An Investigation into the Services Provided by the National Insurance Board of the Bahamas - Coursework Example

? An Investigation into the Services Provided by the National Insurance Board of the Bahamas Table of Contents Introduction …………………………………………………………………….. 3 The National Insurance Board ………………………………………………….. 4 Benefits and Assistance …………………………………………………............ 4 The National Insurance Fund ……………………………………………............ 5 The NIB Losses …………………………………………………………............. 6 The Urgent Need for Reforms …………………………………………………... 7 The NIB Restructure Explained …………………………………………………. 11 The National Insurance Fund is not in a “Crisis” ………………………………...13 Personal Analysis of the NIB Services …………………………………………...14 Conclusion and Recommendation: The Need for Privatization …………………..15 Works Cited ……………………………………………………………………….17 Appendix …………………………………………………………………………..19 Introduction Started in 1972, the National Insurance Board (NIB) of the Commonwealth of the Bahamas is an organization in charge of the management of the Bahamian social security system. It was established based on a Parliament Act - the National Insurance Act which was signed into law by the Minister of Labor and Welfare, Clifford Darling, on December 12, 1972. The National Insurance Act is an act to institute a national insurance system for the provision of income replacement against contingencies, such as in sickness, maternity, retirement, invalidity, death, work injury or involuntary income loss (“Chapter 350: National Insurance”). The NIB supports the social development and infrastructure growth of the country (“About NIB”). To propose strategies to the Bahamian Government on the improvement of the national social security system, the Social Security Reform Commission was established, with greater concentration on the National Insurance programme and the broader range of pensions. Moreover, the Commission aimed to evaluate the viability of unemployment benefits (“Better Social Security for Bahamians”). In 2009, following the 8th Actuarial Review of the National Insurance Fund, recommendations were made by the Social Security Reform Commission to guarantee the long-term sustainability of the NIB Funds and to ensure the protection of the aging and insured population by increasing revenues and reducing operational costs (Ward). This paper aims to investigate the services rendered by the National Insurance Board to the Bahamian people; to explain the NIB losses; and to assess the need for increased contributions, reduced benefits, improved compliance and reduced administrative costs for securing long-term sustainability of the National Insurance Fund. This author will give personal analysis of the NIB services and will give recommendations for the solution of its present dilemma. The National Insurance Board In 1972, the NIB was established in accordance with the 1972 National Insurance Act, aimed at providing social security coverage to the insured Bahamian members and their dependents through Benefit Payments in such cases as sickness, funeral, invalidity, maternity, retirement, unemployment, and the death of the family's bread-winner survivorship, work injury comprising disablement, death and medical care. Moreover, the NIB offers a minimum level of social security coverage for persons unqualified for such benefits as of right; and provides efficient administration of the National Insurance Programme and Fund compliant with the judiciary rules of the National Insurance Act; and supports the country’s socio-economic growth and development (“The National Insurance Board”). Benefits and Assistance The National Insurance Board provides cash benefits in conditions of the insured members’ sickness, funeral, maternity, retirement, invalidity, survivorship, temporary unemployment, work injury, disability and death. The NIB grants financial support to the disadvantaged Bahamians. Benefits may vary depending on the total number and duration of contributions made by the insured, from no less than 15 % to a maximum of 60 % of the insured member’s average insurable earnings per week. All employed Bahamians are mandated by law to contribute to the national social security program. Long –term benefits such as Invalidity, Retirement and Survivors’ Benefits are awarded to the insured for a minimum monthly benefit of $270. The Sickness Benefit grants a weekly rate of 60 % of the insured’s average weekly income, with a minimum of $53.08 and a maximum of $240 weekly disbursements. The Maternity Benefit grants weekly rate of 66 2/3 % of the insured’s average weekly income, with a minimum of $53.08 and a maximum of $266.67 weekly disbursements. The Maternity Grant is given as $400 one-time payment for each live birth, provided that the insured has paid at least 50 weeks of contributions during her work course. The Maternity Grant is likewise awarded to the wife of an insured who has paid in accordance with the required conditions for the Maternity Benefit. The Unemployment Benefit is granted to an insured member, not more than 65 years old and became unemployed after June 30, 2004. The benefit rate is 50% of the average insured earnings, with a minimum of $53.08 and a maximum of $200 per week. Injury Benefit/Gant, Disablement Benefit/Grant, Industrial Death Benefit, Industrial Funeral Benefit and free Medical Care are given to insured employed or self-employed members who incurred work-related injury or disease. Injury Benefit is a weekly payment ranging from $53.08 to $266.66, paid at a rate of 66 2/3 % of the worker’s average insurable weekly earnings. Disablement Benefit is given as a percentage of the Injury Benefit, calculated on the extent of disability caused by the work mishap. For temporary or permanent disabilities, the insured receives weekly benefit of $62 to $267. For disability assessed at between 25 and 100 %, the insured receives a lump sum grant ranging from $500 to $1000 and a monthly pension (“Benefits and Assistance”). The National Insurance Fund The National Insurance Fund was established under National Insurance Act. Its primary goal is the provision of pecuniary payments in cases of sickness, maternity, death, retirement, work injury and disability and death from industrial injury; medical care; social and financial assistance to insured Bahamians and their families. The income of the NIB Funds comes from the contributions of Bahamian workers and from the profits on national investments. To ensure the NIB Funds’ long term sustainability and to be able to meet its future obligations to the Bahamian people, the fund has to be invested in the national stocks and treasury bills; bank deposits and loans; short-term and long-term equity investments; bonds/loans to quasi-government corporations; and investments in direct financing charter (“Finance”). The NIB Losses The Social Security System of the Bahamas consists of the National Insurance system; the employer-related pension plans; and personal savings of contributors. However, the protection of income falls short of the Bahamian workers’ expectations. Bahamians who are self-employed do not make contributions to the National Insurance system and because of the low level of wages in the nation, majority of the people do not have sufficient protection coverage, hence benefits and pensions correspond only to a minimal portion of their salaries. Moreover, the NIB Fund is projected to be exhausted in less than three decades unless modifications are made to the rate of contributions and provisions of benefits. For private pension schemes, only a few employers participate in the employer-related pension plans. Likewise, as regulations are restricted, pensions are used before retirement, hence a quick exhaustion of the worker’s benefits with no funds left for future retirement years. For personal savings, most Bahamians have very minimal financial accounts or savings on which they can be reliant in old age. Unless, actions are taken to sustain the NIB funds; to meet the future needs of the aging population; and to improve the income protection of all Bahamians, the National Insurance Fund will face depletion by 2025 (“Better Social Security for Bahamians”). In accordance with the findings made by the Social Security Reform Commission Chairman, Alfred Stewart, profits on investments by the National Insurance Funds dwindled in 2003, with below 6% return level. In 2001, the return rate was 6.25%, as evaluated by the 7th Actuarial Review of the NIB. Profits from NI Funds significantly heightened in 1984 with 10% return rate, however, thereafter the decline in return levels started. The continuous decline was an obvious indication that the social security plan was nearing its bankruptcy. Stewart stressed the need for bigger contributions and extended investments outside the Bahamas. The Commission made suggestions of appropriate and effective investment strategies in order that local or global investments are instituted in accordance with the guiding principles of the National Insurance Board (Dames).  In 2019, it was forecasted in the Actuarial Review that reserves will start declining as the totality of NIB’s outlays will surpass the total revenue for the first time. The Actuary proposed that the insurable wage ceiling be evaluated and that modifications should ensue yearly and reveal the raise in both official pay and cost directories, which are customary in the developed countries’ social security plans (Dames). Chairman of the Public Relations Committee of the Social Security Reform Commission, Keith Major, proposes that 40% of the Funds be invested internationally. However, the Funds’ volume compared to the economy of the Bahamas, and the limitations of foreign investments, pose as hindrance to seeking appropriate ventures. Consequentially, nearly 33% of the Fund is invested only in short-term bank deposits which will not suffice for the long-term sustainability of the NI Fund and will not adequately support the financial liabilities of the National Insurance Board. Major added, “With reserves projected to nearly double in the next 15 years, new investment avenues and a revised approach to investing NIB funds will be required” (Quoted in Dames). The Urgent Need for Reforms Prior to the formulation of commendations, different views were collected from surveys and responses from self-completed questionnaires (found in Appendix I). Opinions gathered were as follows: (1) Amendments are to be immediately executed to reinforce the lifelong sustainability of the National Insurance Fund; (2) In order to support the long-term sustainability of the NI Funds, contributions have to be increased; compliance has to be improved; and operational/administrative costs have to be trimmed down. However, participants to the questionnaires showed low support for decreasing benefits and raising the customary pension age; and (3) There were varying opinions regarding support for increased involvement in private pensions with bigger national insurance (“Better Social Security for Bahamians”). The Commission, after reviewing the collected suggestions from experts and the masses, has come up with a list of summarized recommendations that will reinforce the national social security system; ensure the long-term sustainability of the National Insurance; and meet the present and future socio-financial challenges of the Bahamian ageing population. Below are some of the recapitulated proposals: (1) For the Retirement Pension Plan, contributions should be increased from 3 to 10 years. (2) Raise the weekly wage ceiling to $500 and make adjustments based on the average wage index levels over the past 3 years. (3) Raise the yearly pensions and lump sum grants based on the average national inflation over the past 3 years. (Section 2.1.4) (4) Improve the method used in Retirement Pension calculations. (Section 2.1.5) (5) Oblige the Bahamian government in funding the cost of Assistance Pensions paid to self-employed / non-regular contributors to the pension plan. (Section 2.1.6) (6) Improve the evaluation of persons applying for non-contributory pension or Assistance Pensions, including an assessment of their financial assets and real estate properties. (Section 2.1.7) (7) Sickness, Maternity and Injury Benefits must only be paid if the insured’s income is affected by such conditions and the amount paid must be parallel with the degree of lost income up to the benefit claim limit (Section 2.1.8) (8) For Pension Plans, increase the wage ceiling for pensionable civil servants to the same amount that private sector workers contribute (Section 2.2.1) (9) For workers in the hotel and restaurant industry, include in their insurable wages the tips and bonuses received from customers. (Section 2.2.2) (10) For workers with more than one employment, involve each employer to subtract and disburse contributions. (Section 2.2.3) (11) For retired workers receiving pensions, permit these individuals to earn from any transaction or work and still continue to receive their pensions. (Section 2.2.4) (12) For widow/widowers entitled to a Retirement Pension, permit them to obtain more than just the higher of the two pensions hence guaranteeing that household income from NI pensions does not drop by more than 40 percent after the demise of one spouse. (Section 2.2.5) (13) Launch a Survivors Grant equal to a year’s pension that will be disbursed to surviving spouses unqualified for present pension regulations for the reason of having no dependent children. (Section 2.2.6) (14) Where marriage happened after the grant of Retirement or Invalidity Pensions, allow the Survivors Pension. (Section 2.2.6) (15) Introduce an Unemployment Benefit that will be managed by the National Insurance Board. (Section 2.2.7) (16) Increase the imbursement of Invalidity Assistance to include children with age range of 1 to 15 years old and allow disabled persons receiving an Invalidity Pension to have weekly incomes of up to the same amount they receive as monthly pensions and still continue to receive their pensions. (Section 2.2.8) (17) Build institutions and provide equipments that will give diagnostic aid and skills training for persons with disabilities, using subsidies of the Medical Benefits Branch. This approach will improve the employment abilities of disabled persons. (Section 2.2.8) (18) Introduce a Disaster Assistance Fund for the provision of financial assistance of a one-time grant of up to $7,500 to current contributors who incurred personal property damage caused by a disaster. (Section 2.2.9) (19) Decrease NIB’s operating costs from 20% of contribution revenue in 2003 to 6% of contribution revenue or 0.7% of insurable earnings by 2015. (Section 2.3.1) (20) Make simplifications of the current contribution process for self-employed persons while still retaining the present benefit system for all contributors. (Section 2.3.2) (21) Create connections with all departments of the government that issue licenses and permits in order that renewals will be granted only to those employers or self-employed persons regularly contributing to the coverage. (Section 2.3.3) (22) Impose a penalty of $1 per employee per week for late payment contributions, plus interest charges on late payments. (Section 2.3.4) (23) Suspend the issuance of National Insurance numbers and stop collecting contributions from illegal residents in the Bahamas. (Section 2.3.5) (24) Give all contributors a copy of yearly statements with summary information and details of contribution payments in the preceding 12 months. (Section 2.3.6) (25) Incorporate in the guidelines given to all contributors the provisions for the nomination of board members, the NIB appointments and their affiliations. (Section 2.3.7) (26) Perform a regular complete review of the National Insurance Act and Regulations in order that during adjustments of the Commission’s recommendations, further amendments intended to consistently conform to the National Insurance and other acts and regulations may succeed. (Section 2.3.8) (“Better Social Security for Bahamians”). Note: Complete details of the Commission’s recommendations can be found in Appendix II. These recommendations are intended for the improvement of the socio-financial features of the National Insurance System of the Bahamas. On the subject of finances, several adjustments will successfully enlarge benefit payments at the same time as the other modifications will effectively lessen spending or amplify returns. On the whole, these recommendations when implemented will result in net savings and extend the longevity of the National Insurance Funds. Even so, regardless of the contribution rate raised to 11.8%, still there is a projection of fund exhaustion for 2052, which is 23 years later than the first projection made by the 7th Actuarial Review which took for granted contingencies in the present contribution and benefit provisions. (“Better Social Security for Bahamians”). The NIB Restructure Explained Prime Minister of the Commonwealth of the Bahamas and Minister of Finance, Hubert Ingraham, stated that unless amendments are made on the National Insurance regulations, the NIB Fund is due for exhaustion in the next few decades (Rolle). Ingraham said, "Specifically, long-term projections suggest that if no change is made to the contribution rate, or to the way benefits are awarded and calculated, the National Insurance Fund could be exhausted in the early 2030s," (Quoted in Rolle). The Bahamian government, in order to guarantee the lifelong sustainability of the National Insurance Fund, suggests raising contributions of civil servants by no less than 50 % and increasing the wage ceiling to $600 in the year 2012. At present, the wage ceiling is at $400, the recommendation suggests an increase to $500 in 2011 and $600 in 2012, and after every two years, a raise calculated and based on the National Retail Price Index with a further 2% (Rolle). In the past, pensionable civil servants receive a meager $286 per month pension while private sector contributors enjoy a monthly pension of up to $950. With the proposed wage ceiling increase for pensionable civil servants to the same amount that private sector workers contribute, this would permit equal amounts of pensions for both groups. Ingraham said that the amendment would commence in July 2012, with the government shouldering an extra $1.8 million in contributions (Rolle). Workers in the hospitality industry earn from gratuities, tips and commissions which must be included as part of their insurable earnings. This proposal would allow sufficient and better future coverage for these workers. According to Ingraham, "These workers in hotels and restaurants across the Bahamas only pay NIB contributions on their base wage, which is often much less than their take-home pay when tips and gratuities are considered. As a result, when they get sick, unemployed or eventually retire, their benefit or pension is considerably lower than their regular earnings as their National Insurance benefit is based on base wage only," (Quoted in Rolle). The weekly ceiling raised to $500 and implementation of an increased rate of contributions for self-employed persons will cash in around $17 million in the first year alone. Likewise, the increase in the contributions of civil servants will bring in roughly $9 million in 2012 from both government and public servants. When these recommendations are approved and applied, and when the National Insurance Board has successfully made adjustments on the pensions of over 29,000 Bahamians, every pensioner will receive a pension increase ranging from $16 to $50 (Rolle). Successful reforms in the National Insurance aimed at ensuring a longer term sustainability of the funds will result in higher pension benefits, bigger benefits from sickness, maternity leave, retirement, injury and death. The higher insured Bahamians pay, the higher pensions and benefits they will receive from the National Insurance Board (Turnquest). The National Insurance Fund is not in a “Crisis” An actuary at the National Insurance Board, Mr. Derek Osbourne, verified that the National Insurance Fund is not in a crisis in spite of reports from the NIB, the Social Security Reform Commission and the series of Actuarial Reviews. According to the 2007 Financial Statement of the National Insurance Fund, the present NI Fund of $1.6 billion alongside upcoming contributions at 8.8 % will inadequately meet future $8-billion-worth commitments of the National Insurance Board. These forecasts are merely based on assumptions that the contribution rate and benefit provisions would remain unchanged in the next six decades. This deficit is in agreement with the way the system is intended and by any means inconclusive that the Fund is presently nearing depletion or should need modifications to the rate of contributions or the provision of benefits in order to reduce this predicted discrepancy (McKenzie). To support his statements, Mr. Osbourne added that the Public Pension Systems are funded in a different way that Private Pension Systems are financed. Private pension schemes are adequately designed and funded to guarantee that if in any case the employer is bankrupt, pension funds could sufficiently meet obligations and pension benefits would remain unchanged. On the other hand, the public social security systems’ complete financial backing is not imperative and therefore the contribution rate is frequently set lower than the actual benefit cost index. In most cases, it is actually recommended that full funding be avoided due to potential political risks, unstable investment circumstances and fluctuations in economic conditions in the Bahamas. Full funding of the National Insurance Fund would mean assets over five times its present volume which would make cautious and profitable investments risky (McKenzie). Personal Analysis of the NIB Services The National Insurance Board, being the chief Social Security Provider in the Bahamas, significantly impacts the lives of every Bahamian. The ageing populace which meant increased beneficiaries and fewer contributors has fully challenged the administrators of the National Insurance Funds. The National Insurance System, when originally instituted was based on the current Bahamian demographics and its mortality. While it efficiently met its obligations to the Bahamian pensioners, it failed to forecast the unexpected possibilities in the indefinite future. Nowadays, people live much longer than before which means that there are more people receiving retirement benefits than people contributing to the NI Fund. The increased life expectancy in the elderly population and the decline in birth rates, alongside low contribution rate that is less than the average benefit costs are causative factors to the NI Fund’s near-exhaustion. Options to save the NIB comprised increasing the yearly insurable wage ceiling, improving compliance and enforcing stricter terms, reducing administrative costs, improving investment decisions, and raising the age of retirement. The government highlighted on the possible effect of the NIB fund in terms of the amassing of wealth that led to more condemnation from the public. The Bahamian government used the National Insurance retirement funds and the medical assistance funds to finance national investments. The Bahamian people, however, should not forget that the National Insurance Board, by using the NI Funds has tremendously helped the nation’s numerous social programs and has been influential in the national infrastructural expansion. Despite criticisms, the Bahamian Government expressed its concern for the welfare of all Bahamians through the introduction of Unemployment Benefit Scheme; Disaster Fund and better maternity benefits to women. The government continued to provide Bahamians with improved social and retirement benefits. On the other hand, the government’s pledge to provide pension for the Bahamian workers and retirees weighs down the remainder of the country. While there is no instant solution that can create an ideal and realistically sustainable national insurance system, administrative heads should learn from past mistakes. Transparency and full cooperation of all Bahamians, including those in the government and the private and public sectors will make the system work. Conclusion and Recommendation: The Need for Privatization With the NIB facing challenges of whether the board will be able to hold its promise to its pensioners or will be depleted of funds in the next few decades, it is time to take matters more seriously and consider the feasibility of privatizing the National Insurance System. The NIB Fund is not open to the public and lacks transparency, thereby making the fund open to abuse and corruption by some government officials (Lowe). In an open privatized pension system, contributors are presented with numerous alternatives on how they would prefer management of their contributions. They have options to partner a trust fund with their employer; use the services of a pension plan provider in terms of loans; continue with the current plan or augment to a higher plan; or raise their payments instead of the fixed contribution rate like that of the NIB’s. A privatized social security system provides easy access for pension plan providers to market their schemes with transparent options of utilizing benefits for their retirement, sickness, injury, disability or death, contrary to the NIB scheme of forcing every Bahamian worker to pay contributions for a private pension plan. Privatization of the social security system would be a free market system that would permit Bahamians to provide for their own future instead of fully relying on the government’s promise for future support (Lowe). Works Cited “About NIB.” The National Insurance Board. n. d. 20 March 2011. “Benefits and Assistance.” The National Insurance Board. n. d. 20 March 2011. “Better Social Security for Bahamians.” Report of The Social Security Reform Commission To The Minister Of Housing & National Insurance. 2005. 20 March 2011. “Chapter 350: National Insurance.” The Government of the Bahamas. 2007. 20 March 2011.   Dames, Candia. “National Insurance Board’s Losses Worsens.” Dennis Dames Online. 2004. 20 March 2011. “Finance.” The National Insurance Board. n. d. 20 March 2011. Lowe, Rick. “Privatise the National Insurance Board.” Nassau Institute. 2003. 20 March 2011. McKenzie, Tamara. “Actuary: National Insurance Fund is not in a crisis.” The Bahamas Journal- Bahamas News Online Edition.15 April 2009. 20 March 2011. “National Insurance Board.” The Commonwealth of the Bahamas. 2005. 20 March 2011. Rolle, Krystel. “NIB Reforms Unveiled.” The Nassau Guardian. 2010. 20 March 2011. Turnquest, Ava. “Wage Ceiling Increase at National Insurance Board.” The Tribune. 7 January 2011. 20 March 2011. Ward, Patrick. “Enhancing the Promise.” The 2009 Annual Report. The National Insurance Board of the Commonwealth of the Bahamas. 2010. 20 March 2011. < http://www.nib-bahamas.com/UserFiles/HTMLeditor/Annual_Report_2009.pdf #page=12> Appendix I: Summary of Public Relations Campaign and Survey Results Source: http://www.nib- bahamas.com/UserFiles/HTMLeditor/SSRC+Final+Report+April+2005 +% 28Final+edited+version%29+v7-for+printing.pdf Appendix II: Summary of Commission’s Recommendations Issue Current Status Commission’s Recommendation 2.1 Equity & Relevance 2.1.1 Contribution Requirement for Retirement Pension Read More