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SOCIAL SECURITY FORUM April 1, 2009 . Historical Performance. In 1983 to 2008 the NIS collected just under 1 billion ($924.6) million in total revenue Paid $253.5 in benefits Reserve has grown to $625.6 million at the end of 2008; Projected to grow to $1.1 billion in 2020

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SOCIAL SECURITY FORUMApril 1, 2009


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Historical Performance

  • In 1983 to 2008 the NIS collected just under 1 billion ($924.6) million in total revenue

    • Paid $253.5 in benefits

  • Reserve has grown to $625.6 million at the end of 2008;

    • Projected to grow to $1.1 billion in 2020

  • Reserve expenditure ratio of 16.6 as at December, 2008

  • The reserve as a % of GDP climbed from 21% in 1999 to 36% in 2008


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Financing future benefits

  • Two types of Social Security Scheme

    • Defined Benefit or Defined Contribution

  • Defined benefit

    • By design, pension obligations are only partially funded

    • Pension promise is generally to generous, and “cannot be sustained in the long run”

    • On paying first contribution enter into contractual arrangement with predefined formulae as to amount of pension

    • Depends on intergenerational transfers; next generation would pay our pensions

    • Reasonable formulae if each generation kept its part of the bargain


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Demographic Pressures

  • Demographic trends that have been experience globally has put the long-term sustainability all defined benefit SSS at risk

  • Families are having fewer children therefore fewer contributors to the NIS; In Grenada TFR has fallen from 4.2 in 1981 to 2.3 in 2006

    • Projected to continue falling to 1.85 by 2020

  • Migration is depriving less developed countries of able bodied and skilled contributors; nurses, teachers, doctors, construction workers

  • Pensioners are living longer due to improvements in medical technology & healthier living practices






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Recommendation

  • Increase the wage ceiling from $3000 to between $3500 and $4000 per month at the earliest convenience

    • Ceiling was last increased in 1998; reducing relevance of NIS to high income earners.

  • Average wage has increased cumulatively by 31% for males and 54% for females; 7% of contributors at ceiling

    • However given that most private sector workers are not covered by pension plans a higher ceiling would provide greater replace rates for higher income workers

    • From our own research less than 30% of employers provide private pension plans for their employees


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Recommendation

  • Gradually increase age at which a full age pension is payable from 60 to 65; Keep age 60 as the age for which a reduce pension is payable

    • Increasing the age at will have very significant long-term cost savings for the NIS

      • Extend the year when total expenditure exceeds total income from 2023 to 2027

      • Extend the life of the NIS from 2034 to 2041, a very significant improvement

      • Reduce the General Average Premium from 18.1% to 15.1%

    • Could prove beneficial to the labour market as many skilled persons are likely to remain in workforce for longer


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Recommendation

  • Implementation it is usually done gradually so that persons nearing 60 are not severely disadvantaged

    • Increase will take place over an extended period of 12 to 24 years

  • Age 60 will be maintained as the age at which a pension is first payable

  • Can choose to take pension at any age between 60 and 65

  • 0.5% reduction factor for every month the pension is taken early

  • Changes should be made with civil service retirement age and the labour laws to provide consistency between the labour market & NIS benefit rules


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    Comparable Scheme St. Lucia

    • After their last Actuarial Review the NIC made the following changes designed to enhance life of scheme (2002)

    • Increased ceiling from $3000 to $5000

      • Change the formulae so that persons get a mixture of the old ceiling and new ceiling

    • Increased the number of years to qualify for pension 10 years;

      • Every two years increase by 1 year

      • Currently 13 years on its way to 15 years

    • Increase retirement age from 60 to 63 currently; on its way to 65 in 2013

      • Persons have to actually retire from gainful employment

      • Reduction factor of 0.5% for every month

      • Life of Fund extended from 2027 to 2042 as result


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    Comparable Scheme Dominica

    • Following recommendations of last Actuarial Review the Dominica NIS made the following changes designed to enhance life of scheme (March, 2007)

    • Increased ceiling from $5000 to $6000

    • Increased the contribution rate 10% to 11% and should increase to 12% in 2009

    • In the process of increasing their pension age by 1 year every 3 years up to age 65

      • Pension age of civil servant has been increasing from 55 to sixty over the years.

    • With changes above the Reserve now expected to expire between 2035 and 2041 (up from 2022 to 2024)


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    Recommendations

    • Revise the accrual rate so that pension accrue more gradually over one’s career

      • Persons receive 30% for first 10 years & 1% after

      • Skewed towards shorter service; appropriate at onset to ensure early retirees receive reasonable pension

      • After 25 years a more gradual accrual of benefits can be considered

      • Proposed-20% for first 10 years plus 1.3% thereafter

      • Has the effect of decreasing long-term cost and tying pensions more closely to contribution


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    Recommendation

    • For Survivors pension, increase the minimum rate for children and increase the age up to which dependent children can receive the benefit from 18 to 21

    • Revise the eligibility requirements for maternity grant so that more new mothers can qualify and consider paying both maternity grant and maternity allowance

    • Permit the payment of invalidity pension together with a portion of survivor’s pension (same a age & survivors)

    • Conduct comprehensive review of Act & Regulations to reflect objectives and practices

    • Given Government debt restructuring and arrears position of loans there should be no further lending to institutions in default. Board should consider placing funds outside of Grenada; Medium term target of 20%


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    THE END

    THANK YOU


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