NIS will be bankrupt in 20 years
KINGSTON – THE National Insurance Scheme (NIS) is on course to becoming bankrupt in roughly 20 years.
“If the current conditions are preserved the fund will start to have a negative cash flow in 2028 and will be completely exhausted by 2035,” said the Inter-American Development Bank (IDB) in project documents on its website.
The IDB will, however, provide technical assistance in an attempt to steer the scheme towards sustainability. It’s part of an approved US$400 000 project entitled Technical Support to Improve the Fiscal Sustainability of the NIS.
The IDB contracted actuary firm Eckler in 2013 to provide the Ministry of Labour and Social Security an updated actuarial analysis and a roadmap for strengthening the NIS.
“This actuarial analysis revealed that in 2013, the NIS has an actuarial deficit of $371 billion equivalent to 27.8 per cent of GDP with an estimated deficit of $833 166 per contributor,” stated the IDB.
NIS describes itself as a compulsory contributory funded scheme that offers financial protection to the worker and his family against loss of income arising from injury on the job, incapacity, retirement, and death of the insured.
The IDB further explained that the NIS has a very low coverage rate of 20 per cent of the working age population and that 27 per cent of the elderly receive NIS pension benefits.
“These gaps in social insurance will put additional pressure on the budget and may result in political pressures to extend non-contributory benefits, potentially adding to fiscal imbalances,” stated the project details. A key part of the technical assistance will seek to increase the low contribution rate by installing new hardware and software.
“The hardware and software are outdated, making the system very inefficient,” said IDB documents. “Its database is incomplete and has numerous errors and omissions, causing extensive delays in the processing of claims and payment of benefits. “It is not possible to verify the status of beneficiaries of the NIS and their participation in other government programmes.
Furthermore, this limits the enforcement capacity, as only 40 per cent of those who should be contributing to the NIS are actually contributing.”
The project, which started in July this year, follows the submission of a concept paper on the reforms of the NIS to Cabinet in February 2014.
The Ministry of Social Security aims to register some 70 370 persons during the current financial year; to disburse NIS benefits totalling $12 billion; and collect $337.5 million in arrears from delinquent employers, according to the public sector estimates of expenditure and estimates for 2014-15.
The NIS recurrent budget is estimated at $457 million, of which $300 million relates to compensation of NIS staff. (Jamaica Observer)