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NIS PERSPECTIVE ON PENSION
& PENSION REFORM
PREPARED BY: DORSET CROMWELL
DEPUTY DIRECTOR
NIS
OVERVIEW

The NIS a legal entity by People Law No. 14 of
1983

Provident Fund which was established in 1969
Benefits include sickness, maternity, funeral,
employment injury & pensions.
 Contribution of 9% required
 Allocation to the three benefit branches; Shortterm, Employment Injury and Long-term
 Distribution as follows; 1.3%, 0.3% and 7.4%
 LTB accounted for 82.6% of expenditure in 2010

OVERVIEW

2010 Reserve stood at $697,010,447
Average 10 year increase of 10.3%
 Average 5 year increase of 9.2%

Reserve as a percentage of GDP of 49.7%
 Rate of growth
 Expenditure ratio 16.6 years
 Up to 2010 collection totaled $694.5M



Earned $381.4 M in investment income
Benefit expenditure totaled $322.9 M

$248.6M on pensions and other Long-term benefits
FINANCIAL OVERVIEW
AMOUNT OF RESERVE
Table 15 - Financial projection: Actuarial Balance (in millions), 2009-2069
GAP
of
18.6%
2009 Year-end Reserves
Plus PV of Future Contributions
Minus PV of Future Expenditures
Equal PV of Surplus/(Shortfall)
Actuarial Balance (% of PV of insurable earnings)
Actuarial Balance (% of 2010 GDP)
661
2903
5992
(2428)
-7.5%
171%
PENSION COST
Examined pension history of 696 former age
pensioners
 Contributed $4.9 million
 Payments totaled $23.2M
 Average repayment period of 1 year and 7
months
 Max repayment of 4 years and 1 month
 Pensioners received 31.8 times contribution made

DESIGN CONSIDERATION
Ideal replacement rate in retirement
 NIS replacement rate
 Current maximum of 49%. 60% in 2022
 What prudent approach? Individual plans each
giving 70-80%;



Cost to employers? Cost of doing business in country?
Or integrated pension system/retirement
planning system
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PENSION REFORM

Parametric reform measures offers a more viable
and prudent approach to pension reform;
Adjustment to ceiling
 Normal Retirement Age
 Contribution rate
 Accrual Rate
 Career Average Pension vs. Final Average Pension
 Eligibility requirements
Access to capital markets


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PENSION REFORM

However NIS has ceiling of $3,500 increase to
$5000 in 2014
Real replacement rate for person above the ceiling
 Impact of low ceiling on quality of pensions.

Max replacement rate of 49%
 If salary is $7000 RR will be 24.5%; at $8000 RR will be
21.4%


Ceiling should be high enough not to
disadvantage middle to high income earners

Ceiling does not stifle National Savings
The timing and magnitude of the increase in the
ceiling should be legislated
 The same should happen with pension increases

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PENSION REFORM
Globally improvement in life expectancy
 Has lead to increasing NRA
 Adjust age of first payment in keeping with
demographic shifts
 Number of employer have age 65 as retirement
age


Both salaries and pension paid
Coordination of various NRA
 Shift in NRA for 60 to 65 extends the life of NIS
from 2041 to 2048
 Increase over 20 year period

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PENSION REFORM- RETIREMENT AGE IN
SISTER SCHEMES
Anguilla, BVI and the Bahamas NRA is 65
 Belize and Bermuda NRA is 65
 Jamaica NRA is 65 for men & 60 women
 Dominica, St. Vincent & Antigua NRA is 60.
Each have actuarial recommendation to move to
65
 Barbados is 66 on its way to 67
 St. Kitts NRA is 62
 St. Lucia is 63 on way to 65

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CAREER EARNINGS VS. FINAL AVERAGE
Ins. Earnings
SALARY
0
Years of Contributions
“THERE IS NO LASTING PEACE
WITHOUT SOCIAL JUSTICE
THERE IS NO SOCIAL JUSTICE
WITHOUT SOCIAL SECURITY
THERE IS NO SOCIAL SECURITY
WITHOUT SOUND FINANCING”
-ILO
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