipients, mostly pensions.

This alert was spelt out in NIB Annual Report 2022, recently laid in the House of Representatives.

The deficit worsened over the past five years (from 2018 to 2022) successively from $226 million (in 2018) to $432 million, $664 million, $1.024 billion, and finally $1.198 billion (in 2022). A bar chart shows the trend of a widening deficit got significantly worse in 2020.

While contributions had been fairly stable at about $4.7 billion, from 2020 to 2021 they fell by $165 million (from $4.685 billion to $4.510 billion).

Worse yet, at the same time, the steadily increasing benefits paid out then leapt by $360 million.

Things overall got no better last year, as some $20 million more in contributions to the NIB was gobbled up by a $174 million jump in demand in benefits paid out.

The report said, "Demographic factors continue to impact the NIB, highlighted by an increasing beneficiary base and shrinking contributory base."

Since 2013, benefits paid out have exceeded contributions received, the report said.

It said last year's shortfall of $1.198 billion was "an increasing and concerning trend."

The report said the NIB's total investment income that year of $1.259 billion was utilised in financing this shortfall.

By June 2022, the NIB investment portfolio fell by nearly three per cent to $29.04 billion, some $786 million less than a year before.

NIB blamed the decrease in the fund's value on $598 million in unrealised losses plus "the withdrawal of $1.36 billion to finance the NI System deficit."

The report said the global economy had struggled in 2022, amid the Russia-Ukraine war and related events worsening inflation and global economic activities.

The executive director remarked the NIB has completed its 11th Actuarial Review, to be sent to the International Labour Organisation (ILO) in the new fiscal year.

"Additionally, we partnered with the Ministry of Finance and other key stakeholders in sessions to discuss the recommendations included in the 10th Actuarial Review, particularly the proposal to introduce early retirement reduction factors for persons retiring before 65.

"These stakeholder engagements are in line with one of our strategic objectives and are increasingly pertinent as TT continues to experience the effect of an ageing population, which is challenging the sustainability of the NIS."

The report, in a section titled Long-term Benefits, said almost 87 per cent of benefits paid were long-term benefits – retirement pension, retirement grant, invalidity benefit, and survivors benefit – to the tune of $5.43 billion last year.

"The retirement pension accounted for the largest component of long-term benefits, totalling $4,723 million ($4.723 billion) or 86.92 per cent."

OWTU leader Ancel Roget last week at a JTUM briefing in Barataria told the Government to "back off" from raising the retirement age.

“They are coming with the increase in retirement age to make it harder for you to access your NIS pension, contributions that you have made throughout your working life. You will have to wait five more years to receive your full NIS pension.”

After Finance Minister Colm Imbert said Jamaica and Barbados had higher retirement ages than TT in his last budget speech, last October, Attorney General Reginald Armour promised relevant legislation.

"It is intended to update and modernise the senior citizens' pension scheme and to complement the proposed increase in the age of retirement from 60 to 65, giving our very knowledgeable and experienced senior citizens the opportunity to continue to contribute to our society."

Last June, thousands of people in France publicly protested for days after President Macron raised the pension age from 62 to 64.

Economist Vaalmikki Arjoon on Monday viewed a rise in the retirement age as a progressive step for the NIB fund and wider economy.

He said NIB inflows came from employer and employee contributions, and investments.

"For some time now, the benefits paid out have increased, given that more persons are living longer, but the inflows to the fund are not growing quickly enough to adequately cover these benefit pay-outs."

Further, investment income was low for several years owing to meagre bond yields internationally, he said.

He said raising the retirement age provides more years of inflows to the fund via contributions, substantially reducing the risk of not being able to pay benefits.

"Further, given the hike in US treasuries’ returns, the investment managers are likely to take advantage of this and use part of the investment income to purchase some of these securities to secure higher investment income for the fund."

Arjoon advised a gradual implementation.

"Increasing the retirement age should be done in a stepwise manner, where in the first year, it is increased from age 60 to 61, then in the second year from 61 to 62, until the fifth year, when it is increased from 64 to 65.

"Alternatively, this can be done every two years, so the age is increased to 65 over a ten-year period. Further, in the first year alone, those persons who are 59 years old should be given the option of retiring at 60 or working till age 61."

He said an increased retirement age would benefit the economy by increasing productivity.

"The labour force is increased, while those persons who continue to work post-age 60 will likely be more experienced, with a higher skill set on the job, which can boost productivity levels."
Firms may save on the costs of  training new workers, by retaining experienced staff.

Arjoon said workers could earn a salary for a longer period, and so maintain their lifestyle, increase their savings, and contribute more to boost their pension plan.

"One drawback however, is that increasing the labour force in this manner increases the competitiveness of the labour market, and this could make it more problematic for new graduates to access jobs, as there are fewer vacancies in the workplace, since persons are working for a longer period."

Arjoon warned against raising the amount payable per worker to the NIB by employers and employees because of the financial stresses faced in the pandemic.

He noted higher prices of raw materials and goods for resale from foreign suppliers, fuel and transport costs, and rent and port demurrage charges.

"Inflation levels ,especially food inflation, are already challenging, and higher NIS payments will compound this, while also lowering the disposable income available to meet these higher costs of living."


"NIB faced gap of $1.2b last year between income, benefits paid"

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