Fix the NIS- Financial experts say penalties, proper asset management needed for insurance scheme

Making the necessary changes to ensure ongoing sustainability of the National Insurance Scheme (NIS), Jamaica’s version of a state pension, will require greater political will in order to achieve more compliance by workers and their bosses, with legal sanction for both groups guilty of non-payment.

This was the consensus of financial experts who participated in the Editors’ Forum hosted by The Gleaner Company at its North Street, downtown Kingston, headquarters, yesterday, with most also underscoring the need for greater returns on the investment portfolio. They also agreed that the National Insurance Fund (NIF), to which Jamaicans started paying over a relatively small percentage of their salaries in 1966, as required under the National Insurance Act of 1965, is long overdue for review and reform.

Increasing the premiums is a number-one priority for actuary Constance Hall, who also argued that it was imperative to widen the tax net to ensure that all persons required by law to contribute, do so.

“If you live in the United States, and you do not pay your social security contributions, they come after you and they will take your house or your car. In Jamaica, you do not pay, and there is no consequence to not paying, so we don’t pay because we don’t have to, so they must enforce,” she said.

“Raise the contributions and enforce. Invest the assets properly. The assets need to be managed by a body that is going to have as its focus the well-being of the fund and nothing else. I have no problem with the body being the NIS Fund Board so long as they are focused (and) their mandate is, we have one responsibility only, and that is maximising the returns for the purpose of the fund.”

Angela Fowler, a pension lawyer with Livingston Alexander and Levy, wants participation in the scheme to be mandatory, with the NIF Board mandated to run it as business in the strictest sense. This would include managers having fiduciary responsibilities which dictate that they act in the best interest of taxpayers who would, in effect, be clients.

“So you can’t act in a political manner and raid the fund when it is the politically expedient thing to do. I believe that the legislation is very lacking because the whole governance of the fund would have to be shored up, which would involve taking a cold, hard look at how the assets are invested because you need to have very good positive returns. I think there is going to be reluctance, and there is going to be resistance from persons who are gainfully employed to increase contributions of funds, which is not necessarily transparent ­ where they can’t see benefits that would be commensurate with the contributions,” the lawyer declared.

Meanwhile, Allan Lewis, president of the Pension Fund Association of Jamaica, questioned the disparity in the relatively strong legislation governing privately administered retirement schemes and superannuation funds against the lax laws that apply to the state pension.

He cited a number of government agencies that do not have to account to their members as the private schemes are legally bound “as one of the reasons that the NIS isn’t valued in Jamaica. People in America value their social security partly because it is transparent, it’s well understood. They can see what their benefits are. It is no surprise that the scheme (NIS) is out of whack with what it was set up to do”.

For Hall, remedying the situation is not nearly as hard as it might seem, though. He insisted that there is no need to devise a new system but rather build on the current one.

She explained: “It’s easy to fix. It requires a little bit of political will. The legislation, I think, could be strengthened in areas. For example, right now, it says every Jamaican must contribute, but there is nothing that says what happens if you don’t. So none of us does what we are supposed to do because the penalty for not doing it isn’t there.

“We want it to be in black and white that the NIS money cannot be used for anything other than NIS pensions. We know how to fix the flaws. We know exactly what we need to do. It is not being funded properly, so we need to raise the contributions. It is not covering everybody because the enforcement is not happening.

“So instead of starting or thinking about a new mandatory system, (the answer) is to figure out how we fix the one that we already have. If we can’t fix this, I’m not sure what the purpose will be of starting a new one.”

christopher.serju@gleanerjm.com