Actuarial Reviews

Actuarial Reviews are intended “to review present and future financial developments of existing or new Social Security schemes, with the possibility to include analyses of the financial effects of major structural reforms in the case of existing schemes.”

The International Financial and Actuarial Service, International Labour Office (ILO FACTS)

The rationale for conducting Actuarial Reviews is:

  • To ensure that the NIBTT is in compliance with the statutory requirement specified in Section 70 (1) of the NI Act. For the purposes of assessing the balance between the contributions and rates of benefits, an actuarial review of the system of national insurance shall be undertaken within three years of the date on which the first contributions under this Act are payable and thereafter at five-yearly or such shorter intervals as the Board may determine; and Section 22 (1), to set the upper limit on administrative costs of NIBTT based on: the recommendations of the actuary arising out of the periodic review of the National Insurance System.
  • To determine whether the NIS is operating on a sound financial basis by assessing the short and long-term financial sustainability of the NIS; and
  • To analyse the financial impact of modifications to current NIS provisions, and recommend modifications that may render the NIS a more effective and efficient mechanism for providing social insurance protection. Some of the areas of possible modification include:
  • Coverage
  • Financing of benefits
  • Benefit payments
  • Eligibility criteria

Actuarial Reviews have been an important tool in managing the success of Social Security Systems around the world.

  • the increase in the minimum monthly retirement pension from $1,000.00 to $2,000.00 and
  • the implementation of a slow and gradual increase in the contribution rate over a five (5) year period as shown in Table 1.
  • to increase the minimum monthly retirement pension from $1,000.00 to $2,000.00 and to implement a slow and gradual increase in the contribution rate over a five (5) year period – January 01, 2006 9.9%; 07 January 2008 10.5%;04 January 2010 10.5% and 02 January 2012 11.4%.(25% increase in all benefits rates)
  • The Maternity Grant and Special Maternity Grant increased  to $3,750.00
  • Funeral Grant increased to $7,500.00
  • Minimum Retirement Grant increased to $3,000.00.
  • Sickness and Maternity Allowance increases ranging from $120.00 to $1,384.80.
  • Invalidity and Survivor’s increases ranging from $419.79 to $2,983.76.
  • Employment Injury Benefits increases ranging from $173.33 to $2,000.27.
  • The Minimum Survivor’s Benefits in respect of spouses, children, dependent parents was increased to $300.00 per parent and orphans increased to $1,200.00.
Actuarial Reviews

Tenth Actuarial Valuation of the National Insurance System as of 30 June 2016.

he present actuarial review covers the three-year period up to 30 June 2016.

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Value through sustainability

The present actuarial review covers the 3-year period up to 30 June 2013 and presents a projection of the financial situation of the National Insurance System for the next 50 years.

Experience of the NIS since the last actuarial review
Financial Results

Accumulated assets have been very close to projections every year since the last actuarial review. This is the result of different cancelling effects. Investment income was lower than expected in 2011-12, but higher than expected in 2012-13. During these two years, lower than expected contribution income was partially offset by lower than expected benefit expenditures.

Adjustments to contributions and benefits

In March 2013, pensions in payment were increased by 25%, while fixed rate benefits and minimum survivors’ benefits were increased by 50.0 percent. (A further increase of 20.0 percent of pensions in payment took place in March 2014). In March 2013, the maximum insurable earnings (MIE) was increased to TT $10,000, and the contribution rate to 11.7 percent. In March 2014 the MIE was increased to TT$12,000, and the contribution rate to 12.0 percent.

NIS demographic and financial projections

The total number of pensioners is projected to increase significantly in the future, from 135,049 in 2013-14 to 353,255 in 2060-63 while at the same time the number of contributors will be just below 500,000 for the next 10 years but will then gradually decrease to 378,352 in 2062-63. The ratio of contributors to pensioners will thus decrease from 3.7 to 1.1 over the next 50 years. Financial projections reveal that the system’s expenditures exceed contribution income in the financial year 2013-14. The total assets of the NIS will however continue to increase until 2018-19 because part of the investment income will be used, in addition to contributions, to support the expenditures of the system. From 2019-20, assets will rapidly decrease and the NIS funds will be completely depleted in 2029-30 if nothing is modified in terms of contributions or benefits of the system. The pay-as-you-go (PAYG) cost rate is projected to increase from its current level of 13.8 percent in 2013-14 to 35.7 percent in 2062-63. The general average premium of the system (the constant contribution rate necessary to finance all NIS benefits over the next 50 years) is 23.8 percent. This may be compared to the present contribution rate of 12.0 percent. The financial situation of system has significantly deteriorated since the last actuarial review. Action must be taken to restore its financial health. The present contribution rate of 12.0 percent is not sufficient to support the level of benefits in the long run.

The main Short and Long-term Recommendations

Short-Term Measures

  • Increase the Maximum Insurable Earnings (MIE) limit from $12,000 to $13,600
  • Contribution rate should be increased to 13.2% in 2016, from 12%.
  • Maintain the present level of the minimum pension at $3,000, and be indexed at a rate slower that the other parameter no earlier than 2017
  • System parameters (MIE, minimum pension and contribution rate) should be automatically adjusted.

Long-term Measure

  • The retirement age for an unreduced pension should be gradually increased from age 60 to age 65 over the period 2025 to 2060. This recommendation will require extensive consultation with all stakeholders.
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VALUE | MISSION | MANDATE

The present actuarial review covers the 5-year period up to 30 June 2010 and presents a projection of the financial situation of the National Insurance System for the next 50 years.

Experience of the NIS since the last actuarial review

Contribution income and benefit expenditures have closely matched projections over the period from 1 July 2005 to 30 June 2010. The TT$3.3 billion shortfall in accumulated assets at the end of the financial year 2009-2010 is essentially due to unfavourable deviations regarding investment returns.

With effect from January 2008, a new contribution rate schedule has been adopted and modifications have been introduced to different benefits. In February 2012, the minimum pension has been increased to TT$3,000. All these modifications are reflected in the present actuarial review.

During the period from 1 July 2005 to 30 June 2010, the cumulative inflation rate reached 52.3 percent. This must be considered for the adjustment of benefits in January 2013.

Demographic pressure

The total population of Trinidad and Tobago will increase from 1,317,714 in 2010 to 1,431,642 in 2036 and will then initiate a slow decrease to reach 1,341,694 in 2060. The number of persons at pensionable age (60 and over) will grow from 161,051 in 2010 to 412,423 in 2060, while the population aged 16 to 59 (the contributory base) will decrease by 18 per cent. The number of working-age persons for each person aged 60 and over will thus fall dramatically from 5.4 to 1.7 over the projection period.

NIS demographic and financial projections

The total number of pensioners is projected to increase significantly in the future, from 112,553 in 2009-10 to 321,953 in 2060, while at the same time the number of contributors will fluctuate around 500,000 for the next 25 years and then start to decline to 400,000 in 2059-60. The ratio of contributors to pensioners will thus decrease from 4.3 to 1.3 over the next 50 years.

Financial projections reveal that system’s expenditure will exceed contribution income from financial year 2012-13. Total assets of the NIS will however continue to increase until 2026-27. From 2027-28, assets will rapidly decrease and the NIS funds will be completely depleted in 2039-40 if nothing is modified in terms of contributions or benefits of the system. The pay-as-you-go (PAYG) cost rate is projected to increase from its current level of 9.1 percent in 2010-11 to 29.8 percent in 2059-60. The general average premium of the system (the constant contribution rate necessary to finance all NIS benefits over the next 50 years) is 17.6 percent. This may be compared to the present contribution rate of 11.4 percent.

The contribution rate should be increased from 2013 at least to face the PAYG cost of the system over the period 2013-2017. Thereafter, there is a need to plan for long-term contribution rate increases. One possible schedule of contribution rates is as follows:

PeriodContribution rate
2013 to 201712%
2018 to 202015%
2021 to 204017%
2041 to 206025%
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https://nibtt.net/Actuarial_Review/Act%20note%20Budget%20statement%20(revised)%20(1).pdf

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STRENGTH |VISION | SUSTAINABILITY

The International Labour Office (ILO) submitted the final report on Phase I of the 7th Actuarial Review of the National Insurance System (NIS) as at 30 June 2005. The conduct of the Actuarial Review was in compliance with Sections 22 (1) and 70 (1) of the National Insurance Act, Chapter 32:01.

The main objectives of the 7th Actuarial Review were to evaluate the financial status and assess the long-term financial sustainability of the NIS while maintaining an adequate level of insurance protection to the insured population and its dependents. In addition, the ILO also conducted analyses into the feasibility of modifying several NI provisions in response to requests by the Board of Directors, tri-partite stakeholders and the general public.

The senior actuary of the project, Mr. Gilles Binet, was in Trinidad for the period 11 June 2007 to 18 June 2007 to present the findings of the Actuarial Review. During his stay, Mr. Binet delivered a presentation of the draft ILO report to the Board of Directors and key stakeholders representing business and labour. In addition, the National Insurance Board of Trinidad and Tobago (NIBTT) presented NIBTT recommendations to the Honourable Prime Minister and his Finance Ministers on 09 May 2007 and to employers at a Special Presentation Meeting hosted by the Employers’ Consultative Association on 03 August 2007.

In reviewing the past performance of the NIS over the inter-valuation period 2001 to 2005, the NIS outperformed the forecasts from the 6th Actuarial Review which was conducted as at 30 June 2000. With regard to the insurable population, the actual number of contributors and beneficiaries exceeded the 6th Actuarial Review projections over the inter-valuation period.

On the revenue accounts side, contribution income, investment income and benefit expenditures exceeded projections. Administrative expenses exceeded projections in 2001/02 and 2003/04. This was attributed to settlement of salary negotiations and payment of retroactive salaries for the periods 1999-2001 and 2002-2004.

On the balance sheet side, assets grew more rapidly than forecasted and there was significant growth in the benefit funds and reserves. The ILO considers the financial situation as at 30 June 2005 to be at least equivalent to the forecasts from the 6th Actuarial Review and has therefore concluded that the NIS is operating on a sound financial basis.

From a demographic perspective, the projections assume low birth rates, an increasing life expectancy that takes the HIV/AIDS pandemic into account and zero net migration rates. From an economic standpoint, the projections reflect a burst of short-term economic growth followed by a favourable long-term economic outlook.

Population projections conducted by the actuaries reveal that while the size of the general population is expected to increase by around 11% by 2055, the number of pension-age persons will practically triple, the number of children will significantly decrease by around 21% and the number of workers will decline by around 10%. These main findings significantly emphasize the Ageing Population Syndrome.

The NIS demographic (i.e., contributors and beneficiaries) projections conducted by the actuaries reveal that –

  • the number of pensioners will continue to grow rapidly relative to the number of contributors,
  • lifetime pensions will be payable over longer periods of time, and the pensioner support ratio is projected to move from about four (4) contributors per pensioner in 2006 to about one (1) contributor per pensioner by 2055. These main findings tell us that the NIS is still maturing.

Stakeholders’ proposals on improvements to current NIS provisions were taken into consideration in order to analyze the financial impact on the NIS, as well as, to assess the long-term financial sustainability of the NIS as a result of these proposals and funding requirements. Based on the actuaries’ analyses, the key recommendations are (among other things) –

  • To increase the minimum monthly retirement pension from $1,000.00 to $2,000.00 and to implement a slow and gradual increase in the contribution rate over a five (5) year period as shown in the table below.
Date of Recommended NIS Contribution Rate IncreaseNIS Contribution Rate (%)
January 01, 20069.9
07 January 200810.5
04 January 201010.8
02 January 201211.4

(45% increase in all benefits rates)

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