Business Page – October 19, 2003

National Insurance Scheme - Report 2001

Actuaries’ recommendations for increased contributions not implemented


Today’s Business Page presents the first of two parts featuring the 2001 Annual Report of the National Insurance Scheme, Guyana’s national social security system established over thirty years ago to provide compulsory coverage to the country’s employed and self-employed population. During the seventies, it became a useful source of funds for the government which practically dictated the terms under which it commandeered the large amounts of funds the Scheme held. More recently, as the Scheme moves into a mature phase, it appears to be having problems of arguably a more fundamental nature, which threaten its very viability. Independent professional actuarial recommendations are ignored by the political directorate, while the labour movement, the opposition political parties and the private sector appear oblivious to or uninterested in the clear signs of danger.
The 2001 annual report of the National Insurance Scheme was submitted to the Minister of Finance under cover of a letter dated April 30, 2002 (shown on page 9 of the Annual Report). Amazingly, the auditors report was dated January 28, 2003 (on page 62), months after the Annual Report was purportedly forwarded to the Minister.

This regrettably is not an oversight, but just one of several cases over the past ten years of the NIS misrepresenting that it is more compliant with the law than is the case. At the time of preparing this article the 2002 Annual Report is not yet available, which is not unusual. More often than not over the past eleven years the NIS Board has failed to submit its Annual Report within the time prescribed in the Act. Compounding this failure is that instead of acknowledging this impropriety, the transmittal letters continue to misrepresent the situation and very often predate the auditors’ report! Not since 1992 has the Scheme issued a transmittal letter which was dated after the date of the Auditors’ Report and submitted within the six month statutory deadline.
This disrespect for the law does not stop at the Board level however. It has obviously been condoned by successive Ministers of Finance not only by their failure to sanction the directors who are responsible for the breach, but extends to their own failure to table the report in the National Assembly as required under the Act. One has to ask how many Members of Parliament are even aware of this requirement let alone seek to question why it is not done.

President Jagdeo emotionally dismisses criticisms of poor governance levelled at his Government; but how can he tolerate this dereliction of duty from a Board that since 1992 has been chaired by the Head of the Presidential Secretariat and includes one of his own Members of Parliament and that manages almost twenty billion dollars in workers’ money? And from a Minister of Finance who demonstrates such unfamiliarity with the principles and practices of good governance not only in relation to the NIS, but also in relation to the Guyana Revenue Authority Act for which he has so far not tabled a single Annual Report in the National Assembly. It is therefore ironic that Minister Kowlessar should have reacted as strongly as he did on the draft report by the World Bank on governance in the country. As the only authority formally in place to oversee the operations of the NIS, the Minister has to be taken seriously by the workers and their representatives since as this column will show, the viability of the Scheme cannot be taken for granted. The TUC has to take a stand on the matter.

The table whose source is the audited financial statements of the NIS reveals that the surplus of income over expenditure for the year 2001 has continued the decline which began in 1998, when the total surplus was almost three billion dollars but with close to $1Bn derived from the disposal of investments. Surpluses in 1999, 2000 and 2001 were $2.498Bn, $2.409Bn and $2.269Bn respectively. The surplus in 1992 was a more modest $344.9Mn.

Revenues represent mainly contributions and income from investments. Contributions which are levied on employers through the payroll part of which is borne by the employees increased from $3.3Bn in 1997 to $5.1Bn in 2001, or by approximately 56.9% over the period. During the same period income from investments increased from $809Mn. to $1.9Bn. or 139.34%. If 1992 is used as a reference point, contributions have increased from $769.8Mn to $5.095Bn in 2001 or some 562%.
Payments out of revenues also increased during the period, with benefits moving from $1.7Bn in 1997 to $4.0Bn in 2001. The principal benefits paid in 2001 are Old-age benefit of $2.441Bn, Survivors benefit of $497Mn, Medical care-sickness of $374Mn and Sickness benefit of $217Mn. Administrative expenses made up mainly of employment costs of $481Mn, other administrative costs of $124Mn, Security of $48.7Mn and Gratuities and pensions of $29Mn increased more modestly from $445Mn. to $757Mn. or 69.9%. Ten years ago administrative expenses amounted to $208Mn which means that over the ten year period they have risen by 263%.
Because of apparent reclassification of certain expenses it is not possible to identify with certainty all the increases between 1997 and 2001 except for increased employment costs of 69.48% from $283Mn in 1997 to $481Mn in 2001 and finance charges from $835,000 to $2.47Mn in 2001.
In what must be a cause for concern by the actuaries and indeed by all who have an interest in the viability of the Scheme, benefits as a percentage of contributions have risen dramatically over the five years from 50.4% of contributions to 78.9% in 2001, while expressed as a percentage of total income, benefits have increased as a percentage of total income from 40% to 57%. To compound this difficulty or perhaps causing it is the failure of the Board to implement the recommendation of the actuaries to increase contributions from 12% to 14.7%. It is dangerous for a Board to refuse to accept a recommendation from actuaries and in the process risk the future of the Scheme and the security of the pensions and other rights of the workers.
In the audit opinion on the 2001 accounts, auditors Deloitte & Touche cautioned, without qualifying their opinion, that the Actuaries in their report of 31 December 1998 recommended that to ensure future viability of the Scheme the contribution rate should be increased but that this and certain other recommendations by the actuaries were not implemented as explained in Note 8 to the financial statements.
To understand the seriousness of the failure Business Page reproduces note 8 in full:
“The following recommendations were made by the Actuaries at December 1998 for the future viability of the scheme.
(i) A rule be stipulated in the National Insurance Scheme Act that the contribution rate of the Pension branch will be established such that the reserve ratio of the branch is equal to 4.0 in year 2010, 2.5 in the year 2030, 2.0 after year 2040. This will necessitate contribution rates for the next seven years to be charged as follows:
1999 - 12%
2000-2003 - 14.7%
2004-2006 - 16.2%
(ii) Each benefit branch of the scheme should have its financial autonomy, instead of allocating total income and expenditure to various branches according to arbitrary percentages.
(iii) Amounts of $796Mn and $1,575Mn could be transferred from short-term benefits and employment injury benefits (industrial benefits) branches respectively, to the long-term benefits branch to comply with recommendation (ii) above.
(iv) The contribution rates for the short-term benefits branch should be 2.2% and the employment injury benefits branch (industrial benefits) 1.5%. These contribution rates should remain constant at their 1999 levels until the next actuarial review.
(v) An investment portfolio diversification should be contemplated.
(vi) The Board should plan to reduce its administrative expenses below 1.5% of insurable earnings over the next five years.
As of December 2001, items (iii) and (iv) were implemented during 1999 and items (1), (ii), (v) and (vi) are under consideration by management and were not fully implemented to date”.
Business Page regards this failure on the part of the Board as financial irresponsibility which puts the entire Scheme at risk. With contributions below the recommended level for almost four years and with the effective rates of personal taxes already very high, it is hard to see any shortfall coming from future increases. And if it has to come from central government, who pays? Workers must now look forward to the 2003 Actuarial Review with anxiety bordering on fear.

To be continued.    (Back to top)