By Elvin Bailey
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Elvin Bailey
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In Parts I & II of this series, we have reviewed the establishment of Social Security and highlighted its pioneers – those men and women who were in the vanguard of its establishment, and those persons who were first beneficiaries. In this concluding chapter, we examine some of the challenges that the institution faces in this challenging economy, challenges that have led to the need for reform.
Monthly assistance pension cheques are conveniently delivered to the home of each pensioner. Every pensioner is given two postdated cheques for cashing twice in the month. The payment is made in advance, that is at the commencement of the two-week period. Over the years, we have experienced reduction in the number of aged assistance pensioners but an increase in the number of those in the invalidity category.
In the first year of operations expenses in excess of $270,000 were incurred increasing to over $415,000 in 1979 and doubling the latter by 1992. In 1978 a surplus of about $3,114,000 was made. By 1993, the surplus had increased to $24M; to $38.7M in 1998, by $2003 it was $56.4M and $73M at the end of 2006. The investment portfolio at the end of December 2008 was EC$916M and generated EC$55M. Operational expenses were EC$12M and Benefit payments was $34M for 2008 (unaudited data).
The eighth actuarial review completed in March 2007 using statistical and financial information for he period 2003 to 2005 confirmed that the Fund is financially secure. With the reserves of $738.5Million and 22.7 times the total expenditure of 2005, the Fund is one of the best funded systems in the Caribbean. Despite the financial soundness, the projection is that annual expenditure will exceed annual income in 2034 and the Fund could be depleted by 2052, if there is no change in the operations. Therefore, to maintain the strong financial position that the Fund now enjoys, a reform programme must be implemented.
The composition of the Investment Committee as well as the terms of reference was mandated in a Schedule to the Act. Over the years, there was one minor amendment to this Schedule. The surplus made is invested to further secure the Fund to meet its long-term commitments. Investments are primarily domiciled in the Federation and the component invested abroad has not changed, notwithstanding the adoption of an Investment Policy Statements which mandates that up to a maximum of 10% can be invested abroad. Over the years, investments have been made in Nevis Grove Park, the Sugar Industry, the old Telephone Company, JNF Hospital, the Golden Rock Airport, Frigate Bay Development and Low Income Housing, National Housing Corporation, Nevis Housing and Land Corporation and to the St Kitts Nevis Development Bank for on-lending to students, mortgagors including civil servants. At the end of 2006, the portfolio of $832M had over 63% in commercial banks, 23% in loans, 3% in treasury bills and 6% in bonds. The equity investment was 3%. Securities held overseas were 3% of the investments portfolio.
The state of our economy (and the world) and its people have changed tremendously over the thirty one years of the Board’s existence. While there have been technological and other advancements making the world a global village, the challenges loom even larger. Increasing coverage, securing the contributory base, increasing returns on investments of a diversified portfolio, adopting and adhering to good corporate governance ideals are the significant ones with which we have to grapple. In addition, the health related challenges such as controlling the spread of HIV AIDS and reducing the prevalence of non-communicable diseases are concerns which will affect our contributors and by extension the Fund, even as we contemplate extending coverage to include health benefits probably partnering with other institutions. The organisation must also prepare itself to deal with the opportunities and threats offered with the CARICOM Single Market and Economy. Serious consideration must be given to these issues in our strategic and operational plans.
Furthermore, the continued delivery of sickness, maternity and injury benefits as well as invalidity, survivors and retirement pensions is a serious mandate in our changing world. Unemployment, growth of the informal sector, changes to the secure wage based systems have all impacted on the ability to execute our mandate. The effect is exacerbated by the declining dependency ratio where the ratio of workers to pension continues to decline. The informal sector and the self-employed must be convinced that a high portion of their retirement needs to be entrusted to the SSB. They must be primary participants in the program. It is imperative that we seek innovative ways to provide a reasonable pension and increase contributors’ confidence.
One remedial measure already in motion is to embark upon a reform program. However, once the recommendations are made, there must be the political will to make the required changes at the appropriate time. This includes the hard decisions to have the Investment Committee more accountable for the performance of the Investments Portfolio instead of burdening the Minister with the vital responsibility to approve overseas investments. Indeed, increasing the return on the investments is one of the significant challenges.
As we celebrate 31 years and reflect on the achievements, there is still much to do as we face the future. This vital program must remain a flagship for our nation. It must remain secure and financially sound providing pensions to all workers. The poverty which existed prior to the establishment of Social Security is an indication that persons are naturally myopic and oftentimes fail to plan for retirement. Our own history is replete with examples of self-employed persons who have failed to contribute during their income generating years and have assured us that they are making plans for retirement, then within a few years of pensionable age, they make applications for assistance pensions providing evidence meeting the need criterion. It is our resolve to protect persons from such short-sightedness.
The role that the Social Security has played in the overall development of the economy must be continued even in view of the challenges faced by the government. As a responsible corporate citizen, we will continue to support the economy to ensure, as far as possible, that it remains buoyant so that the Fund will grow and remain relevant. The Fund cannot be vibrant in a stagnant economy. Nor will it remain relevant if we do not continue to adjust from time to time. In short we will continue to building on yesterday’s foundation, consolidate today’s success and fashion tomorrow’s vision.
(This article was written by Sephlin Lawrence, Director, and first published in the 30th Anniversary Commemorative Magazine. It was adapted by Elvin Bailey)
