Crouching NIS, hidden dragons
Thursday, November 1 2007
In Part 2 of this discussion, which appeared on October 18, we noted that the proposed increases in contributions from January 2008 are expected to fund current and improved benefits and keep the National Insurance Fund out of a deficit position.
The current projections do not take into consideration further improvements in National Insurance benefits and the real challenge for the National Insurance Fund over the long term will be its ability to finance benefits at current levels and also provide for double digit inflation, price increases and the erosion of purchasing power over the medium term.
In our view also, the current projections and plans for the National Insurance Fund have not included three major issues which should by now be part of the NI projections.
*Proposed Compensation for Injuries legislation which is expected to work in tandem with the Occupational Safety and Health Act, 2004 and;
*Proposed National Health Insurance system.
In relation to the issue of pension reform, in the 2005/6 Budget presentation the Minister of Finance announced the establishment of a team comprising members of the Pension Reform Working Group, the National Insurance Board (NIB) and the Office of the Prime Minister to oversee the administrative integration of the Old Age Pension and the National Insurance Scheme. The Minister also announced that the Pension Reform Working Group will be responsible for the reform of the Pension Industry and the development and introduction of a contributory, occupational pension plan for the Public Service. In addition, the Working Group was expected to address these issues: Taxation in the pension industry, treatment of pension fund surpluses, minimum levels of income maintenance in retirement, minimum income replacement ratios, Indexation of pension benefits, changes to the retirement age in the Public Service, and spousal, parental and children benefits.
The Minister made the point that the review and modernisation of the National Insurance Scheme will take place upon completion of the Seventh Actuarial Review of the NIS, and its findings and recommendations thereon. This was against the background of a recognition by the Government that there was urgent need for individuals to ensure they are in receipt of an appropriate level of income in retirement, thereby reducing the risk of poverty in their retirement years and that the responsibility on the State to provide for one’s welfare in retirement must be reduced and eventually removed.
In Latin America, for example, during the 1990s and thereafter a number of countries began to phase out their public pay-as-you-go defined benefit schemes: Bolivia in 1997, Mexico in 1997, El Salvador in 1998 and the Dominican Republic in 2006 — or complement these schemes with mandatory individual accounts schemes — Argentina in 1994, Uruguay in 1996, Costa Rica in 2001. Other countries in the region — Peru in 1993 and Colombia in 1994 — set up systems in which social insurance defined benefit schemes and mandatory individual accounts schemes compete for contributors.
The objective is and should be to insulate individuals from funding issues with the State and achieve a better balance between State and work-related pension arrangements, including contributory and non-contributory schemes, with the aim of extending adequate coverage to all employees and unemployed persons and dependants. A further objective is to achieve the improved coverage in a manner that is affordable and sustainable for government finances over the medium to long term.
The second issue of the Compensation for Injuries legislation being in harmony with National Insurance has arisen because of the proposal in the draft legislation that injured workers be compensated for economic and non-economic losses. The view has been expressed to the current Minister of Labour that the proposed legislation has to be harmonised with NI legislation. We highlighted the fact that consistent failure to harmonise pension legislation has caused employers a lot of problems. Since National Insurance already deals with some element of Disability Benefits, Survivor’s Benefits and Funeral Grants, the benefits proposed under the Compensation for Injuries legislation should be harmonised with the current NI benefits. We recognise that this is likely to be complicated and if the Compensation for Injuries legislation has to be rushed then harmonisation may not be an attraction to the policy makers.
The third issue of integrating the discussion on National Insurance funding and National Health insurance is consistent with the ILO’s presentation to the World Social Security Forum, 2007, on financing health care. This showed that total health expenditure in recent years amounted to 7.7% of gross domestic product in high-income countries, 5.8% in middle-income countries and 4.7% in low-income countries, according to World Bank figures published in 2006. The government public share of total health expenditure represented 70%, 62% and 52% of the total in high-, middle- and low-income countries, respectively. It was observed that as a country’s economic development evolves over time, the more it tends to spend through public health expenditure as the population demand for better social protection increases.
This is very much the Trinidad and Tobago experience, as State spending in health care moved from the hundreds of millions in the 1990’s up to $2.2 billion in 2006, which included free drugs under the Chronic Disease Assistance Programme for ailments such as diabetes, hypertension and glaucoma. Employers welcomed the manner in which the Government has installed plant and equipment in the facilities of the Regional Health Authorities (RHA’s) to meet the growing demands of the public and to some extent, the Government has also addressed some of the human resources issues in the public health system, in particular the existence of two employers within each RHA.
At the same time we recognize that Minister Rahael leaves his work on National Health insurance unfinished and it’s left to be seen whether the work will be completed and whether National Insurance and National Health insurance will be integrated.
Clarence Rhambharat is an attorney at law and past president of the Employers Consultative Association.