National Insurance Board contribution rates may have to more than double to avoid NIB running out of funds in 2029, an expert said Thursday.
Unless adequate measures are taken, an increase from 8.8 to more than 20 per cent was a real possibility, Derek Osborne, an insurance actuary told persons attending the 7th Actuarial Review of The National Insurance Fund at the British Colonial Hilton.
Citing demographic statistics, Mr Osborne said that presently, the Bahamian population is relatively young; however, between 2000 and 2061, the number of working-age persons for each pensioner is projected to change significantly, he said.
Population ageing will therefore have significant long-term consequences for National Insurance, as pension payments to the elderly already represent more than half of its benefit payments, he continued.
Higher contributions from workers are therefore needed to meet increased expenditure, he concluded.
The actuary recommended 15 steps NIB needed to take to ensure that its funds do not become depleted.
But first, he said, NIB needs to obtain a “clear picture” of what the future looks like, which does not span 10 to 20 years, but some 60 to 100.
He said the Board should also keep in mind that life-long pensions have been promised to contributors once they reach 60 years of age.
“Our horizon is a very long term, and we therefore need to examine the long-term solvency of the fund and various recommendations are needed to avoid the fund being depleted in addition to any other uncertainties,” he said.
According to the NIB actuary, in 2003, contributory pensions represented 60 per cent of the benefit expenditure, but 60 years from now, pensions will amount to 90 per cent of the government’s expenditure. However, he said, the contribution rate of 8.8 per cent remains the same.
“Population ageing will also create major challenges for The Bahamas government, as a larger and older society will place increased and different demands on physical infrastructure, health and other social programmes,” he posited.
“Proactive measures by both government and the National Insurance Board, therefore are required to ensure that the needs of future generations will be sufficiently met,” he said.
In regards to NIB contributions, Mr. Osborne said, less is collected in comparison to what is being paid out. He said that in 1992, and the ten years following, benefits surpassed contribution income and the government has had to “dip into” investment income to meet expenses.
The future of NIB is dependent on the population and how it changes over time, in addition to the progress of the economy, he stated, with additional growth due to migration.
The pensionable population is expected to increase from one in 18 today, to one in five in 2061.
“This means that there will be just as many pensioners at about 2050, as we have children. Most of our (NIB) expenditure would be pensions and there would also be significant implications for the government who has to provide services.” he said.
In an effort to extend the life of the NIB reserves, Mr. Osborne said, income can either increase or expenditure can be reduced. Revenue, he said, can be increased through raising the rates of contributions, or by expanding the earnings base.
He said that to achieve a reserve of five times the expenditure in 2061, rate increases are needed of one per cent each year up to 15.9 per cent in 2011, or two per cent every five years, reaching 17.0 per cent in 2024.
Meanwhile, Mr. Osborne said, the NIB scheme needs to be modernized and it has to make current and future benefits adequate, equitable and affordable, in addition to reducing long-term costs.
He recommended increasing the ceiling on insurable wages with subsequent increases occurring annually in line with wage increases and the rules governing such adjustments to be made law.
“The ceiling has only been increased twice since 1974. It began at $110 in 1974; it was increased to $250 in 1984, and it was increased in 1999 to $400 per week,” he said, adding that there should also be future increases to pensioners.
Minister in charge of the National Insurance Board, Shane Gibson, said that all individuals at some point of time, are affected by National Insurance, whether it is through getting short- or long-term benefits.
The NIB, over the years, has made tremendous strides, he said, and congratulated the management team for their fine work.
By Tamara McKenzie, The Nassau Guardian
