Debt exchange cuts interest revenue to NIF

The Government's debt-exchange programme will deny pensioners the benefit of nearly a quarter of the interest the National Insurance Fund (NIF) was due to raise from government bonds.

Labour Minister Pearnel Charles last week told Parliament that the debt exchange would result in the NIF taking in $1.2 billion less on existing bonds. The NIF will now earn $4 billion in interest income on Government of Jamaica instruments, down from the $5.2 billion it was projecting.

Charles, however, told Parliament that the projections "will not affect the ability of the Fund to pay the benefits due to NIS beneficiaries and will not preclude timely adjustments to those benefits based on actuarial review".

The Government's debt-exchange programme involves a voluntary debt swap by holders of government bonds for longer-term lower-interest-yielding instruments. The NIF was among the more than 99 per cent creditors that engaged in the voluntary swap.

Responding to questions from Central Kingston Member of Parliament (MP) Ronald Thwaites, Charles said the NIS was being restructured to ensure its viability at least until 2030.

He also said the NIS had investment in real estate, which would help guarantee the fund's viability.

"We inherited from the previous government, funds and payments, and if continued as is, the NIS will run out very shortly. This Government has taken steps to create a fund that will not run out and the creation that will be presented to you (Parliament) will let you know that up to 2030 the fund will be intact," Charles told members of the House of Representatives.

Meanwhile, Thwaites said real estate was an unrealised capital appreciation and should not be used as a basis on which to project the sustainability of the fund.

The NIS is a compulsory contributory-funded social-security scheme which offers financial protection to the worker and his family against loss of income arising from injury on job, incapacity, retirement, and death of the insured. The scheme is administered by the NIF.

Charles had told Parliament early in the financial year that there were concerns about the viability of the fund because it was paying out more than it was taking in.

Earlier last week, South St Andrew MP Dr Omar Davies said that from data he had received from the ministry, the fund received less money by way of contributions for the 2008-2009 fiscal year than the 2007-2008 year. He questioned whether this fact had been taken into account by the actuaries when they made projections about the sustainability of the fund in light of the debt exchange.

Charles said he did not have full details on the projections but assured Parliament that the debt swap would affect the NIF "but not endanger it, and we are taking steps to preserve it for 30 years more".