NIS – Why We Are Where We Are
Disclaimer: Some of you may be aware of my pervious stint as part of the NIB's Executive Management team. However, this post is 100% my views only and does not represent the views of the past or current Executive Management team. I have never voted in my life and have no political affiliation or love for politicians on the whole. So if you came here for bacchanal then press-on, there is nothing to see here.
Before we go into the how we got here, I need to address some questions I’ve gotten from people who don’t understand the why behind social insurance. The main questions are 1. How come I pay more than other people but get the same minimum pension? 2. If I reached my required 750 weekly contributions can I stop paying? and 3. What happens to the rest of my contributions if I can’t stop?
Now there are 8 principles of Social Insurance but I’m just going to focus on a few. I didn’t make these up, they came straight from the NIB website…with a little TANA twist. Here we go:
Compulsion – No one who qualifies as an insured person is allowed to opt out of the system. Think about it, why would the people who could afford retirement or other social insurance benefits on their own contribute voluntarily to a system designed for those in need? You think is Unicef? So you can't opt out.
Pooling of Risk – like all insurance, the risk and cost are spread out over a large number of persons thereby making the system affordable. Imagine if people were allowed to choose not to be part of the system or to stop paying when they hit the 750 weekly contributions. Crapo smoke everybody else pipe. So again no, you can’t opt out and the rest of your money stays in the pool. It sucks but that's how it is. Move on.
Redistribution (this is the main one) – Income is distributed from high wage earners to low earners; from well to the sick; from the employed to the retired; from the living to the dependents of the dead. In TANA parlance, the National Insurance System (NIS) is about equity not equality. Here’s the difference, equality is about everyone being given the same resources regardless of their situation. Equity recognizes that each person has different circumstances and allocates the resources and opportunities needed to reach an equal outcome. Therefore NIS is about redistributing income to the most vulnerable in society.
So stop asking them selfish questions.
Now on to the main attraction. I will be brief because this post done long like a budget speech or Sarah Jessica Parker face.
How we got here:
1. Minimum pension – The minimum pension has been raised by several administrations from both sides without any regard for if the fund can sustain the increase. So now, the minimum pension is $3,000 when according to the NIS Actuarial Reviews what you should be entitled to based on your contributions is probably closer to only half that. Who funds the difference? Nobody, that’s who. The NIB gets ZERO subventions from the government. The NIB is expected to make up the difference with investment income. How? Unless they moving kilos of baby powder under the cover of darkness or in orange juice tins.
2. Investment returns – Persons are quick to try to accuse the NIB of not making proper investments. While that may be true in some instances, nobody mentions that the NIB is restricted in the assets and markets it can invest in. The authorities want them invest in the safest assets to protect the fund (which makes sense) but those assets have the lowest returns. Despite those constraints the fund has posted some very respectable results. Don't believe the "I" then go check for yuhself.
3. Non-compliance – I don’t think allyuh have any idea of how many delinquent employers don’t remit contributions to the NIS after they’ve deducted it from employees. It is only when allyuh go for allyuh maternity grant, funeral grant or pension cheque allyuh find out the true evilness of some people.
4. Unfavourable Demographics – I could make a whole separate post about the fact that all of us making less chirren. So who we expect to work to pay NIS contributions to mine us? Right now we have more retired beneficiaries than contributors so clearly the fund will be underfunded. Now I'm not telling allyuh go sow allyuh seed like wild animals eh. Doh jump on yuh spouse and say TANA say.
5. Wastage – I would be lying if I said there wasn’t wastage or bad investments made by the fund. However, this is usually a result of them seeking higher returns for the fund which translates into higher risk. Of course there are also the very public instances of questionable deals and transactions but my court clothes need to dry clean so I ending that point right dey.
6. Ignoring Actuarial Advice – This one is a touchy point but I doh mind a little respectful touching. The National Insurance Act requires a review done by the Actuaries on the system at least every 5 years. The purpose of which is to assess the state of the fund and make recommendations for adjustments to maintain the fund on a proper trajectory. Sounds good right. Yeah well not when politicians ignore most of the recommendations and make decisions on whether to implement changes based on how it would affect their votes. They typically use the reason that they don't want to inflict undue hardship on current contributors (read as voters) but conveniently ignore the impact on future generations.
7. Uninformed Public – yes, the public. All of allyuh hadda take blame. Every time the NIB comes out and warns about the status of the fund everyone acts like it is brand new information. The media, who we all know are a waste of ink and bandwidth, always writes the story as if they now find out Luke and Princess Leia are brother and sister. It is only when the story hits the news again that all of a sudden allyuh studying allyuh pension. Then 15 minutes later allyuh playing Wordle and forget what just happened. Allyuh have the memory of Dory from Finding Nemo.
So there you have it. A quick and dirty tutorial mixed with a brief insight into SOME of the challenges of the NIS. If you want more details and have nothing to do with your time I suggest you go read the 10th Actuarial Review on the website. In fact, everyone who contributes to the fund or is a beneficiary should read it before running their mouth.
As always I am available for INTELLIGENT questions.