Workers’ National Insurance Services (NIS) contributions will gradually increase effective June 1, 2024, from 10 percent to 15 percent.
This was one of eight reform measures announced during the presentation of the 2024 Budget address last evening.
“As indicated earlier, there is no serious debate that there is need for a fresh round of reforms to the social security system, as has taken place periodically since the National Insurance Scheme became operational 37 years ago,” said Camillo Gonsalves, Minister of Finance.
“The question is not if we should reform, but when, and by how much,” he continued.
According to Gonsalves, the findings and recommendations contained in the draft 12th Actuarial Valuation of the National Insurance Services (NIS) have been released.
And Cabinet approved for implementation 8 recommendations to improve the financial sustainability, benefit adequacy and coverage.
“These approved reforms, when fully implemented, will secure the financial future of the Fund and ensure that the NIS remains the best investment for Vincentian workers to secure their financial future,” the finance minister said.
The proposed increase in NIS deductions is expected to increase gradually between 2024 and 2027.
The recommended schedule is as follows: effective June 1, 2024 – 12 percent; January 1, 2025 – 13 percent; January 1, 2026 – 14 percent and January 1, 2027 – 15 percent.
In the case of employed persons, the increased contribution rate will be split between the employer and employee.
Gonsalves explained that from an OECS perspective, the current NIS contribution of 10 percent is among the lowest in the region – like St Lucia and Anguilla.
“However, the St Lucian and Anguillan rates were at 10 percent since 1979 and 1982, respectively =, while our NIS’ contribution rate did not reach 10 percent until 2014,” Gonsalves explained.
And as such, St Lucia and Anguilla were able to build up greater reserves.
The second proposed reform will be to change the current age pension to a retirement pension, which Gonsalves said included not awarding early=age pensions to those who have retired or those who still earn more than 50 percent of the wage ceiling.
This would therefore mean that early-age pensions would only be paid upon retirement or to the elderly with lower incomes rather than to everyone who claims before the pensionable age.
Increase the reduction factors that apply to early-age pensions from one half the present per month, or 6 percent, to two thirds per month or 8 percent to discourage early-age pensions.
The fourth recommendation to be approved is to increase the reference wage period used to compute pension from the five best years to the seven best years of contributions.
Three recommendations were approved to improve benefit adequacy including increasing insurable wages from EC$1,000 per week to EC$1,200 per week effective April 1, 2024; increase the minimum pension from RC$70 per week to EC$80 per week effective March 1, 2024, and introduce a permanent unemployment benefit starting January 2025.
And there was one approved
recommendation to improve coverage by enhancing the marketing campaign to extend social security coverage for self employed participation by allowing self-employed persons to qualify for Employment Injury Benefits and implementing a new approach for self-employed and informal sector workers to pay contributions to the NIS easily.
“According to the draft 12th Actuarial Valuation Report, the above combination of reform measures would in the short term improve the financing and reduce the Fund’s long-term costs,” Gonsalves said.
Without reforms, the Fund will not be able to continue meeting its obligations in the manner that it currently does beyond the year 2035, he continued.
“However, with the prudent and people-centered reforms announced today, that date is projected to be pushed back until the year 2060,” Gonsalves explained.
He added that as time progressed, and the demographics changed, then more parametric reforms would be required to ensure the Fund remains affordable, sustainable, and useful beyond 2060.
