New measures to boost National Insurance Fund

Thursday, December 13, 2018

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CABINET has approved several measures to enhance the National Insurance Fund's (NIF) sustainability and boost the adequacy of the accompanying benefits.

Minister of Finance and the Public Service Dr Nigel Clarke made the announcement during a statement to the House of Representatives on Tuesday.

Dr Clarke said some of the measures include increasing the contribution rate from five per cent to 5.5 per cent, effective April 1, 2019, which the employer and employee will share equally at 0.25 per cent each.

Cabinet also approved a further 0.5 per cent increase in the contribution rate from 5.5 per cent to six per cent, effective April 1, 2020, which employers and employees will also share equally at 0.25 per cent each.

Additionally, the National Insurance Scheme (NIS) insurable wage ceiling will be increased for purposes of calculating the contribution amounts from $1.5 million to $3 million in January 2021;,while the NIS insurable wage ceiling will be increased for purposes of calculating contribution sums from $3 million to $5 million in January 2022.

Dr Clarke informed that the insurable wage ceiling moved from $250,000 in 1996 to $500,000 in 2003, $1 million in 2010, and $1.5 million in 2013.

The minister noted that the measures are necessary due to the findings of a 2016 actuarial review of the NIS, which was undertaken by Eckler Consultants and Actuaries.

The actuarial report, as at March 31, 2016, indicated that without an increase in the contribution rate and/or other related parameters, the NIF would have negative cash flow by 2029.

This would see the sum of annual pensions and other NIF-funded benefits and administrative costs paid exceeding the annual contribution and investment income.

“The actuarial report further calculated that by 2037, the NIF would be completely depleted. Indeed, in 2016, the NIS had approximately 100,000 pensioners and the total outflow for pension payments in that year was $14.78 billion, which exceeded contributions [totalling] $12.8 billion. In fact, for the past 10 years, benefits paid by the NIS have exceeded contribution rates,” the finance minister said.

Dr Clarke said the report further indicated that the annual investment yield of the NIF over the three years to March 2016 averaged 14.2 per cent.

This, he pointed out, was well in excess of the average inflation rate of 5.1 per cent per annum over the same period, though there was negative yield in 2013.

“Currently the asset mix of the NIF consists of: 64 per cent fixed income, primarily Jamaican; 15 per cent equities, primarily Jamaican; 19 per cent Jamaica real estate; and two per cent Jamaican mortgages and loans. It is arguable whether this is the appropriate asset allocation for the NIF at this time,” Dr Clarke said.


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