Na­tal­ie?Brig­gs

From 2015 to 2020, 127,000 peo­ple be­tween the ages of 55 to 59 will be­come el­i­gi­ble for pen­sions un­der the Na­tion­al In­sur­ance (NI) sys­tem. This is in ad­di­tion to the 77,000 that are al­ready in re­ceipt of the ben­e­fit. The Na­tion­al In­sur­ance Board (NIB)–which pro­vid­ed the pre­ced­ing fig­ures–is aware that these are part of a wider de­mo­graph­ic shift which will see the those re­ceiv­ing pen­sions from the state bur­geon while the num­bers sup­port­ing this ag­ing pop­u­la­tion will de­crease.

In it eighth ac­tu­ar­i­al re­view, pub­lished in Sep­tem­ber 2012, the NIB pro­ject­ed that the pop­u­la­tion of this coun­try will grow from 1,317,714 (2010) to 1,431,642 by 2036, a per­cent­age in­crease of 8.6 per cent. There­after, it is ex­pect­ed to de­cline to 1,341,694 by 2060. The re­view said, while those 60 and over will num­ber 412,423 in 2060, or 30 per cent of the pop­u­la­tion, those be­tween 16 and 59, who form the sup­port base of the NI sys­tem, will de­crease by 18 per cent to 712, 184, down from 871,487 in 2010.

The scheme's con­tri­bu­tion in­come will al­so be out­stripped by its ex­pen­di­ture from the year 2012. There was al­so a short­fall in as­sets by $3.3 bil­lion in fi­nan­cial year 2011-2012. How­ev­er, the re­view said NIB's as­sets will con­tin­ue to in­crease, but on­ly un­til the year 2026-27.

Sub­se­quent­ly, the re­view fore­cast­ed that if noth­ing was done, the NI sys­tem funds would be com­plete­ly de­plet­ed by 2039-40, a fact con­firmed by chair­man, Adri­an Bharath in an April 2013 in­ter­view with the Busi­ness Guardian.

The re­view pro­posed an in­crease in the rate of con­tri­bu­tions to cov­er short-term costs, with calls for a long-term plan for in­sti­tut­ing the rate in­creas­es.

The pub­lic has al­ready ex­pe­ri­enced the first of these rates ad­just­ments with con­tri­bu­tion rates mov­ing from 11.4 per cent to 11.7 per cent of in­sur­able in­come in 2013 and a fur­ther 0.3 per cent to make it 12 per cent in 2014.

Bharath al­so said that he want­ed to "in­crease the in­sti­tu­tion's in­vest­ment in prop­er­ty and di­ver­si­fy its port­fo­lio to in­clude more for­eign in­vest­ments. He al­so spoke about a "re­brand" of the NIB, to make it more "trans­par­ent, open and ac­count­able to the pub­lic."

It has been more than a year since these state­ments were made.

The Judges Salary and Pen­sions and the Leg­isla­tive Re­tir­ing Al­lowances bills, shelved last week, have brought the is­sue of the ad­e­qua­cy of pen­sion cov­er­age for the gen­er­al pub­lic back to the fore­front.

Ex­ec­u­tive di­rec­tor of the Na­tion­al In­sur­ance Board, Karen Gopaul, and ex­ec­u­tive man­ag­er, in­vest­ments, Navin Ra­jku­mar, sat down with the Sun­day BG to dis­cuss where the or­gan­i­sa­tion is at with reach­ing the ob­jec­tives as set out by the chair­man as well as how the NIB in­tends to en­sure the sur­viv­abil­i­ty of the fund.

Not out of the woods yet

One of the first items it has been able to ac­com­plish on this list is to in­crease its lev­el of for­eign in­vest­ment.

Gopaul said last year, the NIB re­ceived per­mis­sion to in­crease its lev­el of for­eign in­vest­ment from 10 to 20 per cent. Most of this has been placed in eq­ui­ties. Gopaul said that in ad­di­tion to im­prov­ing the di­ver­si­ty of the NIB's port­fo­lio, the move helps them get around the prob­lem of the low-in­ter­est en­vi­ron­ment for fixed-in­come in­stru­ments lo­cal­ly.

In the last ac­tu­ar­i­al re­view, the ac­tu­al long-term rate of re­turn was 4.4 per cent, Ra­jku­mar said that over the last fi­nan­cial year, the rate of re­turns on both lo­cal and for­eign eq­ui­ties has aid­ed the over­all port­fo­lio in achiev­ing a rate of re­turn of 10 per cent thus far.

"If you look at the All Trinidad In­dex, this in­creased by 17.7 per cent. The re­turn on the S&P 500 was 29.6. Giv­en that the ma­jor­i­ty of the port­fo­lio re­sides in eq­ui­ties, it re­sult­ed in an up­swing in the port­fo­lio."

How­ev­er, the NIB's ex­ec­u­tive di­rec­tor does not think they are out of the woods yet.

Re­fer­ring to the $3.3 bil­lion-short­fall as­sets men­tioned in the ac­tu­ar­i­al re­view, Gopaul said the in­sti­tu­tion was at a place where its ra­tio of as­sets to debt was 1:1, but there was still work to be done.

"We have made head­way but I won't say that we've re­cov­ered be­cause things could shift in the mar­ket, and you could lose val­ue."

Any such shift could be erod­ed in ninth ac­tu­ar­i­al re­view, the fig­ures of which are be­ing com­piled, for the end of the stip­u­lat­ed five year pe­ri­od in 2015.

"Based on the fact that we have a lot in eq­ui­ties, RBC did well, Re­pub­lic Bank did well, Neal and Massy (the group has re­cent­ly un­der­gone a re­brand) did well. Those com­pa­nies did well. That is why we are look­ing good now. We are now ex­tract­ing the da­ta and then the ac­tu­ar­ies will crunch their num­bers and then we will see."

Ra­jku­mar em­pha­sised the point, "if it re­vers­es this year, then we are back to where we were two years ago."

Cur­rent­ly, lo­cal and for­eign eq­ui­ties make up 42.1 per cent of the NIB's in­vest­ment port­fo­lio.

NIB has shares in 12 lo­cal com­pa­nies, while for­eign man­agers han­dle the for­eign stocks. The al­lo­ca­tion changes month­ly.

Giv­ing a fur­ther break­down, Ra­jku­mar said the port­fo­lio di­vid­ed in­to four oth­er cat­e­gories in ad­di­tion to eq­ui­ties, They are: fixed in­come, 26.05 per cent; re­al es­tate, 0.85 per cent; mu­tu­al funds, 3.65 per cent and cash and cash equiv­a­lents, 24.6 per cent.

He al­so did not see the re­liance on eq­ui­ties con­tin­u­ing over the mid to long range.

"As in­ter­est rates start to rise, you would see a pull back on the eq­ui­ties side, as funds flow back in­to the bonds mar­ket," he said.

Gopaul al­so said the NIB in­tends to con­tin­ue adding to its re­al es­tate ac­qui­si­tions as a long-term di­ver­si­fi­ca­tion strat­e­gy.

Both al­so ex­pect that a merg­er be­tween T&T Mort­gage Fi­nance and the Home Mort­gage Bank will re­sult in in­creased val­ue for the NIB's in­vest­ment port­fo­lio, as the val­ue of the com­bined en­ti­ty is ex­pect­ed to be sig­nif­i­cant­ly more than its sep­a­rate parts.

When it is fi­nal­ly ap­proved by Cab­i­net, the new en­ti­ty will be called the T&T Mort­gage Bank.

But, will all of this be enough to stay ahead of in­fla­tion?

Ac­cord­ing to the NIB, its ben­e­fits are in­creased to re­flect changes in the con­sumer price in­dex (CPI). The ac­tu­ar­i­al re­view de­ter­mined that the in­crease in CPI over the 2005 to 2010 pe­ri­od was 52.3 per cent. Mean­while, from Feb­ru­ary 1, 2012, NI pen­sions in­creased by 50 per cent to $3,000 and on March 4, 2013 through to 2014, most of the re­main­ing of NIB ben­e­fits, such ma­ter­ni­ty, fu­ner­al, sur­vivor's, death, in­va­lid­i­ty and in­jury, went up by be­tween 45 and 50 per cent.

Cur­rent­ly, there­fore, ben­e­fits, at 95 per cent of the CPI are al­most keep­ing a pace of in­fla­tion.

Gopaul said the NIB is al­so guid­ed by the stip­u­la­tions of the ILO Con­ven­tion: C102.

Un­der C102, a na­tion­al pen­sion op­er­a­tor is ob­lig­at­ed to pro­vide the ser­vice in "a man­ner which avoids hard­ship to per­sons of small means and takes in­to ac­count the eco­nom­ic sit­u­a­tion of the mem­ber and of the class­es of per­sons pro­tect­ed."

De­fined ben­e­fit vs de­fined con­tri­bu­tion

The ex­ec­u­tive di­rec­tor said oth­er shifts were be­ing con­sid­ered to en­sure the long-term sus­tain­abil­i­ty of the NI sys­tem. The guid­ing phi­los­o­phy be­hind the na­tion­al pen­sions in T&T has al­ways been to "en­sure that peo­ple with a rea­son­able stan­dard of liv­ing when they reached old age," said Gopaul.

Ex­press­ing a per­son­al opin­ion, she said that it may be "dif­fi­cult" for some peo­ple to pro­vide a pen­sion on their own, or they may not be as "savvy" to mon­i­tor in­vest­ments to pro­vide them­selves with pen­sion in­come.

"Here you have a sys­tem that guar­an­tees you a ben­e­fit, be­cause it is a de­fined ben­e­fit sys­tem, once you meet the qual­i­fy­ing cri­te­ria. Be­cause you can con­tribute, year af­ter year af­ter year, and you can earn a rea­son­able re­place­ment rate for your funds."

Gopaul ad­mit­ted that dur­ing the last ac­tu­ar­i­al re­view, the pos­si­bil­i­ty of in­tro­duc­ing a de­fined con­tri­bu­tion el­e­ment to the NI sys­tem was con­sid­ered–and shelved–at least for now.

"We want to keep the de­fined ben­e­fits. We want peo­ple to be safe and com­fort­able. When we look at what is go­ing on in T&T, the fact that we have so many in­sur­ance com­pa­nies and banks of­fer­ing these fa­cil­i­ties, we didn't think we would be able to get in­to the mar­ket. We al­ready had this strong, es­tab­lished group of or­gan­i­sa­tions. How­ev­er, we kept look­ing. Every time we do a re­view, we look to see what we need to change and how to change it."

Pub­lic in­ter­face

One of the changes is how the NIB in­ter­faces with its pub­lic.

A new ini­tia­tive, "Pen­sion Ready," is seek­ing to solve the age-old prob­lem of cit­i­zens tak­ing years to ac­cess the pen­sion ben­e­fit.

Be­fore a Joint Se­lect Com­mit­tee in Jan­u­ary 2014, chair­man, Adri­an Bharath, said there were 800 mat­ters be­fore the NIB's ap­peal tri­bunal and hun­dreds of mat­ters back­logged.

Gopaul ex­plained that these is­sue stretched back to 1972, when the NI sys­tem was first in­tro­duced.

"There was some re­sis­tance to the sys­tem, ini­tial­ly, and some of the old­er records are not that good. So if you are some­one who start­ed work from 1972, or were work­ing when the sys­tem start­ed, you may have some in­com­plete records. Since it was a new sys­tem, there would be is­sues on what to do, how to get it right."

Gopaul al­so said in­cor­rect fil­ing of in­for­ma­tion on the part of the em­ploy­er or em­ploy­ee could sig­nif­i­cant­ly de­lay pay­ment.

Pen­sion Ready is tar­get­ed to peo­ple 55 years and old­er.

The key is to make sure that peo­ple are check­ing on the ac­cu­ra­cy of their con­tri­bu­tion record years be­fore they are due for re­tire­ment. This way, any mis­takes could be cleared up years ahead of time and the pre-re­tiree is able to check their lev­el of con­tri­bu­tions to see if they qual­i­fy.

Ac­cord­ing to Gopaul, it takes 14 � years of con­tin­u­ous work for month­ly work­ers to make the 750 con­tri­bu­tions that would en­ti­tle them to a pen­sion. For dai­ly and fort­night­ly paid, it could be as many as 20 con­tin­u­ous years.

Those who want to use the Pen­sion Ready ser­vice are asked to fill out a pen­sion ready form avail­able at NIB of­fices and its Web site. Ap­pli­cants are to pro­vide one valid form of ID as well as their elec­tron­ic birth cer­tifi­cate.

Ap­pli­cants will re­ceive a pack­age con­tain­ing a state­ment of their NIS con­tri­bu­tion his­to­ry as well as oth­er crit­i­cal in­for­ma­tion for they will have to ver­i­fy. When these are at vari­ance with records, the ap­pli­cant will be able to sub­mit to the NIB any em­ploy­ment re­lat­ed doc­u­men­ta­tion in postage-paid, self-ad­dressed en­velopes in­clud­ed in the pack­age.

The NIB al­so had sev­er­al Pen­sion Ready car­a­vans at lo­ca­tions across T&T.