By Elvin Bailey
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THIS year, 2009, we will conduct the 9th Actuarial Review of Social Security operations. It is a review that is in pursuance of the Social Security Act, No 13 of 1977, and is conducted every 3 years. The Actuary will do three main things: he will review the performance of the institution for the period 2006 to 2008, he will make projections into the future and he will make recommendations for improvement. In this article, in an attempt to assess the accuracy and efficiency of these studies, we will compare the predictions of the 8th Review with the actual performance.
In the 2005 – 2007 triennium, the Actuary projected a contribution income of EC$184.9 million, Investment income of EC$137.3million and Other income of EC$1.8 million for a grand total of EC$324 million. He was slightly off target. Actual contribution collection was EC$183.8 million, investment income was EC$143.5 million and Other income amounted to EC$1.6 million for a grand total of EC$328.9 million. We obtained EC$4.9 million over the prediction, but only because investment income outperformed expectations by EC$6.2 million. Contribution income was less than predicted by EC$1.1 million, and income from other sources was less by EC$0.2 million.
In terms of benefits payments, there was a prediction that we would pay EC$80.6 million to insured persons. We actually paid EC$82.3 million, EC$1.7 million or 2% more. For administrative expenses, actual expenditure was EC$2.2 million - or 9.2% - more than predicted (EC$26.1 million versus EC$23.9 million). Blame that on the increased cost of doing business because of the oil crisis and so on – matters which were and are completely out of our control.
The 8th Actuarial study also probed into the functioning of the benefit payment structure and predicted that age pensions would amount to EC$43.1 million, Invalidity would stand at EC$3.4 million and that EC$4.9 would be paid to Survivors. It was also projected that Assistance benefit payment would equal EC$5.5 million, Employment Injury payments would be EC$3.2 million while short term benefits would amount to EC$20.6 million. In fact, age pensions paid was EC$42.5 million (a savings of EC$0.6 million); invalidity benefits was paid in the amount of EC$3.6 million (an extra EC$0.2 million); survivors were paid EC$4.8 million (saving of EC$0.1 million); EC$5.4 million was paid as Assistance (bang on target!) Employment Injury payments amounted to EC$3.1 million (we saved EC$0.1 million) and short term benefits payment was EC$21.2 million (EC$0.6 million more than projected). In total, the actuality equaled the projected.
The Actuary also stated that our reserve to expenditure ratio would be 24 at the end of 2007. It was 22.7. This is a measure of the amount of times that our reserves are greater than our annual expenditure, assuming that all other things remain the same. The Actuary was correct for 2006 when he predicted 23.3; and it was 23.2 in 2005 when he foresaw a factor of 22.7. In other words, we were ahead in 2005, on target in 2006 and slipped in 2007. Again, blame that slip on oil.
Let me blow our horn a little on the prediction he made for end-of-year assets. He said our assets would be EC$738.5 million, EC$811.4 million and EC$890 million respectively. In fact, it was EC$756.6, EC$827.8 and EC$910.7 respectively. We were better than he predicted in each year! Congratulations, Board, Director, Deputy Director, Management and Staff for a job well done!
The Actuary also predicted the number of beneficiaries. For 2007, he said we would have 24,784 contributors, 1713 age pensioners, 175 invalidity pensioners, 726 survivor pensioners, 698 assistance pensioners, 62 death and disablement pensioners for a total of 3,373. We were required to support more persons in 3 of the 5 pay-out categories except for assistance pensioners and death/disablement pensioners. The actual figures were 24,801 contributors, 1,771 age pensioners, 194 invalidity pensioners, 727 survivors, 674 assistance pensioners, 52 death and disablement pensioners for a total of 3,418 pensioners. This data suggests three main things:- (i) the number of persons older than 62 is increasing because people are living longer (ii) less people are dying (hence the reduction in death/disability pensioners) and (iii) more persons are preparing for retirement (since less persons need assistance pensions). These are all encouraging signs to the operations of the Institution; and point to the increasing importance of Social Security as the premier safety net of the Federation.
Of particular concern is the projection of the Actuary that Social Security will face a deficit for the first time in 2035, a mere 26 years away. This means that people who are now in their mid-thirties will experience the first hiccups of our system, and today’s pensioner will be a youngish 88 years old. However, we have within our power the opportunity to re-shape and reform our Social Security so that those projected hiccups could be prevented. Your suggestions for that cure will be put before him for consideration. Once again, we thank all of you who have made recommendations during these “open house” discussions, and particularly thank the members of the Reform Committee for their bipartisan approach to finding solutions to keep Social Security going and going.
In summary, when the projections of the Actuary have been ‘not right’, he has not been ‘not right’ by very much. (it would be erroneous to use the word ‘wrong’ for actuarial projections). In fact, the performance of Social Security has been well within confidence limits if one were to do a chi-square analysis. We therefore thank all of the employers, employees and self employed persons for the support that they have given to Social Security in the past, and invite all those who have not yet done so to come on board soon. We also look forward to the upcoming actuarial assessment and to the recommendations that will emerge out of the current reform exercise. Let me stress again that we are barred by law from any activity that would do irreparable harm to your institution.
Maybe the Actuary is a one of those Frenchmen who the Mighty Sparrow declares cannot be wrong! Is he right?
