By Elvin Bailey

By the time I drive from my home in Nevis to the Charlestown pier each morning, I would have descended about 1000 feet. The descent is gradual, so I hardly notice it, and sometimes I am even going uphill. This is one of the paradoxes of life: sometimes you think you are climbing when in fact you are not. So it is with Social Security. Like the drive, the descent is gradual and sometimes we seem to be climbing. Therefore, some people still doubt whether we are in fact headed towards the point that the Actuary has warned us about.

Using the period 2003 to 2007 (and for no particular reason except that it is current), our contribution collected has grown - from EC$48.04million in 2003 to EC$64.68million in 2007, an increase of EC$16.64million or 34.6%. It seemed as though we were going uphill. We expected the increase because the national annual payroll is growing, it was EC$650million in 2007, up 10% over the previous year. Again, we expected the payroll to grow due to factors such as natural increases in salary (that would add 3.5 - 4% to the payroll), actual salary adjustments, economic growth that resulted in job increases, the rate of registration of new contributors that is still higher than the rate of achievement of retirement, and a compliance rate that is steady at 85% - 90%. 

However, when we examine the amount by which contribution collections grew each year, we see a steady decline. In 2004, contribution collections increased over that of 2003 by EC$5.78million and for succeeding years the figure was, EC$4.03million, EC$3.19million and EC$3.13million.  In other words, the rate of growth is slowing down. 
 
Let us examine interest returned. The absolute figures of accrued interest for the same period increased from EC$31.53million in 2003 to EC$53.28million in 2007, a growth of EC$21.75million or 69%. And we expected it to, despite the fact that interest rates itself declined, because we were increasing the actual amounts invested and we were rolling over many of the existing investments. However, examine the amounts by which accrued interest was building up and we see figures of EC$8.51million, EC$2.7million, EC$4.74million and EC$5.8million. It looks like we are climbing, but are we? And what will happen now with the financial market being the way it is; it’s anybody’s guess. 

Meanwhile, on our expenditure side, the cost of managing the Fund also increased from EC$7.15million in 2003 to EC$10.02million in 2007, an EC$2.87million increase or 40.14% change. We have seen annual increases of as low as EC$55,000 to EC$1.64million in the administrative costs. Again, we were told to expect this – that as the Fund grew in size, it would become more difficult and more expensive to manage. To her credit, the Director is as frugal as she can be, and has done all in her power to keep administrative costs in check.

But by far our biggest spender is on Benefits. We have watched this balloon from EC$20,439,602 in 2003 (I am using the actual figure) to EC$30,185,513 in 2007, an increase of EC$9,745,911 or a 47.7% increase for the period.  No surprises there, and indeed this is our reason for being – to give assistance to the workers of this country when they cannot work and to assist with their funeral expenses. What is significant also, is that each year the increase in benefits is increasing: EC$1,674,333; EC$2,809,277, EC$2,273,388 and EC$3,315,302 accordingly. Again, our Actuary pointed out to us that this would happen; and it has. 

It is this combination - decline in contributions growth, moderate adjustments in interest income, growth in administrative cost and the acceleration in benefits cost that the Actuary saw that led him to the recommendation of Reform of the system. He also pointed out that if we do not reform, in the year 2035 we would experience our first deficit and total depletion of our Funds by 2052. Some doubted him, but his predictions are being fulfilled even now. 

Furthermore, the increase in pensions that was granted in January 2009 will add another EC$315,000 or so per month to our benefits expenditure and will advance our depletion date by one year to 2051. Still, we know that it is the right thing to do. 

There are two main points to this article. The slide described is as normal as growing up. Think of Social Security as a [girl] child, born 31 years ago. Growth was slow as a baby, fast as a teenager and slowed down as an adult. Growth after adulthood is different – it is experiential, educational and reproductive. High heels are only an illusion. Social Security is at the stage now where our growth must be different; it must be experiential, educational and reformative. We cannot wear high heels because we are not in the business of creating illusions.

The second point is this: we should not be fooled into complacency because the incline is smooth and gradual, it is still decline. The good news is that there are things that can be done to put us back on a truly uphill climb, but it will take effort and may take some sacrifice. If we allow Social Security to fall, neither the kings horses nor the kings men will be able to put it together again!

Aren’t you glad that I drive down to the pier each morning?