THE National Insurance Scheme (NIS) plans to encourage the informal economy to pay pension contributions through increased public education and amalgamating statutory deductions.

Currently self-employed can pay taxes but some avoid submitting NIS contributions.

It’s the latest measure aimed at steering the fund from bankruptcy in 20 years, as reported earlier this week.

“One of our major challenges is the size of the informal economy,” said Denzil Thorpe, director of Social Security at the Ministry of Labour in an interview with the Observer on Wednesday. “Efforts are currently being made via the amalgamation of statutory deductions to encourage the formalisation of the business practices of the informal sector as it relates to the submission of statutory deductions.

“The Ministry is seeking to address the secondary issue of increasing the awareness of the public of the benefits available under the NIS in order to encourage voluntary participation, especially by self-employed persons.”

Some 40 per cent of the workforce presently contribute to the fund.

Unfortunately, “our culture” is not one of preparing for the future, said Thorpe. So persons generally do not plan for their retirement.

“The NIS will soon be embarking on a public education campaign which will reinforce our ongoing efforts to make the public aware of the need for them and/or their employers to contribute to the NIS in order to secure their retirement and other benefits,” he said of the campaign set to be launched later this year.

The NIS currently pays out some $3 billion more annually in pension benefits than it receives in contributions.

The shortfall is covered by the investment returns from the National Insurance Fund (NIF), said Thorpe.

However, the investment income from the NIF, currently valued at just over $69 billion, has been affected by recent changes in debt policy, which puts greater emphasis on the NIS realigning its contributions-to-benefits ratio going forward.

One of the ongoing measures to achieve this balance is the raising of the retirement age of women from 60 to 65 over five years ending March 2016.

“It’s a necessary measure to unify the retirement age for females to that which exists for males,” Thorpe said. “Additionally, life expectancy has increased, and women continue to have greater life expectancy than men. Increasing the retirement age is a policy directive that has been taken in several countries, with some recently moving their retirement age to 67 or 68 years.”

In January 2013, the NIS increased the insurable wage ceiling from $1 million to $1.5 million.The insurable wage ceiling is the maximum income on which an individual’s contribution to the NIS is calculated.

At the same time, the flat rate contribution paid by certain categories of contributors such as Domestic Workers was raised from $50 to $100 per week.

Thorpe indicates that the NIS is seeking to implement some other short-term measures in the next fiscal year, while other medium to long term initiatives will follow.

The InterAmerican Development Bank (IDB) indicated that in 2013 it contracted actuary firm Eckler to provide the Ministry of Labour and Social Security an updated actuarial analysis and a roadmap for strengthening the NIS. The report indicated that the NIS could become bankrupt in 20 years without adjustments.

But the ministry is cautioning that there is no need for panic just yet.

“The actuarial report is a management tool which was conducted to guide the Ministry in reviewing and analysing the fiscal sustainability of the NIS”, indicated Thorpe.

The IDB will, however, provide technical assistance in an attempt to steer the scheme towards sustainability. It is part of an approved US$400,000 project entitled ‘Technical Support to Improve the Fiscal Sustainability of the NIS’.

NIS describes itself as a compulsory contributory- funded scheme that offers financial protection to the worker and his family against loss of income arising from injury on job, incapacity, retirement, and death of the insured.

The IDB further explained that the NIS has a very low coverage rate of 20 per cent of the working age population, and that 27 per cent of the elderly receive NIS pension benefits. Furthermore,the IDB states that only 40 per cent of those who should be contributing to the NIS are actually contributing.

The ministry aims to register some 70,370 persons during the financial year; to disburse NIS benefits totalling $12 billion for the financial year; and collect $337.5 million in arrears from delinquent employers, according to the Jamaica Estimates and Expenditure 2014/15.

The NIS recurrent budget is estimated at $457 million for this fiscal year, of which $300 million relates to compensation of NIS staff.