Having recently retired I decided to apply for, what I thought, was my livable, well-deserved and hard-earned State pension that, over the last 32 years, I willingly complied and contributed to the National Insurance Scheme (NIS) the amount requested by the Government of Jamaica through the National Insurance Act.
The process of applying for my hard-earned State pension was seamless and the funds were deposited to my designated bank account. What was absent, however, from the process was any dialogue from the office of the NIS as to entitlement. The only communication I received was a statement after the funds were deposited to my account which meant that for a week or so I had to try and reconstruct how the amount was computed.
Having received the funds and statement I was curious as to whether the amount related to a day, week or month’s pension as what was deposited was a mere $16,000. I was to discover that this was a month’s pension.
At this stage I was in search of reasons behind how the amount was computed and how is it possible for an above average earner and contributor for 32 years to only get $16k for a month.
The start of my intrigue regarding the monthly sum stems from the widely held notion that a pension should cover 66% of your earnings when you have worked for approximately 30 years. I was not, for any moment, thinking it would cover 2/3 of the final salary of an above average earner but at the very least it should bear some relationship to what the Government has stated as the minimum wage that should be paid.
The last time I checked the minimum wage was $7,000 per week for all excepting security officers so let’s work with the $7,000.
Based on conventional wisdom the person who has worked for over 30 years should be getting $4,667 per week as a pension. By implication that is the minimum that is deemed to be a pension that will allow one to live in some form of dignity. My $4,000 falls short of this amount by a good margin and it certainly would not allow me to live in dignity whether in urban or rural Jamaica.
But what of the person on minimum wage, how do they fare and what level of pension do they get? Based on the NIS website the person on minimum wage will be entitled to $1,700 per week which is ¼ of the minimum wage and a far cry from the 2/3 which is the norm.
What has gone wrong, why are the amounts being paid bearing no relationship to the amount that the Government has determined is the basic minimum wage? How can a person having worked all their productive years survive on $1,700 per week or $6,800 per month when the same Government is stating that minimum wage for the same periods should be $7,000 per week or $28,000 per month? How is the difference between what is the basic livable wage on retirement, as determined by the Government of Jamaica, to be financed or is it that they are implying that we should live in poverty?
It would be interesting to see, based on Planning Institute Of Jamaica statistics, whether aged people post retirement and getting a NIS pension are the ones making up the largest part of those living in poverty!
A part of the problem, as I see it, lies with politics and members of that elite not implementing prudent decisions as most persons, especially those on minimum wage, do not think long-term, so leaving retirement planning to the average Joe is tantamount to Government abdicating its duties.
At the very minimum the legislation should be amended so that people who contribute for the maximum period should be paid an amount that allows one to live in dignity after contributing their useful years through employment to the development of the economy. That minimum should be 2/3 of the minimum wage and should be adjusted whenever the minimum wage is adjusted.
Let us examine how the NIS scheme is funded:
Contributions to the NIS come from three sources:
- Employed Persons
- Self Employed Persons
- Voluntary contributions
These contributions, which are presently capped at 6% on maximum salary of $1.5m, will increase to $3m in the next few years with the same % being applied.
The maximum contribution of 6% on $1,500,000 is used to fund:
- Retirement Benefits as described above.
- National Health Fund which gets approximately 1/6 of the amount contributed to the NIS. Amazingly this scheme is implemented with the contributions to assist people who use certain drugs without any recognition that the claimant may already have a private heath scheme. By doing this unstructured route hundreds of millions of dollars are wasted which could be used to increase the amount of pension paid, especially to those now getting $1,700 per week.
The NHF should be used to cover these critical drugs but only after the claimant has presented the primary card which should be the card which is provided by the employer or private health care provider. Making this simple adjustment allows the release of more funds to the NIS to pay a dignified pension to those on minimum wages.
- Maternity Allowance: This is equivalent to 8 weeks of the minimum wage and is paid to “Domestic Workers” according to the NIS.
- Child and Orphan Benefits is paid to children under 18 whose parents are deceased
- Employment Injury and Disablement Benefits
- Widow’s and Widower’s benefits which is paid to a spouse of a deceased pensioner
- Funeral Grants is payable upon the death of a NIS pensioner or the pensioner’s spouse or a pensioner or employee whose death was a result of injuries sustained in insurable employment
- NI Gold, which is a health insurance plan providing medical coverage for all NIS pensioners once they commence getting NIS Pensions.
Like the NHF card mentioned above the NI Gold has the same structural deficiency by being the primary card irrespective of whether or not the pensioner has a private health plan.
My observation is that the NIS plan, which was conceived as a pension plan, is not meeting its mandate due to government not having the courage to make tough decisions about its funding requirements or at the very least start a national dialogue on the matter. In addition, the NIS seems to have numerous benefits two of which seem to be allowing the private sector health schemes to escape their obligations. Recall that the contributions to these health schemes are tax deductible expenses, which means that the Government is encouraging Jamaicans to contribute to these schemes.
The three immediate changes that are required
- Eliminate the maximum ceiling on salaries which would release more funds to the scheme
- Decide whether or not the NHF and NI Gold are primary cards for claimants. From where I sit it makes no sense allowing employees to contribute to private heath funds and then assuming the obligations of these funds.
Finally, the approach being adopted by the Government and consequently the NIS seems to follow the notion that they will distribute the annual amount in the fund each year irrespective of whether it leads to an undignified existence rather that decide what is a dignified livable pension for all and determine the corresponding premium to be paid by employees and employers.