he Social Security Scheme was established
in 1977 to provide pensions and benefits to people who retire or are in need.
Recent loans from Social Security to the National Housing Corporation and the
Airport Expansion have led to speculation in some quarters that Social Security
will not be able to meet its commitments in the future.Emile Ferdinand, a local attorney and Vice-President of the Chamber of Industry and Commerce (CIC), resigned his position as one of CIC's representatives to the Social Security Board in October 1996 because he "was dissatisfied with how the Board was functioning." He wrote a lengthy letter detailing the reasons for his resignation to Rupert Herbert, Minister for Social Security, and Stanley Amory, Chairman of the Social Security Board. Unfortunately, neither Ferdinand nor any of the other parties involved would disclose the nature of the disagreements.
"I cannot legally reveal my specific reasons," he said, but "I have no objection to either of them revealing the reasons." Amory told The Observer, "I don't think we could divulge anything," while Herbert stated, "I don't wish to comment on his letter." While this "policy of silence" makes it impossible to flesh out the issues involved with certainty, one can get an accurate notion by sifting through the information which is available.
Social Security Act
The 1977 Social Security Act established a Board composed of six to nine people, with "two members representing employers" and "two members representing employees." The chairman and other members are appointed by the Minister responsible for Social Security. The arrangement was designed to involve the three key sectors of the economyworkers, employers and government.
Workers and employers both pay into the fund and then workers can receive benefits for sickness, maternity, funerals, invalidity, and retirement pension. The system is designed so that contributors will receive significantly more money than they have put in as a result of successful investment of the moneys they pay.
To control the investment practices, the original act established an Investment Committee which is responsible "to determine the investment policy of the Board." It appears that the Board's efforts to create such policies may lie at the heart of the dispute which led to Ferdinand's resignation.
In a speech to the Nevis Lions Club on 18 September 1996, Ferdinand called the Nevis Island Administration's proposals in regard to dividing Social Security assets after secession "naive and... of grave concern... The Social Security Scheme's first and foremost obligation must be to ensure that those persons who pay into Social Security will be able to get their entitlements when they become due." Ferdinand went on to underscore the significance of actuarial review of such operations.
Ferdinand's emphasis leads one to believe that he disagrees with some of the investment policies. In an interview, he also spoke of "the importance of sustainable economic growth to the financial viability of Social Security." Unless the number of people paying into the fund continues to grow, there will be problems as more people reach retirement age and begin to receive benefits.
However, discussions with Amory, Herbert and Sephlin Lawrence, Director of Social Security, show that they share Ferdinand's concern. The most important issue is "to ensure the long-term safety of the funds and the viability of the fund more generally," in the words of Herbert. Amory and Lawrence expressed similar sentiments.
However, Lawrence also stressed "our socio-economic responsibility to ensure that the funds are used in the best interests of national development." She placed the loan to the NHC to build affordable housing in this context. Distinguishing between this project and others which would provide ongoing employment, she said "it won't be a long-term generator of funds, but will satisfy an important social demand and help people achieve their dream of owning a home."
Questions were raised recently when a signing of the loan agreement between Social Security and the Port Authority took place months after the funds had been disbursed. The "conditions were agreed to beforehand" Lawrence noted. "Only the formalised signing of the agreement and guarantee by government had to wait on the legal minds." She also explained that both the Port and NHC loans contained a clause that Social Security payments would be made on behalf of all workers.
"Excellent Financial Condition"
Actuarial Reviews of the Social Security Scheme are mandated every three years under the law. The most recent review was completed in June 1995 and laid in the National Assembly last year. Covering the period through the end of 1994, it concludes that "Social Security is actuarially sound." Francisco Bayo, the report's author, wrote, "the current contribution rate of 11% would be sufficient for at least another two decades."
The report suggests minor modifications such as regular revision of the earnings limit and pension levels to at least keep pace with inflation, the inclusion of self-employed persons, more long-term investments and taking seriously the social responsibility of the fund. Several actions have already been taken to carry out these recommendations.
Bayo also raises a word of caution about the excessive growth of administrative expenses between 1992 and 1994, from $1.66 million to $3.42 million. Unfortunately, while the Director has implemented programmes aimed at promoting efficiency among the staff, figures for operating expenses in 1995 and 1996 are not yet available to the public. The actuary also echoed a point of Ferdinand, writing "as the scheme matures the percentage of payments going to retirement will continue to increase."
Although the Social Security Act requires the Board to submit an annual financial report by 30 June of the following year, the 1994 accounts were laid only last year and the 1995 accounts "will be forwarded to the Minister shortly." Lawrence is "hopeful of meeting the deadline this year." It appears that efforts are being made to follow through more effectively on such responsibilities.
Current Investments
In 1994 the Social Security Fund contained approximately $220 million. While Lawrence said it has grown by over $20 million a year in the past, the Actuarial Review projected growth of over $30 million annually for the current period. Expenses have been in the range of $10-12 million a year. While not providing precise figures about different categories of investment, Lawrence said that bank deposits, debentures (including stocks and bonds), government loans, equity and overseas investment comprise the current portfolio, with the latter two areas being very small.
Treasury bills and debentures with interest rates between seven and eight percent, account for some ten percent. Bank deposits, primarily certificates of deposit receiving returns ranging from 5.5 to 6.75 percent, account for a significant proportion. "We want to move to more long-term investments," says Lawrence. The remainder, and seemingly largest category of investments are loans to Government agencies. Lawrence noted that "government has been meeting their obligation to all the loans." Those loans are detailed in the table above:Recipient Amount Interest Rate Year
NHC $30.6 million 6.75% 1996
Airport $5.5 million 8% 1996
Development Bank $9 million 6% 1993
NIA Housing & Land $2 million 8% 1994
SSMC $55 million 5% 199?
NIA Airport Proj $3 million 8% 1993
Government under $1 million 8% 199?
(for shares in Natl Bank)Formulating "an overall investment policy," is high on the Board's agenda according to Amory, in order to get away from "treating each case on its own merits." Such a policy would help the Board to act more proactively, rather than just responding to requests for loans. "Throughout the region, we have to stand our ground against government pressure to make further loans to government," Amory noted. Amendments to the legislation are likely as part of establishing this new policy.
The 1995 Actuarial Review projects the fund growing to $421 million by the year 2000 and to $612 million by 2004. As the fund grows its investment policies will become increasingly significant in affecting the nation's development. While the information available to The Observer creates the picture of a healthy fund, and a Board which is making suitable plans for the future, the amount of information which we cannot access makes it impossible to make a complete assessment.
Because Social Security not only deals with the invested funds of the people, but law compels those who are employed by others to pay into the scheme, one can't exaggerate the level of responsibility owed to the contributors. Given this, one can only hope that Amory's comment that the "Board is open to more public discussions" will be carried out in the near future.
