Last Updated on February 27, 2020, 5:49 AM AST by Anthony Morris
For the first time in the history of St Kitts and Nevis, Social Security spent more money than the contribution paid into the fund by employees in 2017.
That is according to the 12th Actuarial Review of the Social Security Fund conducted as at December 31st 2017 and which covers the 3-year period 2015 to 2017.
“Contribution income increased each year but its growth was outpaced by benefit expenditure resulting in total expenditure exceeding contribution income for the first time in 2017, the Fund’s thirty-ninth year. Administrative costs continue to be excessive and although recommended in previous actuarial reviews, no reforms to the pension age and other pension provisions have yet been made,” said the review conducted by Mr Derek Osborne.
Based on his projections, Mr Osborne said total expenditure will exceed contribution in each year.
“Total expenditure will exceed total income between 2022 and 2026. The Fund will be depleted between 2036 and 2041. The pay-as-you-go rate, or the rate required to produce just enough contribution income to meet total expenditure when the Fund is depleted, will be between 25% and 27%. The pay-as-you-go rate in 2077 will be between 36% and 40%. The average long-term cost of benefits over the next 60 years, often referred to as the general average premium, is between 25.5% and 33.2%. These results are slightly less favourable than those of the 11th Actuarial Review even though the population and economic forecasts are more optimistic. The main reason for this is the lower assumed rate of return on investments,” he said.
According to Mr Osborne with over EC$1.5 billion in reserves, approximately 15 times annual expenditure, the St Kitts Nevis Social Security Fund is currently in a strong financial position. “And even though contribution income is no longer sufficient to meet total expenditure, investment income is expected to meet that shortfall for several more years. There are several risks, however, which if not addressed soon, could significantly affect the long-term sustainability of the Fund. These risks include unfavourable demographic shifts, a generous pension promise, poorly diversified investments, reduced investment returns, and high administration costs.
Several recommendations are outlined in the acturial review.
Anthony Morris covers stories related to politics and regional developments. His in-depth reporting about governance and reforms makes him stand out in regional journalism, with a deep analysis of political trends and their impact on Caribbean communities.
