Uncategorized Social security systems ‘risk running out of cash’ by Marlon Madden 05/02/2021 written by Marlon Madden 05/02/2021 3 min read A+A- Reset Share FacebookTwitterLinkedinWhatsappEmail 192 A regional senior actuary warned Thursday that national social security schemes face a major risk of going broke if several issues go unchecked. Derek Osborne, Partner and Senior Actuary at Morneau Shepell, suggested that both a failure to increase benefits when necessary and offering too generous benefits are just two of the factors that could result in one of two major risks to social security. In a presentation during the University of the West Indies (UWI), St Augustine Health Economics Unit webinar series on Financing Social Security/Risk in the Caribbean, Osborne said he believed social security schemes faced “two ultimate risks”. One, he said, is not having enough cash to meet promised benefit payments when they become due and the other is not providing adequate coverage when it is needed. The Bahamas-based actuary said: “These are the risks that we ultimately have to face and find ways to prevent them. “The worst-case scenario for us is assets being depleted and you have no cash to pay benefits, in which case then you either have to raise the contribution rate or cut benefits. You Might Be Interested In #YEARINREVIEW – Mia mania Shoring up good ideas I resolve to… “The reasons we can have these risks become real is because we can fail to increase the contribution rate; poor compliance; poor investment choices; generous benefits; weak boards, management and governance.” On the risk of not being able to provide adequate coverage when it is needed, Osborne said this became evident last year as the COVID-19 pandemic affected individuals. “We saw many self-employed people not having coverage and therefore, government stepping in to give them support, and we have all but Barbados and the Bahamas, have benefit for unemployment and therefore, social security schemes stepped in to provide income for people who lost their jobs,” he said. But Osborne also noted that there were several strategies to mitigate against the potential risks, recommending that authorities have a document outlining “what could possibly go wrong” and what could be done to reduce the burden on contributors and pensioners. Osborne explained that there was a need for governments to have clear benefits policies, investment policies, funding policies and risk policies, adding that “at the end of the day, execution matter”. He also said countries should seek to answer “what are we trying to accomplish, what are we trying to avoid, and when these two conflict, what takes priority?” “So we can have these formed policies and we can have these three questions, but we have to find a way to deliver when we make those decisions and find a way to ensure we execute and put in place the amendments that will make sure we sustain our funds for the future.” He continued: “At the end of the day, whatever we plan for, whatever we do, we should be outcome focused – make sure we have objectives that are stated, we know what we want to achieve and we plan for situations of ‘what if’ – what if COVID does not stop in six months, what if the economy doesn’t turn around for another five years, what if investments go down to two per cent per year?” He said while it was okay to have optimism, it did not help to be dependent on “hoped for outcomes”, adding that governments should encourage more private sector pension schemes in order to “lower the generosity of our public sector pensions and at the national insurance fund”. The former Bahamas National Insurance Board actuary also highlighted the need for national insurance schemes to be honest with the public and present timely reporting. “Tell our public the truth and tell the truth early. When you come to them for reforms they are going to want to know why, what have you done with my money? So sharing reports of the actuary and reports of the financial statements are very critical to get buy-in from the public,” said Osborne. (marlonmadden@barbadostoday.bb) Marlon Madden You may also like Sri Lanka defeat Windies by 81 runs in ICC U19 Women’s T20... 21/01/2025 Glendairy ‘languishes’ as museum idea stalls – Sir Henry 01/01/2025 New regulations on vehicle tints to take effect in January 18/12/2024