Lead Editor Investigations
The National Insurance Board (NIB) is calling on the Government to give consideration to increasing the contribution rate that employers and employees pay. That’s because there is a billion-dollar gap between what is earned in contributions and what is paid out in pensions and claims by the NIB.
The last rate increase was in September 2016 where the contribution rate moved from 12 per cent to 13.2 per cent and was based on the 9th Actuarial Review.
Following publication of the 10th Actuarial Report, the following recommendations were made: Increase the contribution rate to 16.2 per cent, minimum pension should be frozen, and gradually increase the retirement age from 60 to 65.
Last year, the Government began discussions on increasing the retirement age.
With the publication of the 11th Actuarial review imminent, these recommendations are expected to be reassessed for how the NIB should manage the fund sustainably.
In the NIB’s 2022 financial report, executive director Niala Persad-Poliah said that consideration has to be given to increasing the contribution rate.
“Notwithstanding our best efforts at maximising investment returns, efficiently managing the operations of the NIBTT and even if significant compliance is achieved, it remains a fact that in order for the NIS to be able to cover all its liabilities in the future, serious consideration must be given in the short-term to either increasing contribution rates, making an appropriate adjustment to the effective retirement age, or both.
“The parametric changes to the system proposed in the 10th Actuarial therefore remain an urgent matter to be addressed moving forward to ensure sustainability. With the impending finalisation of the 11th Actuarial Review in early FY2023, it is expected that we will soon have updated projections on the sustainability of the NIS,” she said.
The contribution amount is paid by the employer and the employee in a proportion of two-thirds/one-third respectively.
The Sunday Guardian was told that while recommendations were made to the Ministry of Finance ahead of Budget 2023, the Government will likely kick the problem down the road.
The difference between income and expenditure has been a thorny point for the NIB and it has advocated for changes—increasing the contribution rate and increasing the retirement age to 65. The pandemic exacerbated the issue for the NIB.
Dipping into investments
As it stands, for the NIB to meet its expenditure, it has to dip into its investments.
In 2022, the NIB made its largest withdrawal, to date, from its investment income—$1.259 billion—to finance this shortfall.
For 2022, expenditure amounted to $5,728.90 million and the contribution was $4,530.15 million.
Since 2016, the NIB has dipped into its investments to finance its benefits:
• In 2016, that sum was $261.54 million
• In 2017, it declined to $140.26 million
• In 2018 it was $226.16 million
• In 2019, it increased to $664.65 million
• In 2020, it was $916 million
• In 2021, it was $1,065 billion
• In 2022, it was the highest at $1.259 billion
According to its 2022 financial report, the institution’s investment portfolio recorded a decline in the last financial year.
Persad-Poliah noted that NIBTT’s investment portfolio stood at $29.04 billion as at June 30, 2022, reflecting a 2.64 per cent or $786.74 million decline over the fund size compared to a year earlier.
“The decrease in the portfolio’s market value was attributable to approximately $598.67 million in unrealised losses as well as the withdrawal of TT$1.36 billion to finance the National Insurance (NI) System deficit,” she said in her report.
“As such, the overall performance of the NIBTT’s investment portfolio was significantly restricted by withdrawals of $1.36 billion from the Investments Cash Account to finance the NI system shortfalls. Against this backdrop, the overarching objective of the NIBTT’s investment portfolio for the financial year continued to be mitigating the fund’s liquidity risk and providing the necessary liquidity support to the National Insurance operations.”
In 2013, contribution income fell for the first time below expenditure.
For the period 2018-2022, expenditure was more than contributions. (See Comparative Table)
“This is a foreboding development because the shortfall in Contribution Income has been financed by Investment Income—which cannot be reinvested for the future benefit of the NIS—and will eventually result in the depletion of assets,” chairman Patrick Ferreira noted in his statement in the financials.
In 2022, the number of contributors in the National Insurance System (NIS) were 455,448—an increase of two per cent from 446,116 in 2021, 404,197 in 2020 and 420,638 in 2019.
Contribution Income in 2022 was $4,530.15 million, an increase of 0.44 per cent when compared to $4,510 million in 2021.
However, there has been a steady increase in beneficiaries—it moved from 202,800 in 2019 to 204,613 in 2020 to 206,569 in 2021 to 214,490 in 2022.
The 214,490 beneficiaries received a total of $5,728.90 million in benefit payments—a 3.5 per cent increase in expenditure over the previous reporting period.
As it stands, NIB has an asset base of $30.24 billion with total funds amounting to $29.94 billion with its portfolio comprising 8.34 per cent of the entire financial sector of T&T.
“This underscores the significance of the NIBTT to the national landscape. This significant asset base must be viewed in the context of the current and most critical challenge being faced by the NIS, namely an ageing population. This phenomenon is characterised by a shrinking contributory base and an increasing number of beneficiaries. The NIBTT is already seeing significant signs of this, with the number of retirement beneficiaries growing by more than 300 per cent over the last 25 years,” Ferreira said.
He noted that NIB’s overall return in its Investment Portfolio was 4.57 per cent, while Net Realised Earnings from investments was in the order of $1.23 billion.
“However, this did not provide us with the ability to cover the entire shortfall between total revenue and total expenditure,” he said.
He said for the NIB to meet its strategic objectives, it needs a 13 per cent annual rate of return on investments.
For 2022, there were 214,490 beneficiaries who received a total of $5,728.90 million in benefit payments. This represented an increase in expenditure of 3.51 per cent over the previous reporting period—in 2021, there were 181,147 beneficiaries, an increase of 2.11 per cent over the 177,410 recorded in 2020.
The NIB’s biggest cost is its pension plan—it cost $4,723.84 million in 2022 or 86.92 per cent of the total Long-Term Benefit Expenditure. In 2021, pension amounted to $4,548.58 million or 86.52 per cent of Long-term Benefit Expenditure.
Conversely, short-term benefits, which include Sickness Benefit, Maternity Benefit, Special Maternity Benefit and Funeral Grant, cost $224.99 million or 3.93 per cent of Total Benefit Expenditure.
This represents an increase from $200.82M from 2021.
The payment of funeral grants significantly increased by 41.8 per cent—to $94.81 million in FY2022 up from $66.86 million in 2021.
State the biggest debtor, owing $240M
Yet as it stands, the Government, through several state enterprises, is the biggest debtor to the NIB. According to documents obtained by the Sunday Guardian, seven of NIB’s top ten debtors, as at June 30, are state enterprises and government ministries.They owe the institution about $240 million
Here is how they rank:
• National Maintenance Training and Security Company Limited (MTS)–the debt is $75,396,798.29. The debt is for the period October 1, 2017 to May 31, 2020. The Sunday Guardian understands that the NIB is seeking approval to initiate legal action because MTS has indicated that it is unable to liquidate the debt.
• Sure Security Services Limited–their debt is at $40,575,844. This is for the period January 1, 2008 and April 30, 2018. On November 2, 2022, the NIB obtained a judgment against the company for the sum of $38,644,094.66. To date, no payment has been made to the judgment debt. The NIS is also considering pursuing further legal action.
• Ministry of Education–The ministry’s debt is $35,969,191 for the period September 2003 to December 2008. The matter is under investigation by NIB’s recoveries department with an onward further meeting to be arranged to reconcile the figures.
• Water and Sewerage Authority (WASA)–the debt is $16,852,521.11. WASA has informed the NIB that the debt is statute barred. However, the NIB’s legal advice is for the matter to be escalated to the chairman of both entities for discussions in settling the matter going forward.
• Ministry of Science, Technology and Tertiary Education–Debt is at $23,424,687.05 for the period June 2001 to June 2009. An investigation is underway to reconcile the figures with the ministry.
• University of Trinidad and Tobago–The debt stands at $21,024,289.98 for the period October 1, 2005 to December 31, 2014. The matter is being investigated by the Recoveries Department.
• Employment Training Programme–The debt stands at $16,539,687.76 for three periods–October 2001, October–November 2002 and October-November 2003. The NIB is considering legal action as the employer has indicated it is unable to liquidate its debt.
• East Side Bakers Company Limited–the debt is $15,617,672.81 for the period September 26, 2013 to October 31, 2018. The company has agreed to enter into a promissory note to pay $10,000 a month for a period of six months and negotiate a higher monthly payment thereafter. They now pay $12,500 a month.
• Ministry of National Security–Fire Service of Trinidad and Tobago, the debt is $12,221,376.64 for periods between 2016 to 2018. Negotiations are underway to address the debt.
• Reliability Maintenance Services–the debt is at $11,309,881.91 for the period January 1, 2008 to August 31, 2014. The company makes monthly payments of $100,000 to the NIB.
The Ministry of Finance had an amnesty for payment of outstanding NIS contributions, without having to pay interest and/or penalties, from December 31, 2022 to January 31, 2023.
By January 6, according to a press release from the ministry, the NIS amnesty had raised $90 million of the estimated $161 million it expected.