As a former executive at the National Insurance Board (NIB), yeah the head of Risk Management, I am perplexed by stories mentioning “idle funds” at the NIB and the alleged commandeering of these idle funds to be used for other purposes.
Firstly, there are no “idle funds” at the NIB, idle people, well that is a different story. Like any other insurance company, the NIB collects premiums and invests those premiums to pay benefit expenditure at a future date. However, unlike other insurance companies who are allowed to set their premiums based on actuarial assumptions and thus any surplus of income over claims and reserves for future claims are the property of the company, the NIB is reliant on the Government to allow contribution rate increases while still having to pay a minimum $3,000 pension.
Add to that the fact that not all the companies that should be paying NIS for their employees do so, as well as some deduct the contributions and do not remit the funds to the NIB and you begin to get a picture of the situation. For years people feel they “out smarting” the system when all they’re doing is stealing money out of their 60 year old future self brassiere.
Little known fact, once you can prove that contributions were deducted from your salary, the NIB is legally required to honor your claims, whether they received the funds or not. Yeah NIB does get bent over from all sides without grease.
There is a simple formula to understand how the NIB honors their obligations.
Contribution Income + Investment Income – Benefit Expenditure = Surplus.
For years benefit expenditure has exceeded contribution income by a lot. NIB has been using investment income to help fund the difference. The current low interest rate environment doesn’t help them make money either.
In fact, given an aging population, declines in the ratio of contributors to beneficiaries, at one point the NIB was forecasted to have to start to selling assets just to pay benefits when due and to run out of assets by 2035-2036. The state of the NIS is actually the result of politicians adjusting the minimum pension based on nothing more than a need for votes. Yeah, “check allyuh self before allyuh wreck allyuh self”.
Now, this does not mean the NIB is bankrupt. They still have twenty-something billion in income earning assets and can still tweak contribution rates and other variables to put off this situation. However, what they do not have is idle funds. Them funds working in a sweat shop trying hard to squeeze two 5 cents out of a 10 cent.
So, I don’t care about the other madness being spewed about the place but don’t drag an institution that is key to the entire country regardless of people’s affiliation down into the gutter politics.
Please and thanks.
PS: If you want more information on how the NIS system actually works you can read this post https://tanaslog.com/tana-nomics/tana-nomics/