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JTUM SUBMISSION ON NIS TO JOINT SELECT COMMITTEE

posted 15 Dec 2017, 07:42 by Gerry Kangalee   [ updated 15 Dec 2017, 07:51 ]
The following is an official statement submitted by the Joint Trade Union Movement to the Parliamentary Joint Select Committee on Finance and Legal Affairs.

Written Submission to the Inquiry into certain aspects of the National Insurance System of Trinidad and Tobago 


Image result for NATIONAL INSURANCE SYSTEM TRINIDADThe results of the 9th Actuarial Report(Report) show that the NIS is in serious financial trouble. There are many solutions being discussed but the labour movement is of the firm belief that root causes of the crisis must be identified and specific corrective measures be adopted.

The NIS is a Pay as you go (PAYG) social security scheme. It relies on multiple contributors to each recipient of benefits. Its contribution income must at least equal or better still, exceed its benefits pay out plus administration costs. This has not been so since 2013 and investment income has been used to supplement the shortfall.

We believe that that there are two critical issues that have impacted on the fortunes of the NIS. They are;

1) Declining ratio of contributors to benefits expenditure.

2) NIS paying out benefits at significantly higher levels than their insured values

Declining ratio of contributors to benefits expenditure

This ratio is projected to decline from present 3.7 to 1.1 /1 over the next 50 years.

Once the ratio gets into that area, the funding requirements change dramatically from approx. 14% to 36%.

This issue can be alleviated by capturing the large numbers of “self- employed” (SEP) at all levels and having them brought into the system. The Report states on the inclusion of SEP;

“Financial projections show that, on the basis of the contribution rate of 11.2 per cent, the fund would increase continuously until 2048-49 and would become negative only at the very end of the projection period (2059-60).” This measure has possibly the single greatest impact over the time horizon considered by the Report and best addresses the fundamentals of the PAYG

Many SEPs employ scores of workers and their employees are members of the NIS. While many of the employers (self-employed) are eligible to collect Old Aged pensions at age 65.

Steps must be taken to correct this immediately.

Possibly the maintenance of a registry of employment status of all persons above age 20 would be useful national exercise. This should not to be interpreted that persons with disabilities or other hardships are to be forced to pay contributions.

NIS paying out benefits at significantly higher levels than their insured values

Over the years Ministers of Finance would announce increases in the levels of benefits being paid by the NIS. These announcements would later be approved by Parliament and later implemented by the NIB. None of these increases were ever funded by GOTT. We have been informed that this has cost the NIS between 2003-2016 $10.7B and $1.6B in 2016 alone. The 2016 figure is approximately 35% of the NIS annual revenue.

Recommendations 

1) Government of Trinidad must immediately fund the NIS annually, all monies representing payments approved by Parliament that are in excess of the insured values. Also urgent arrangements be put in place to liquidate the accumulated liabilities associated with these payments.

2) Immediate steps be taken to include The Self-Employed into the NIS

The Labour Movement is not questioning the inadequacy of the value of the insured benefits however, satisfactory funding requirements should and must be put in place to deal with the consequential misalignment. Funding mechanisms must be clearly identified for future increases.

We believe if these two issues are addressed the NIS will not only correct this misalignment in the PAYG system but will be secure to 2060 and beyond. We would like to address the issue of increasing of the retirement age.

RETIREMENT AGE

Image result for retirement age increaseThe issue of increasing the retirement age from 60 years to 65 years has been brought to the fore front as a mechanism to help deal with the imbalance between revenue and expenditure of the NIS.

The Labour Movement wants to make it abundantly clear that this issue is not a social security matter but an Industrial Relations issue. The NIB will negotiate with its Recognised Majority Union(RMU) on behalf of its employees only but has no jurisdiction over the rest of the working class.

The Retirement Age is placed in Collective Agreements where there is a RMU or the Contract of Employment in non-unionised environment. It is determined via the collective bargaining process between the management and the union or the individual contract between the worker and employer. This being a term and condition of employment has repercussions on many other employment contractual obligations.

Normal retirement age was not always 60 years. Up to the 1960’s it would have generally been 65 years in the private sector. This was reduced by RMU at the various workplaces at the behest of their members. The workers’ decision was influenced by many factors e.g. the harsh environment of industry such as heat, dust, chemicals, marine conditions, shift work etc. The consequence of which saw many dying before or soon after retirement and many suffer poor quality of life through-out their retirement. While union struggles have resulted in some improvement in working conditions, many workers have had more than enough by age 60. Indeed, many collective agreements and pension plans allow workers to retire at age 55 without any reduction in benefits.

In order for the workers to enjoy these pension benefits today in Defined Benefit Plans, they had to accept lower wage and salary increases and other terms and conditions of employment then. The employers argued then that the reduction in retirement age had severe cost implications. If there is a reversal to age 65 then it means that pension plans will require lower funding rates. Employees rate are fixed via the respective rules of each plan; the employer rates vary based upon the solvency of the plan. The resulting surplus that would accrue will apply automatically to the employers and the workers and their union would have to struggle to have the return of benefits given up years ago.

Worse yet the cost implication and the impact of the measure is quantified in the Report as follows;

“It is recommended to gradually increase the retirement age at which a pension is paid without reduction from age 60 to age 65 over the period from 2025 to 2060. It would be possible to continue to allow people to claim their retirement pension from age 60 with a lifetime actuarial reduction of their pension. The increase of the retirement age would reduce the GAP of the system from 23.8 per cent to 21.8 per cent.”

The two per cent reduction in the General Average Premium (GAP) would merely delay the demise of the NIS Fund for a very short period while causing severe disruption in the industrial relations climate in the country.

Employers and the NIS

The labour movement is inundated by claims from hundreds of workers annually who complain that their employers have been deducting their NIS contributions but not remitting them to the NIBTT. This is particularly so in the unorganized areas of the workforce. Queries to the NIBTT bring about little redress but lots of victimization from those employers to our members. We seldom hear about charges being laid against delinquent employers as is provided for in the ACT. Most of these workers are denied benefits in their times of need and are often admonished for not routinely verifying their accounts. We recommend;

1) NIBTT be mandated to provide annual statements to its contributing members.

2) Record of the numbers of complaints, those resolved and charges laid against delinquent employers be published annually by the NIBTT.


Respectfully submitted,
Joint Trade Union Movement
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