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New Social Security contribution rates take effect next month

BELIZE CITY, Tues. June 11, 2019– A wide cross-section of employers and employees crowded into the Belize Chamber of Commerce and Industry’s McField Conference Center to hear a presentation from the Chief Executive Officer of the Belize Social Security Board, Dr. Colin Young, on the rationale for an increase in social security contribution rates which comes into effect on July 1, 2019.

At the beginning of the presentation, which was aided with Microsoft PowerPoint presentations, Dr. Young said, “We have done this presentation literally, probably close to a hundred times, as we have traversed the length and breadth of the country, from Corozal, to Punta Gorda, to Cayo, to San Pedro, talking about why it is that we need to get an increase in the contributions.”

Dr. Young said that presently, the SSB fund is operating in the red, and if this continues, the fund will eventually dry up, leaving no money for the SSB to pay people who are retiring.

“The fund is running out of money. For those of you looking at this year, if we spend all of the money that is budgeted, relative to all of the income we will collect, we will be short 1.6 million dollars.

“That means that we are at the stage this year that the fund will have to liquidate investments to meet all of its costs. That simply means that we have to go to the cash deposits we have in the bank, and say that we will need 1.6 million dollars by the end of the year, for us to meet costs.

“If we do nothing, continue with business as usual, then next year, we’ll have to liquidate 13 million dollars in assets, and the year after that, 26 million, and the year after that — you get the picture. This simply cannot be allowed to happen,” Dr. Young stressed.

In an effort to rescue the fund from collapsing altogether, the SSB has decided that the rate of the fund will be changed by half a percentage point for the next two years, and one percentage point the following year, 2021.

The increase is across the board, but employers will pay more than employees, Dr. Young told Amandala today, Thursday, via telephone.

Dr. Young explained: “We’re changing the rate over here from 8%, to 8.5% this year, another half a percent next year, and 1% the following year. The Actuary had recommended that we need to do a 2% jump, and to take the ceiling from $320 to $520, but when we did the first round of consultations, that was rejected because of the financial cost to both employees and employers.”

“The Chamber essentially had said, ‘we understand your situation. We know that we have to do an increase, but it’s untenable to come to the business community, after 17 years of doing nothing, and want to increase in one swipe to 2%.’

“So, they didn’t agree to the 2% increase. The unions had agreed to it, but they didn’t want to move from the allocation between employers and employees. So, we had to go back to the drawing board. And the drawing board yielded this proposal that was accepted by the social partners, and later approved by the Cabinet of Belize,” he said.

Dr. Young broke down the figures and explained that before the increase, the ceiling for insurable income was $320, but with the new contribution rates, that ceiling will now be increased to $520 per week.

“When we talk about the ceiling, what we’re referring to is the maximum amount of your salary that we insure. So, we say that $320 is the ceiling; from the perspective of SSB, we only insure the first $320 of your salary, even if you’re making a lot more than that per week. And the benefits are indexed to that. So, we pay by law, 80% of the average insurable weekly earning. So, if you’re sick, it means that 80% times $320 that gives you $256, okay? That’s how it’s calculated. What we’re doing, essentially, as part of the proposal, is that now we’re extending this ceiling, the maximum insurable earning, up to $520,” Dr. Young said.

“The return you get on Social Security beats any rate of return you can get on putting that money in any bank. Look at these numbers on the screen. Here’s somebody who worked for 23 years and 4 months. After that entire time, they had paid, in total, including the employee and the employer portions combined — $14,000 into Social Security. That’s the total contribution.

“When they reached retirement — and these are real people, by the way, and these are not extreme examples, these are typical examples, you notice that the person has retired for 13 years, collecting a retirement benefit of $163.36 per week. So, we have already paid this person $110,000. But all we collected from him or her is $14,000,” Dr. Young explained.

Dr. Young said that after a two- or three-year period, all the money that such a person paid into the SSB fund is returned to him or her.

Pensions take up most of the money from the SSB fund, and Dr. Young said that SSB will have to increase contributions again in the future.

He said: “Your pension benefits also increase. Right now, the maximum pension that you can get from SSB is $192.00 per week and that is determined by a formula that is also in the legislation, but there are three major components: 1) you have to have a minimum of 500 contributions; 2) the total number of contributions matter. Why? Because the law says that you need 500 to qualify, and then the next 250 contributions — remember 50 is about 1 year. The next 250 contributions, your pension rate goes up by 2% and then every additional year that you work, it goes up by 1% until its max at 60% and the 3 best years of your salary.

“You put that into the formula and you get your pension rate, which is $192.00 today. It’s been that way since 2001. That is why a lot of people complain about inadequacy of benefits, because they are saying, ‘well, how do you expect me to live on $192.00 a week when the cost of living in 2001 and today are very different?’  But remember, it’s index-based. Your pension is based on how much you pay.”

With the new increase in insurable income, the SSB fund will also increase the amount of benefits to insured employees. Dr. Young explained how that will work.

“Now that we are increasing the amount of your salary that we are insuring, we are able now to give you greater benefits…Now your pension after paying these new rates after 3 years goes up from currently $192.00 a week to $312.00 a week. That equates from a maximum pension of $9,000 to $16,200 a year,” said Dr. Young.

Dr. Young emphasized that only persons who bear the new increase will see the increased benefits.

He added: “…one way to think of it, for paying an additional $13.85 a week, your pension rate goes up by almost 60% for those who have worked for a long time and have paid above the ceiling. Again, if you put $13.85 in your credit union account at 5% interest, you will see that the rate of return, because remember, we will pay you until you die, and if you die and you have, in case of the man, then you have your spouse and your children that will collect even if you weren’t at age 65, as long as you qualify for the pension.”

Some of the moneys in the SSB fund are utilized for investment purposes. Dr. Young said that the SSB investments are performing and that the fund gained 5.5 percent from its investment portfolios in 2017; the 2018 figures are not yet computed.

“We have been doing very well in the investments. Our portfolio as of April is 429 million dollars. On that we are earning about 5.5 percent rate of return,” said Dr. Young.

Dr. Young said that SSB collected 23 million dollars in cash last year.

Dr. Young also said that SSB’s consultation has found that “… a lot of the bad investments that are attributed to SSB are not in fact SSB’s investments, and the amount of money people thought the SSB lost over the last twenty years is a lot less than what they think.

“But part again is the public relations, and I can say here, again…the things that we did just before we embarked in this national consultation, because I knew it would be a lightning-rod issue, is that I had my staff go over the last twenty years of investments and flag every single ‘bad loan’ and quantify the financial losses that emanated from those,” he said.

In a telephone interview, the SSB chairman intimated that these bad investments go back to the previous administration, PUP governments of 1998 to 2008.

“That number (losses) is actually about 8.3 million dollars. It is good money, a lot of money. But here is what I often say; if you are investing hundreds of millions of dollars over twenty years, do you expect to recover every dollar? The answer is ‘no,’” he said.

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