Social net for the poor
By Andre Bagoo Tuesday, October 16 2012
FINANCE Minister Larry Howai yesterday announced the establishment of a single Social Security System, streamlining the current retirement and other State grants in an effort to tackle poverty, targeting women, the elderly, children and the disabled.
The move, he said, could potentially see contributions paid to the National Insurance Board (NIB) increase for the total population in order to fund increases of benefits to the vulnerable.
Howai also announced that in 2013 the State will move to include self-employed persons under the national insurance system – a move potentially affecting 115,000 – in what he said will be, “the most significant change to the national insurance system in the past decade.”
The measure, Howai said, is targeted at protecting “private consultants, taxi-drivers, domestic workers and others.”As he opened the Budget debate in the Senate, Howai said it is the responsibility of the State to deal with the, “vulnerable and marginalised groups such as persons with disability, the poor and indigent, the socially displaced, ex-prisoners, deportees and persons living with HIV/AIDS” and to ensure that, “all citizens, regardless of creed, class or socio-economic status will be able to provide themselves with a dignified standard of living in the later stages of life.”
The various grants provided by the State – including retirement and disability – will be consolidated into one single system.
“The main cash transfer programmes, namely the targeted conditional cash-transfer programme, the social assistance/public assistance grant, disability grant, and the senior citizens pension will be consolidated to focus on protecting the most vulnerable,” Howai told senators. “We expect that the consolidation of programmes will strengthen administration systems and programme synergies as well as develop a transparent and effective targeting mechanism to target households for all social safety-net programmes.”
Howai continued, “Overall, Government intends to reform its social safety net by establishing a comprehensive social security system targeting women, the elderly, children and the differently-abled as well as assisting households to take hold of opportunities that create prosperity and reduce the number of people classified as poor.”
“Currently, our social safety net programmes’ public expenditure is estimated at five percent of GDP. As previously indicated, these programmes will be screened to ensure that social spending is made more efficient and sustainable.”
The move to consolidate the benefits offered – ranging from retirement, disability, widows, housing assistance — could see one single point of entry for citizens into the social net, in an US-styled social security system.
The current estimate of the workforce is 616,000, of which 115,000 are estimated to be self-employed. In relation to expanding the National Insurance system to include self-employed persons, Howai said rollout would take place in 2013.
“Later in the coming year we expect to commence the rollout of the inclusion of the self-employed in the National Insurance system,” he said. “This is perhaps the most significant change to the National Insurance system in the past decade. This will allow for coverage of a wide range of persons previously denied access to benefits of the system and will target private consultants, taxi-drivers, domestic workers and others. We will continue to push forward with our mandate to deliver a social protection system that is efficient, effective and fair.”
“It is our responsibility to address the challenges of poverty, social inequality and social exclusion. Despite our extensive social protection programme we have large geographic disparities with respect to the poverty rate as far as pockets of poverty, in some cases high levels twice the national average.”
“Our aim going forward (is) increasing the quantum of grants and other benefits by the NIB which we believe are long overdue,” he said.
In response to queries by Newsday, Howai said the self-employed persons would have to make contributions of their own to later draw benefits.
“Self-employed persons will have to pay contributions to fund the benefits that will be given to them,” he said.
In relation to the consolidation of benefits into a single social security programme, he said the move could result in benefits being increased.
However, this would be funded by increased NIB contribution for the overall population.
“Benefits can increase but these will be tied to increased contributions,” he told Newsday. The point of the consolidation would be, “to make it more sustainable.”
In the NIB’s 2010 actuarial report, which was tabled in the Senate yesterday, consultants spelled out how the NIB serving the self-employed persons (SEP) might work.
“Benefits offered to this group would include long-term benefits (retirement, invalidity, survivorship) and short-term benefits (incapacity, maternity, funeral grant). They would have access to a retirement pension from age 60 (as for salaried employees),” the report says.
“The contribution rate would be 11.2 percent, entirely paid by the SEP (the Government could consider the possibility to support part of the contributions of low income workers). Age credits (for eligibility purposes) would be granted at a rate of 50 contribution weeks for each complete year elapsed between the age of 50 and the attained age of the person at the introduction of these measures (up to a maximum of six years of credit).”
“After the year of implementation, during which administrative costs would be higher, the PAYE rate slowly increases from 1.4 percent in 2013-14 to 3.5 percent in 2019-20, to reach around 25 percent from year 2053-54. The general average premium associated with the SEP provisions is 9.4 percent.
Total assets increase until 2049-50 and still represent 2.1 times the annual SEP expenditures in 2059-60.”