Otto von Bismarck, the German chancellor who introduced a welfare system for the working classes in 1883 (Wikipedia), deserves respect for recognizing the need for this safety net within the callous capitalist system. Without social security, most elders in a capitalist country would be at the mercy of the world. Equally as important as the relatively small retirement pension it guarantees, social security gives dignity to employed people (employees) during their working years. An injured or sick person doesn’t have to beg their employer to help them survive until they are fit to work again. The social security system, like the credit union, is there to take care on rainy days.
It has been a pleasant run for our SSB since it came into being on June 1, 1981. But there are a few rocks in the road ahead. An actuarial performance analysis of the scheme (as at December 21, 2015) done by Hernando Pérez Montás of ConsultoresActuariales, S.R.L. (hereafter referred to as CASRL), and a report by the IDB (prepared by Waldo Tapia), have shown our SSB where the rocks in the road are, and made some suggestions about the way forward.
There’s a heck of a lot in these reports to chew on. We could be days about getting to the cheese. We won’t. Rest easy, our SSB is not in dire straits. In fact it is financially solid, the scheme, according to CASRL, accumulating reserves that reached $478.8 million at 31 December 2015, equivalent to 14.6% of GDP. However, this report shows that the accumulated reserves at 31 December 2015 will continue to decrease gradually, although still remaining above the required minimum for approximately four to five additional years.
The primary issue has to do with contributions. The CASRL report says that SSB reserves have started to decline in the absence of an increase in the rate of contributions.The IDB report says that to generate adequate levels of future pensions, pension savings for today’s workers need to be urgently increased by expanding both the number of contributors and the frequency of their contributions.
There are delinquents in the country. Regular 8 to 5 workers are exempt from blame. The blame is with people who get a little pension without ever having contributed to the scheme; people opting in for pensions at 60 years old, instead of 65; increased life-expectancy; and people who made contributions as self-employed persons.
Non-contributors who get a little something ($100 per month) don’t constitute a big problem because they aren’t many. These are mostly elders who worked most of their productive lives before 1981, the year the scheme came into existence. Obviously, this “problem” will resolve itself over time.
The reports see increased life-expectancy, and people who opt for pensions at 60, as presenting problems for the SSB fund. The IDB report says that when the Social Security Act came into force in 1980, life expectancy was 64.7 years for both genders, and now it is 73.2 years for women and 67.2 years for men.
The CASRL report claims that an average of 75% opts to claim the old-age pension before reaching age 65, and only 20% as from age 65, even though the regulations state that insured persons retiring before age 65 should no longer be “substantially employed”. Opting for retirement at 60, it says, is a disturbing practice as most social security schemes are striving to increase the retirement ages due to a longer life expectancy.
Yes, the analyses show that most insured persons are claiming pension as from the age 60 years, including the self-employed, with the SSB unable to detect or control working activity before age 65.
Compounding the SSB’s problem is that self-employed people aren’t pulling their weight. Self-employed persons were allowed/encouraged to participate in the Social Security Scheme back in 2003. They are expected to contribute 7% of their weekly earnings. The IDB report says that a high proportion of active self-employed persons have opted to declare unrealistically low notional earnings, in the expectation of obtaining a minimum life pension of BZ$47 per week plus short-term benefits, with contributions of only BZ$4 to BZ$6 per week, resulting in a negative incidence on the actuarial situation of the scheme.
And the CASRL report says that coverage rate has been decreasing steadily, from 26% of registered self-employed persons as active contributors in 2010 to only 21% in 2014. CASRL recommends that an assessment of why such a large proportion of registered self-employed persons are not on active status should be carried out by the SSB. Global statistics show 33,000 eligible self-employed persons in Belize, of which 97% are not actively making contributions in the SSB’s voluntary self-employed scheme.
Indeed, the SSB/GoB should study this matter. In the absence of research, we have to believe our eyes. The SSB asks that 7% of weekly earnings (of the self-employed) are paid into the scheme. In return they get regular sickness, injury, and some other benefits, AND a retirement pension. It is not a bad scheme for the self-employed. So, why aren’t they participating? It can’t be that they are ignorant of a good thing. It may be that the non-contributing self-employed are not making it in our economy—it may be that they are living on the edge.
The reports are clear—payments to the scheme will exceed contributions in four or five years. For remedy, one of the SSB’s proposals is to expand maximum insurable earnings, from $320 up to $500. Of course this involves greater contributions from employees, and employers. Employees carrying only a little more than a third of the cost, it should be an easy sell in that quarter. In a less than vibrant economy, expect employers, who are not public sector, to complain.
Another proposal of the SSB is to up the weekly contribution by 2%, from 8% to 10%. To cover the weaknesses in the system, workers will be asked to contribute more. Expect a little griping from employees on this one. And, in a less than vibrant economy, expect employers, who are not public sector, to complain.
If these measures go through, the SSB’s new plan will purchase some additional years, so it doesn’t have to draw down on the fat reserves. We expect that when they present the math it will show that the scheme will be stable for another two generations, if ehm—life-expectancy doesn’t increase even more.
If the economy can afford them, these proposals should “plug the dike”. But with a little “bold”, SSB/GoB can do better. They might still need to lean on the old reliable employees and employers, but on a MUCH smaller scale.
Clearly there is a problem in the ranks of the self-employed. If we loved dredging up things we could talk about how the PetroCaribe was—INVESTED. Sure, some of the self-employed sector got a little chum to tide them over. But there was no investment in retooling the sector, and little investment in getting them to carry on when the PetroCaribe was over. We know where the serious investment went. It went on imported cement and steel.
The SSB sits on a nest egg of over 450 million. The bulk of the money rests in the banks, and our essential utilities. One of the reports suggested we might consider investing more of our money abroad. That, of course, is UNTHINKABLE.
What the SSB needs to do is invest more of its money, in Belize. In the bad old days, we had real FEAR whenever we heard of SSB investing workers’ funds. Now, thanks to some strong individuals in our country, and the mighty BNTU, we APPROACH the fruits of TRANSPARENCY and ACCOUNTABILITY. Now, politicians out to crook our good things, for personal or political ends, have to step with caution.
SSB money must be invested to improve the lot of self-employed people. Congratulations to the SSB for lending to the CGA at less than 7% interest, for that is much better than the lending rates at the banks. But the rates could have done better.
The SSB is not earning much, keeping its money in the banks. Those SSB funds that are earning little at the banks should be invested in the farmers’ associations, the fisherfolk associations, the transport associations, the builders’ associations, those associations that serve the self-employed. SSB must help by lending money at the same rates they get from the banks. SSB must do that with the condition that members of these associations become contributors to the scheme. If SSB does that, it won’t need to ask employees and employers to contribute so much more.