Reform of St. Vincent’s Social Security System (NIS) is an urgent and unavoidable imperative, says the islands Finance Minister, Camilo Gonsalves.
Gonsalves, speaking in parliament last Thursday, said the unvarnished analysis establishes a gradual contribution rate increase from 10% to 15% over a 10-year period (2023–2033).
“A change in pension formulae to reduce new average pension amounts by reducing the maximum accrual rate of 60% to 55%; a shift from age pension (where pensions are received at a specific age) to a retirement pension (where pensions are paid when you are substantially retired); and mandatory coverage of self-employed persons will extend the date of reserve depletion from 2034 to 2051”.
Gonsalves said that as such, these potential reforms are explicitly on the table for discussion, debate, and decision. So too are reforms of the public pension system to enhance harmonization with the NIS arrangements, including consideration of measures to
introduce a mandatory contribution rate for employees;
align the retirement age of civil servants with the NIS’ pensionable age; and
Limit the maximum replacement rate from 127% to about 85% by considering a top-up on the NIS’ pensions. For instance, if the NIS pays 60%, the Government would top up pensions to 80% for retirees under PSPS. This is in line with best practice and is similar to the designs of existing private sector pension plans operating in Saint Vincent and the Grenadines.
He said these measures would apply to new entrants into the Civil service and could significantly enhance the long-term sustainability of the public pension system.
“Over the next four months, the NIS and the Government will continue internal consultation and public outreach with a view to finalizing a list of concrete and impactful proposals. The intention of the Government is to implement NIS and pension reform provisions beginning in Budget Year 2024”.
Reform of the NIS and pension systems is an urgent local and regional imperative, Gonsalves said.
“Saint Vincent and the Grenadines is not alone in facing the balance between changing demographics, maturing NIS systems, and generous designs. Based on an assessment as of 2020, out of the 16 regional social security systems, 5 will experience fund exhaustion in the 2020s, 5 in the 2030s (including Saint Vincent and the Grenadines), 2 in the 2040s, 3 in the 2050s, and 1 in the 2060s. Beyond our region, ongoing pension reform is currently a hot news item in Belgium, Spain, Germany, the United Kingdom, Peru, and France”.
Gonsalves stated that NIS is well run in accordance with international best practices, and its assets have grown significantly over the years.
“Audited financial statements show that as of December 31, 2001, total assets in the NIS amounted to $240.7 million. At the end of 2021, total assets stood at $499.9 million, a 107% increase over those two decades. Even in light of COVID-related declines up to 2022, the NIS asset base remains more than double what it was in 2001. Over a similar period, job growth has moved the number of employees on the NIS from 30,000 in 2000 to 41,500 in 2021 (+38%) and the number of active employers from 1,700 to 2,300 (+35%)”.
The Minister said that with more retirees in the country living longer than ever before and with fewer contributors supporting each pensioner with an unsustainably generous pension design, urgent reform has become necessary.
“There is no need to panic, but equally, there is no time for complacency”, Gonsalves said.
“The latest Actuarial Report and RAMP analysis make clear that the time has come for further reforms. The Government is unshakeably committed to people-centered development in the interest of the working people of Saint Vincent and the Grenadines. We intend to be fair, comprehensive, inclusive, and decisive in ensuring the long-term sustainability of the NIS, the fiscal health of the public pension system, the interests of the workers, and the comfort of retired persons who have contributed in multiple ways to the growth of our nation”.
The National Insurance Service is almost 40 years old, dating back to the mid-1980s. Its predecessor, the National Provident Fund, dates back 53 years, to 1970.
