Mon | Sep 20, 2021

Editorial | Go bold on NIS, individual pension account

Published:Saturday | March 20, 2021 | 12:06 AM

We fully understand his preoccupation with the COVID-19 pandemic and the debate over how best to kick-start Jamaica’s sputtering economy. Nonetheless, when Nigel Clarke, the finance minister, comes on next Tuesday to wind up the debate on this year’s Budget, there is one not unrelated issue that we invite him to address: the health of the National Insurance Scheme (NIS) and the state of pension coverage in the island. Both are matters of deep concern.

In preparing for that presentation, Dr Clarke should read, and take into consideration, this newspaper’s recent account of the situation of three women, including 78-year-old Annie Ivey, which were also highlighted in these columns nine days ago. They can look forward to no pension. They are part of no scheme. Not even the NIS. As she heads towards her 80th year, Ms Ivey will continue to work until she cannot any longer. Because she must.

That is a shame. For Ms Ivey, the other women in The Gleaner’s report, and for hundreds of thousands of Jamaicans, for whom they stand as a metaphor. The pension crisis is one that demands urgent attention.

Based on the latest available data, up to last October, there are about 1.15 million employed people in Jamaica, of which 100,000 or so are in government or quasi-government employ. These people are in the public sector’s pension schemes. That is roughly nine per cent of the employed labour force.

According to the Financial Services Commission, which regulates the private pension industry, another 136,000 people are in 817 pension plans, whose assets, up to last September, totalled J$639.29 billion. These numbers, we assume, capture people who have individual retirement savings accounts, or similarly approved plans, sold by the fund management arms of banks and brokerage houses. Private schemes, therefore, cover approximately 12 per cent of employed Jamaicans, but ten and half per cent of the entire labour force.

MAJORITY WITHOUT PENSION PLANS

Combined, public-sector employees and private-sector workers who are in pension plans represent only a fifth of the people with jobs, or just over 18 per cent of the entire labour force. In other words, more than eight out of 10 Jamaicans who work, including Ms Ivey and Paulette Muir, 65, another market vendor, can look forward to no pension, except it comes from the NIS. But according to the figures posted on the website of the Ministry of Labour and Social Security, the NIS has only 470,000 active contributors, approximately 41 per cent of the employed labour force. Sixty per cent of the workforce are not members of a scheme which is supposed to be compulsory for everyone over 18, who’s in a job.

Around a quarter (24 per cent) of the NIS members receive benefits, which, on average, replaces less than 15 per cent of people’s pre-retirement incomes. Yet, the relatively meagre payments are critical lifelines for many poor Jamaicans. The NIS, however, is in trouble. Prior to a 1.5 per cent upward adjustment in the payroll contributions, to six per cent (shared equally between employers and employees) – and the plan to this year double the amount of salary, to J$3 million, on which NIS is paid – the scheme was projected to have negative cash flow in a decade and go broke by 2035.

MORE AGGRESSIVE

The reforms might have lengthened that trajectory. They, however, do not go far enough. The Government must be more aggressive in protecting the scheme. Rather than raising the cap to J$5 million next year, it should be removed altogether. The impact would be on high-income earners, making for a more progressive taxation measure that both strengthens the scheme and provides greater insulation to the poor. At the same time, the Government should launch a robust campaign to bring self-employed and informal workers into the NIS. They should sign them up at their homes, in markets, in bars and anywhere else people congregate.

On the broader question of pensions, the laws should be changed to make it mandatory that supposedly contract employees be members of individual retirement saving schemes, for which contributions should be collected at source, that is, by employers, and paid into the accounts, making the funds/schemes transferable from job to job, as workers change employment. Employees should also have the right to change their providers, but without breaking the funds until retirement.

There would be two significant upsides from such an arrangement. The first is the pension protection it would offer to workers. Of equal significance is the pool of capital that would be created to help finance investment, create jobs and drive economic growth. Finance Minister Clarke cannot have a greater incentive than this.