Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698925453521.pdf (Trinidad and Tobago)
Trinidad and Tobago Eighth Actuarial Review of the National Insurance System as of 30 June 2010 Centre for the International Promotion of Québec Public Expertise July 2012 ________________________________________________________________________ Contents Abbreviations and acronyms .................................................................................................. 9 Executive summary ..............................................................................................................11 Introduction .........................................................................................................................19 1. Review of the experience of the NIS since the last actuarial review ...............................21 1.1 Amendments to the NIS since the 7th Actuarial Review ......................................21 1.2 Analysis of the experience of the NIS for the period 1 July 2005 to 30 June 2010 and comparison with projections .............................................................22 1.3 Comments on financial statements ......................................................................27 2.
Projected demographic and macroeconomic environment of Trinidad and Tobago ...........29 2.1 Population projection .........................................................................................29 2.2 Macroeconomic framework ................................................................................31 3.
NIS demographic and financial projections ...................................................................39 3.1 Defining the “base scenario”...............................................................................39 3.2 Demographic projections....................................................................................40 3.3 Financial projections ..........................................................................................43 3.4 Reconciliation with the results of the 7th Actuarial Review ..................................49 3.5 Actuarial liability ...............................................................................................53 3.6 Sensitivity analysis ............................................................................................54 3.7 Future contribution rate increases........................................................................55 4.
Financial impact of proposed modifications ..................................................................57 4.1 Increase of the maximum insurable earnings ........................................................57 4.2 Conversion of the retirement pension formula: from an earnings class system into a system based on a percentage of earnings ............................................................59 4.3 Extension of coverage to self-employed persons ..................................................66 4.4 Modification of survivors’ benefits .....................................................................76 4.5 Modification of maternity benefits ......................................................................78 4.6 Eligibility to the retirement pension ....................................................................78 4.7 Automatic adjustment of system’s parameters......................................................78 4.8 Retirement age...................................................................................................79 4.9 Alternative reform scenario ................................................................................80 5.
Other issues ................................................................................................................83 3 ________________________________________________________________________ 5.1 Duplication of compensation in case of work injuries ...........................................83 5.2 National Insurance Plan (NIP) ............................................................................88 5.3 Investment policy ..............................................................................................90 5.4 Level of administrative expenditures ...................................................................93 Appendix 1 Overview of the legal provisions of the National Insurance System ...................97 A1.1 Contingencies covered .......................................................................................97 A1.2 Coverage ...........................................................................................................97 A1.3 Maximum insurable earnings ..............................................................................98 A1.4 Financing ..........................................................................................................98 A1.5 Benefit provisions ..............................................................................................99 A1.5.1 Long-term benefits ..................................................................................99 A1.5.2 Short-term benefits................................................................................ 101 A1.5.3 Employment injury benefits ................................................................... 102 A1.6 Benefit indexing .............................................................................................. 103 Appendix 2 Methodology of the actuarial valuation.......................................................... 105 A2.1 Modelling the demographic and economic environment............................ 105 A2.2 Modelling the financial development of the NIS
 ....................................... 106 Appendix 3 NIS specific data and assumptions ................................................................ 109 A3.1 Data and assumption on the insured population ........................................ 109 A3.2 Demographic assumptions related to the system ....................................... 112 A3.3 Other assumptions .................................................................................. 114 A3.4 Pensions in payment in June 2010 ........................................................... 115 Appendix 4 Detailed information on NIS results (1 July 2005 to 30 June 2010).................. 117 A4.1 Reconciliation of financial results ..................................................................... 117 A4.2 Comparison of demographic data ...................................................................... 120 Appendix 5 Comparison of pension amounts resulting from the application of different pension formulas ................................................................................................................ 121 Appendix 6 Recommended contribution and benefit schedules to be applied from January 2013 ...................................................................................................................... 125 4 ________________________________________________________________________ Tables Table 1.1 Table 1.2 Table 1.3 Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Comparison of projected versus actual results of the NIS regarding the different components of revenue and expenditure (million TT$) ........................................................... 23 Evolution of funds as at 30 June (million TT$) ........................................................................ 24 Rate of return of the fund (2005-06 to 2009-10)
 ....................................................................... 25 Historical fertility rates in Trinidad and Tobago (1990-2006) ................................................. 30 Projected population of Trinidad and Tobago (2010-2060) ..................................................... 31 Projected GDP growth, productivity and total employment .................................................... 33 Labour market balance (2010-2060) .......................................................................................... 35 Historical inflation rates in Trinidad and Tobago (1990-2006) ............................................... 36 Target asset allocation and projected long-term return............................................................. 37 Projected inflation rate, wage increase and rate of return of the Fund .................................... 37 Projected number of contributors and pensioners - Long-term benefits, 2010-2060 ............. 41 Projected number of beneficiaries - Short-term benefits, 2010-2060 ...................................... 42 Projected number of beneficiaries – Employment injury benefits, 2010-2060 ....................... 43 Projected replacement ratios – Long-term benefits, 2010-2060 .............................................. 44 Key moments of the future evolution of NIS assets ................................................................. 45 Projected NIS expenditure, 2010-2060 (thousand TT$)........................................................... 46 Projected revenue, expenditure and assets, 2010-2060 (thousand TT$) ................................. 48 Comparison of assumptions concerning projected pensions and MIE increases in 2013 .............................................................................................................................................. 50 Reconciliation of the 7th and 8th Actuarial Reviews ............................................................... 52 Table 3.9
52 Table 3.9 Table 3.10 Actuarial liability related to pensions in payment on the valuation date (million Table 3.11 Table 3.12 Table 3.13 Table 3.14 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 4.12 Table 4.13 Table 4.14 Table 4.15 Table 4.16 Table 5.1 Table 5.2 Table 5.3 TT$).............................................................................................................................................. 53 Total actuarial liability on the valuation date (million TT$) .................................................... 54 Sensitivity test on real wage increase ........................................................................................ 55 Sensitivity test on investment yield............................................................................................ 55 Illustration of a possible contribution rate schedule (all branches combined) ........................ 56 Comparison of average earnings under different basis in 2009 (TT$) .................................... 57 Future evolution of maximum insurable earnings under different options (TT$) .................. 58 Financial implications of the increase of the maximum insurable earnings under different options .......................................................................................................................... 59 New pension formula – Comparison of costs (salaried employees) ........................................ 64 New pension formula – Criteria for decision ............................................................................ 65 Number and average earnings of self-employed persons, by age and sex (2010)* ................ 68 Assumed self-employed coverage rates ..................................................................................... 69 Projected administrative expenditures for SEP as a percentage of total insurable earnings (2012-13 to 2016-17)
 ................................................................................................... 69 Projected number of self-employed contributors and pensioners - Long-term benefits (2010-2060) ................................................................................................................... 70 Projected number of self-employed benefit recipients - Short-term benefits (2010- 2060) ............................................................................................................................................ 71 Projected benefit expenditures, Self-employed persons (2010-2060) ..................................... 72 Key moments of the future evolution of SEP assets ................................................................. 72 Projected revenue, expenditure and assets, Self-employed persons, 2010-2060 (thousand TT$) ............................................................................................................................ 74 New pension formula – Comparison of costs (self-employed persons)) ................................. 76 Financial implications of modifications to survivors’ benefits ................................................ 77 Projected revenue, expenditure and assets under an alternative reform scenario, 2010-2060 (thousand TT$) ........................................................................................................ 81 Comparison of employment injury benefits offered by the NIS and the Workmen’s Compensation Act ....................................................................................................................... 85 Evolution of the NIBTT investment portfolio from 2006 to 2011........................................... 91 NIS administrative expenditures ................................................................................................ 94 5 ________________________________________________________________________ Table 5.4 Table 5.5 Comparison of
 administrative expenses of social security systems in different countries ....................................................................................................................................... 95 Projected NIS administrative expenditures as a percentage of contribution income (2010-2011 to 2014-2015) .......................................................................................................... 95 Table A1.1 Earnings classes and contributions in application on 30 June 2010 (based on a contribution rate of 10.8%) ......................................................................................................... 99 Table A3.1 Insured persons, by age and sex, in 2009-2010....................................................................... 109 Table A3.2 NIS coverage rates, by age and sex (2010).............................................................................. 110 Table A3.3 Average monthly insurable earnings of active contributors in 2009-10, by age and sex (TT$).................................................................................................................................... 110 Table A3.4 Density factors, by age and sex ................................................................................................ 111 Table A3.5 Average past contribution years of insured persons, as of 30 June 2010, by age and sex............................................................................................................................................... 111 Sample mortality rates, by age and sex (per 100) ................................................................... 112 Table A3.6 Table A3.7 Rates of entry into invalidity, by age and sex.......................................................................... 113 Table A3.8 Retirement rates, by age and sex .............................................................................................. 113 Table A3.9 Family statistics
 ......................................................................................................................... 114 Table A3.10 Retirement pensions .................................................................................................................. 115 Table A3.11 Widows and widowers’ pensions (according to sex of dead spouse) .................................... 115 Table A3.12 Invalidity pensions .................................................................................................................... 116 Table A3.13 Children, orphans and parents pensions................................................................................... 116 Table A4.1 Long-term benefits fund (Million TT$) ................................................................................... 117 Table A4.2 Short-term benefits fund (Million TT$)................................................................................... 118 Table A4.3 Employment injury benefits fund (Million TT$) .................................................................... 118 Table A4.4 Accumulated reserve (Million TT$) ........................................................................................ 119 Table A4.5 Revaluation reserve (Million TT$) .......................................................................................... 119 Table A4.6 Comparison of expected and observed number of contributors and beneficiaries ............... 120 Table A5.1 Comparison of pension amounts under different pension formulas – 15 years of contribution (TT$) ..................................................................................................................... 122 Table A5.2 Comparison of pension amounts under different pension formulas – 25 years of contribution (TT$) ..................................................................................................................... 123 Table A5.3 Comparison of pension amounts under different pension formulas – 35
 years of contribution (TT$) ..................................................................................................................... 124 Table A6.1 Earnings classes and contributions........................................................................................... 125 Table A6.2 Basic retirement and invalidity pension rates .......................................................................... 126 Increments for retirement and invalidity pensions .................................................................. 126 Table A6.3 Table A6.4 Basic survivors’ pension rates .................................................................................................. 127 Table A6.5 Increments for survivors’ pensions .......................................................................................... 127 Table A6.6 Employment injury benefit rates .............................................................................................. 128 Table A6.7 Employment injury death benefit rates .................................................................................... 128 Table A6.8 Constant attendance and care allowance rates......................................................................... 129 Table A6.9 Sickness and maternity benefit rates ........................................................................................ 129 Table A6.10 Rates for medical expenses....................................................................................................... 130 6 ________________________________________________________________________ Charts Chart 1.1 Chart 1.2 Chart 1.3 Chart 2.1 Chart 2.2 Chart 2.3 Chart 3.1 Chart 3.2 Chart 3.3 Chart 3.4 Chart 4.1 Chart 4.2 Chart 4.3 Chart 5.1 Evolution of contributions and benefits (all funds combined) ................................................. 24 Sources of deviations in the projected increase of assets from 2005-06 to 2009-10 .............. 25 Ratio of observed to
 expected contributors and beneficiaries .................................................. 26 Projected population of Trinidad and Tobago, by age groups (2010-2060)............................ 31 Real GDP growth of Trinidad and Tobago (1996-2011).......................................................... 32 Projected total participation rate, by sex (2010-2060) .............................................................. 34 Projected evolution of total NIS assets, 2010-2060 .................................................................. 44 Ratio of assets to total expenditure (funding ratio) ................................................................... 45 Projected cost rates (as percentage of insurable earnings), 2010-2060 ................................... 47 Evolution of NIS fund projections since the 7th Actuarial Review, considering amendments to the system during the period 2005-2010 (billion TT$) .................................. 49 New pension formula – Revaluation of past earnings .............................................................. 62 Pension formula No.
3 – Application of the pension rate in the case of average monthly earnings of TT$7,103 ................................................................................................... 63 Comparison of fund projections (SEP versus Salaried employees) ......................................... 73 Number of industrial accidents reported to OSHA and Injury allowance claims received by NIBTT (2008-2010)................................................................................................ 86 7 ________________________________________________________________________ Abbreviations and acronyms AIDS CIPQPE CPI CSO GAP GDP HIV EI ILO MIE NIF NIP NIS NIBTT OPP OSHA PAYG SEP TFR TT$ UN US WC Acquired Immune Deficiency Syndrome Centre for the International Promotion of Quebec Public Expertise Consumer Price Index Central Statistical Office General Average Premium Gross Domestic Product Human Immunodeficiency Virus Employment Injury International Labour Office Maximum Insurable Earnings National Insurance Fund National Insurance Plan National Insurance System National Insurance Board of Trinidad and Tobago Occupational Pension Plan Occupational Safety and Health Authority Pay-as-you-go Self-employed persons Total fertility rate Trinidad and Tobago Dollar United Nations United States Workmen’s Compensation 9 ________________________________________________________________________ Executive summary The present actuarial review covers the 5-year period up to 30 June 2010 and presents a projection of the financial situation of the National Insurance System for the next 50 years.
Experience of the NIS since the last actuarial review Contribution income and benefit expenditures have closely matched projections over the period from 1 July 2005 to 30 June 2010.

The TT$3.3 billion shortfall in accumulated assets at the end of the financial year 2009-2010 is essentially due to unfavourable deviations regarding investment returns.

With effect from January 2008, a new contribution rate schedule has been adopted and modifications have been introduced to different benefits.
In February 2012, the minimum pension has been increased to TT$3,000.

All these modifications are reflected in the present actuarial review.

During the period from 1 July 2005 to 30 June 2010, the cumulative inflation rate reached 52.3 percent.

This must be considered for the adjustment of benefits in January 2013.

Demographic pressure The total population of Trinidad and Tobago will increase from 1,317,714 in 2010 to 1,430,247 in 2036 and will then initiate a slow decrease to reach 1,340,232 in 2060.
The number of persons at pensionable age (60 and over) will grow from 161,005 in 2010 to 412,067 in 2060, while the population aged 16 to 59 (the contributory base) will decrease by 18 per cent.

The number of working-age persons for each person aged 60 and over will thus fall dramatically from 5.4 to 1.7 over the projection period.
NIS demographic and financial projections The total number of pensioners is projected to increase significantly in the future, from 108,270 in 2009-10 to 321,931 in 2060, while at the same time the number of contributors will fluctuate around 490,000 for the next 25 years and then start to decline to 400,000 in 2059-60.

The ratio of contributors to pensioners will thus decrease from 4.3 to 1.3 over the next 50 years.
Financial projections reveal that system’s expenditure will exceed contribution income from financial year 2012-13.

Total assets of the NIS will however continue to increase until 2026-27.

From 2027-28, assets will rapidly decrease and the NIS funds will be completely depleted in 2039-40 if nothing is modified in terms of contributions or benefits of the system.

The pay-as-you-go (PAYG) cost rate is projected to increase from its current level of 9.2 percent in 2010-11 to 29.7 percent in 2059-60.
The general average premium of the system (the constant contribution rate necessary to finance all NIS benefits over the next 50 years) is 17.6 percent.

This may be compared to the present contribution rate of 11.4 percent.

11 ________________________________________________________________________ The contribution rate should be increased from 2013 at least to face the PAYG cost of the system over the period 2013-2017.

Thereafter, there is a need to plan for long- term contribution rate increases.
One possible schedule of contribution rates is as follows: Period 2013 to 2017 2018 to 2020 2021 to 2040 2041 to 2060 Contribution rate 12% 15% 17% 25% Analysis of proposed modifications Increase of the maximum insurable earnings (MIE) Three options are analysed concerning future increases of the maximum insurable earnings:  Under option 1, the MIE would be increased to TT$10,000 in 2013, TT$12,000 in 2014 and by TT$1,000 per year thereafter until 2020.
Annual adjustments of the MIE after 2020 would be based on a general wage index.

 Under option 2, the MIE would be increased to TT$10,000 in 2013 and by TT$1,000 per year thereafter until 2015.

From 2016, it would be set at three times the average national wage.

 Under option 3, the MIE would be increased to TT$11,800 in 2013 and adjusted annually thereafter using a general wage index.
Faster increases of the MIE lead to lower costs since an increase of the MIE has an immediate effect on contribution impact on benefit expenditures.
The financial implications of the options described above are as follows: income and a delayed Indicator Base scenario Option 1 Option 2 Option 3 General average premium Year of reserve exhaustion 17.6% 17.3% 16.4% 17.3% 2039-40 2041-42 2044-45 2040-41 Conversion of the present earnings class system into a system based on a percentage of earnings The present earnings class system is complex to administer.

In order to simplify the system, it is proposed to adopt a career-average indexed-earnings formula.
Three options are analysed.

These formulas have different objectives.

Here is a list of suggested criteria to help analyse the various options in the context of this conversion:  It should simplify the administration of the system.

 It should be cost neutral.

12 ________________________________________________________________________  The new formula should maintain of the equivalence between the old and new formulas both in the short-term and the long-term.
 It should encourage participation to the NIS by rewarding long contribution histories.

 It may seek to operate a redistribution in favor of low earnings persons, with the side effect of reducing the relative importance of the minimum pension.

The three options presented in the report are: 1.

Reproduction of the present pension formula Example: 2 percent for the first 15 years of contribution plus 1.1 percent for each year over 15 2.

Fixed-rate per year of contribution Example: 1.6 percent per year 3.
Redistributive formula putting more weight on low earnings Example: 1.8 percent per year for earnings below TT$4,150 (50 percent of the MIE) plus 1.2 percent per year for earnings above TT$4,150 Option 1 essentially reproduces the present NIS retirement pension calculation for earnings classes V and above.

The transition between the old and the new formula would be smooth and would not affect future retirees, in the short-term and in the long-term.
Options 2 and 3 do not reproduce exactly the present formula.

However, because of the presence of the minimum retirement pension, very few persons would be affected negatively by the application of the new pension formula.

For those few cases that would be affected, it would be appropriate, at least for a certain period, to compare the pension amount of new pensioners under the old and the new formula and to grant the higher of the two pensions.
Extension of coverage to self-employed persons The report presents an update of the financial projections performed in 2010 concerning the extension of coverage to self-employed persons (SEP).

Benefits offered to this group would include Long-term benefits (retirement, invalidity, survivorship) and Short-term benefits (incapacity, maternity, funeral grant).

They would have access to a retirement pension from age 60 (as for salaried employees).
The contribution rate would be 11.2 percent, entirely paid by the SEP (the government could consider the possibility to support part of the contributions of low- income workers).

Age credits (for eligibility purposes) would be granted at a rate of 50 contribution weeks for each complete year elapsed between the age of 50 and the attained age of the person at the introduction of these measures (up to a maximum of 6 years of credit).
After the year of implementation, during which administrative costs would be higher, the PAYG rate slowly increases from 1.4 percent in 2013-14 to 3.5 percent in 2019-20, to reach around 25 percent from year 2053-54.

The general average premium associated with the SEP provisions is 9.4 percent.

Total assets increase until 2049-50 and still represent 2.1 times the annual SEP expenditures in 2059-60.
13 ________________________________________________________________________ Modification of survivors’ benefits The report analyses four options concerning a revision of survivors’ benefits.
Under option 1, minimum survivors’ benefits would be modified as follows:  Spouse: TT$600  Child: TT$600  Dependent parent (if both are alive): TT$300 each  Dependent parents (if only one is alive): TT$600  Orphan: TT$1,200 Under option 2, survivors’ benefits would be expressed as a percentage of the greater of (1) the insured person’s pension or (2) the minimum retirement pension:  Spouse: 60%  Child (if at least one parent is alive): 10%  Child (if no parent is alive): 15% per child, but not exceeding 60%  Dependant parents: 40% Under option 3, minimum survivors’ benefits would be modified as follows:  Spouse: $1,000  Child: $600  Dependent parent: $600  Orphan: $1,200 Under option 4, survivors’ benefits would be expressed as a percentage of the greater of (1) the insured person’s pension or (2) the minimum retirement pension:  Spouse: 30%  Child: 20%  Dependant parents (per parent): 10%  Dependant parents (if only one parent is alive): 20%  Orphan: 40% The financial implications of these options are: Indicator Base scenario Option 1 Option 2 Option 3 Option 4 General average premium Year of reserve exhaustion 17.6% 17.8% 18.6% 18.4% 17.6% 2039-40 2038-39 2034-35 2035-36 2039-40 Modification of maternity benefits It is envisaged to extend the maximum duration of maternity benefits from 13 to 14 weeks.
With this modification, the GAP related to Short-term would increase from 14 ________________________________________________________________________ 0.560 percent to 0.575 percent of insurable earnings and the total GAP of the system would increase from 17.637 percent to 17.651 percent.

Eligibility to the retirement pension A reduction from 750 to 260 weeks of the period of contribution necessary to be eligible to the retirement pension would increase the GAP from 17.6 percent to 20.4 percent.
If such a modification is implemented, it would be necessary to modulate the amount of the minimum pension for persons who have less than 750 weeks of contributions.

This modulation should be done on a pro rata basis.

Automatic adjustment of system’s parameters Different elements of the system need to be adjusted to keep their value over time : the maximum insurable earnings (MIE), minimum and maximum pension rates, grants and pensions in payment.
In the case of the NIS, these adjustments are made at five-year intervals, following the recommendations of the periodic actuaria l reviews.

It is recommended to start the application of an automatic annua l adjustment of the system’s parameters as soon as possible.

Retirement age An increase of the NIS retirement age would be justified considering the projected increase of the life expectancy in Trinidad and Tobago.
The increase of the retirement age may also be justified by the labour force shortage that is anticipated for Trinidad and Tobago in the future, namely on account of the shrinking of the population aged 16 to 59.

In most countries where such a measure has been implemented, a transition period has been introduced in order to allow people to adjust their retirement planning to the new rules.
Other issues Duplication of compensation in case of work injuries There is a need for better coordination between Employment injury benefits paid by the NIS and the compensation offered under the WC Act in order to avoid duplication of benefits.

One possibility would be for each incapacitated worker to choose between the two existing programs.

Another possibility, in line with the social protection point of view, would be that employment injury benefits would be paid by the NIS only.
Elimination of the compensation offered under the WC Act could be an opportunity to increase benefits paid by the NIS with a correspondin g increase in employers’ contributions (compensated by the elimination of premiums paid by employers to comply with the WC Act).

A third possibility would be that the NIBTT offers liability insurance to employers.

The NIBTT would then act as an insurer.


Because such coverage would be optional, adverse selection should be expected and the rate setting process should ensure that this specific block of business would not be subsidized by the universal program.

An alternative optional insurance product offered by the NIBTT could be an EI benefit package that would be more generous than the current one.
This package could be offered to enterprises in which there is a consensus between employers and workers 15 ________________________________________________________________________ to give up benefits available under the WC Act.

This set-up could be a step towards the elimination of the liability features in the compensation of work injuries.

In any circumstances, it appears necessary to analyse the adequacy of compensation of injured workers with permanent disabilities.
There is also a need for greater collaboration between NIBTT and OSHA on various aspects.

Optional contributions to the NIS The report presents an analysis of the elements to be considered if it is envisaged to offer the possibility for NIS insured persons to pay optional contributions to a National Insurance Plan administered by the NIBTT.
The following factors would affect the attractiveness of this new product:  The present coverage under occupational pension plans;  The capacity of low-income workers to save for retirement;  The level of the maximum insurable earnings under the NIS;  The existing tax incentives to save for retirement.
It would be necessary to study the investment instruments currently offered by the private sector and the level of their management fees before deciding on the opportunity to introduce a new player in the field of retirement savings instruments.

The report presents design features of an optional contribution system, if it is decided to go forward with the implementation.
Investment policy It is recommended to establish closer links between the Investment Policy Statement and the actuarial review in order to adequately reflect the time-horizon of the system for the determination of the NIBTT asset allocation.

The new Investment Policy Statement dated June 2012 takes into account this recommendation.

The proportion of overseas investments in the NIBTT portfolio has increased from 4 to 16 percent of the total portfolio over the period 2006-2011.
It is hoped that the legislative constraints applied to overseas investments will be relaxed, so that the NIBTT will have more flexibility to diversify its portfolio.

Level of administrative expenditures Assessment of the appropriate level of administrative expenditure for any socia l security systems must be based on several criteria that are necessarily based, at least in part, on judgment.

There is no reliable unique benchmark valuable in all circumstances.
The Board of Directors of the NIBTT has established a limit on administrative expenditures equal to 7.5 percent of contribution income.

In 2010, administrative expenditures have represented 4.9 percent of contribution income.

Some large social security systems in developed countries have a lower relative leve l of administrative expenditure.

However, Trinidad and Tobago, because of its size, cannot benefit from the same economies of scale as larger countries.
In addition, the NIBTT is responsible for the administration of Short-term and Employment injury benefits that, often, are not under the responsibility of the pensions’ administerin g body in most developed countries.

16 ________________________________________________________________________ List of recommendations 1.
Pensions in payment and fixed-rate benefits (except the minimum retirement pension) should be increased by 52.3 percent in January 2013 to reflect the increase of the CPI since the last actuarial review (Appendix 6 presents the recommended benefit rates).

At the same time, the maximum insurable earnings should be increased to TT$11,800.

2.

From January 2014, all system’s parameters should be subject to an automatic annual adjustment.
Pensions in payment and fixed-rate benefits should be adjusted based on the evolution of the CPI and the maximum insurable earnings should be adjusted accordin g to a wage index.

3.

The total contribution rate for salaried workers should be increased to 12.0 percent for the period January 2013 to December 2017.
Contribution income should be allocated to the three benefit funds according to the following proportions:  Long-term fund: 89 per cent  Short-term fund: 6 per cent  Employment injury fund: 5 per cent The pay-as-you-go cost rate at the end of the projection period in 2060 is considered unsustainable at 30 per cent of insurable earnings.
It is recommended to adopt reforms, either by way of increasing contribution income and/or reducing benefit promises, in order to ensure the long-term financial sustainability of the NIS.

Particular consideration should be given to the development of a strategy for gradually increasing the contribution rate over the next three decades whilst favouring the gradual increase of the retirement age.

4.
4.

Reserve objectives to be maintained for each fund should continue to be established as follows:  Short-term: 2 times the annual benefit expenditure  Employment injury: 10 times the annual benefit expenditure  Long-term: the remaining excess of income over expenditure 5.

The present earnings class system should be converted into a career-average indexed- earnings system.
The report presents three possible formulas for such a conversion and indicates a series of criteria that should be considered for their evaluation.

It is recommended that the various stakeholders be consulted on those options and the suggested criteria before deciding on the most appropriate option.

6.
6.

Conditional to the conversion of the present earnings class system into a system based on a percentage of earnings, the number of weeks of contributions required for eligibility to the retirement pension could be reduced from 750 to 260.

However, for persons having paid contributions for less than 750 weeks, the minimum pension should be prorated.

7.
7.

The contribution rate for the SEP fund should be established at 11.2 percent (10.7 percent for Long-term benefits and 0.5 percent for Short-term benefits).

Age credits for eligibility purposes should be granted at a rate of 50 contribution weeks for each complete year elapsed between the age of 50 and the attained age of the person at the introduction of these measures (up to a maximum of 6 years of credit).
The government should consider the possibility to support (through a direct subsidy) part of the contributions of low- income SEP. 17 ________________________________________________________________________ 8.

Minimum survivors’ benefits should be increased as follows:  Spouse: $600  Child: $600  Dependent parent: $600  Orphan: $1,200 9.

The maximum duration of maternity benefits should be increased from 13 to 14 weeks.

10.
10.

The Ministry of Finance and the Ministry of Labor should jointly investigate the extent of duplicate compensation between Employment injury benefits paid the NIS and the compensation offered under the WC Act.

In addition, the NIB should undertake, in collaboration with the Ministry of Labour, the measurement of the adequacy of compensation offered to injured workers by the existing systems of compensation, particularly for persons with a permanent loss of earning capacity.

11.
11.

Before permitting new optional contributions in a new National Insurance Plan, it would be necessary to study the investment instruments already offered by the private sector and the level of their management fees.

12.
12.

Closer links should be established between the Investment Policy Statement and the actuarial review in order to adequately reflect the time-horizon of the system in the determination of the NIBTT asset allocation (taken into account in a new Investment Policy Statement dated June 2012).

In addition, the NIBTT should continue its representations for an increase of the limit presently imposed on overseas investments.

13.
13.

Administrative expenditures of the NIBTT should be allocated by branch according to contribution income and benefit expenditure in equal proportions, until a more accurate system can be developed.

18 ________________________________________________________________________ Introduction Section 70 of the Trinidad and Tobago National Insurance Act 35 of 1971 requires an actuarial review of the National Insurance System (NIS) at intervals not exceeding five years.
The present actuarial review covers the 5-year period up to 30 June 2010.

The main objectives of this review are to assess the long-term financial condition of the National Insurance Fund (NIF) and study possible ways to improve contribution and benefit provisions.

The present report focuses as well on specific issues raised at the request of the NIBTT.
Concerning more specifically the modifications contemplated to the NIS, the terms of reference of the actuarial review include:  increase of the maximum insurable earnings (MIE) and recommendations on a mechanism for future adjustments;  modification of the present earnings class system into a system based on a percentage of earnings;  extension of coverage to self-employed persons, including provision of co- payments to low-earnings workers and co-funding of age credits;  modification of certain parameters of survivors’ benefits;  increase of the maximum duration of the maternity benefit from 13 to 14 weeks;  assessment of the financial impact of the elimination of potential duplication in the compensation offered by the NIS and by the Labour Law following a work injury;  analysis of the feasibility of introducing an optional system of voluntary contributions beyond the requirements of the existing NIS system, for the purpos e of yielding enhanced retirement income.
This report has been prepared by the Centre for the International Promotion of Québec Public Expertise (CIPQPE) based on the information provided by the NIBTT.

The CIPQPE appointed Mr. Pierre Plamondon, Senior Actuary, Mr. Gilles Binet, Senior Actuary, and Ms. Doan-Trang Phan, Actuarial Assistant, to conduct this actuarial review.

The actuaries worked in close cooperation with Ms. Lisette Alexander, Actuarial Assistant at the NIBTT.
Mr. Plamondon, Mr. Binet and Ms. Phan were on mission in Port-of-Spain from 24 January to 2 February 2012 to gather and study statistical data and information on the social security system, all of which was ably facilitated by NIBTT staff.

Subsequently, the model of the International Financial and Actuarial Service of the ILO was used to prepare the demographic and financial projections associated with the actuarial review.
Section 1 of the report presents a review of the experience of the five-year period from 1 July 2005 to 30 June 2010.

Section 2 describes the projection of the genera l population and the macro-economic framework used for the valuation.

Section 3 presents the NIS demographic and financial projections on the basis of the present provisions of the system.
Section 4 presents the NIS demographic and financia l projections according to certain specific changes to contributions and/or benefits included in the terms of reference.

Section 5 analyses different policy issues.
The appendices contain a summary of key NIS contribution and benefit provisions, a 19 ________________________________________________________________________ description of the methodology used for the valuation, key data inputs and assumptions, detailed information on NIS finances for the five-year period ending on 30 June 2010, examples of the application of the new pension formulas and detailed tables concerning the adjustment of contributions and benefits for the period 2013- 2017.
The CIPQPE would like to express its appreciation to Ms. Lorna Charles, Executive Director of the NIBTT, and its Executive Committee, particularly Mr. Ramlakhan Seecharan, Executive Manager, Planning and Technology, for the cooperation of the Institution in providing information and timely support to the actuaries.

In addition, Ms. Lisette Alexander offered invaluable and timely assistance.
20 ________________________________________________________________________ 1. Review of the experience of the NIS since the last actuarial review This section discusses the evolution of the financial situation of National Insurance System (NIS) between 1 July 2005 and 30 June 2010 (the financial year of the National Insurance Board of Trinidad and Tobago runs from 1 July to 30 June).
NIBTT audited financial statements present detailed information for each of the three branches of the social security system: long-term benefits, short-term benefits and employment injury benefits.

More detailed information on the reconciliation of financial and demographic data of the NIS over the past five years appears in Appendix 4.

1.1 Amendments to the NIS since the 7th Actuarial Review The following modifications have been introduced in the legislation in January 2008.
Contribution rate and maximum insurable earnings The maximum insurable earnings (MIE) was increased from TT$4,377 to TT$8,300 per month on 7 January 2008.

At the same time, the number of earnings classes was increased from 12 to 16.

A contribution rate increase in three steps was announced:  10.5% of insurable earnings from 7 January 2008;  10.8% of insurable earnings from 4 January 2010;  11.4% of insurable earnings from 2 January 2012.
Retirement benefits  Increase of the minimum Retirement pension from TT$1,000.00 to TT$2,000.00 per month.

 Increase of the minimum Retirement grant from TT$200.00 to TT$2,000.00.

Maternity benefits  Maternity grant now payable for each birth in the case of multiple births.

 Maternity grant now based on the father’s contributions where a mother does not qualify in her own right.

 Increase of the Maternity grant from TT$2,000.00 to TT$2,500.00.
Survivors’ benefits  Increase of the minimum Child allowance from TT$320.00 to TT$400.00 per month.

 Increase of the minimum Orphan allowance from TT$640.00 to TT$800.00 per month.

 Implementation of a minimum monthly Widows/widowers pension of TT$400.00.

 Implementation of a minimum monthly Dependent parent pension of TT$200.00.

Employment injury and related benefits  Magnetic resonance imaging now covered up to TT$2,000.00 per examination per body part.
21 ________________________________________________________________________  Increase of the maximum medical expenses reimbursement from TT$18,000.00 to TT$22,500.00.

Funeral grant  Increase in the Funeral grant from TT$4,000.00 to TT$5,000.00.

Adjustment of other pensions in payment  Other pensions in payment were increased by 25 per cent.
It is the current practice, for the NIS, to adjust its key parameters (contribution rate, maximum insurable earnings, pensions in payment and fixed-parameters) every five years, following the recommendations of the periodic actuarial review.

Thus the actuarial review normally takes into account the forthcoming changes in its projections.

However, it may happen, as was the case in 2008, that the actual legislative changes are not identical to the recommendations of the actuarial review.
In particular, the base scenario of the 7th Actuarial Review did not include the contribution rate increases.

In addition, it was assuming that the minimum retirement pension of TT$2,000 would increase linearly to TT$2,500 for the highest earnings’ class, while in reality the adopted minimum pension was the same for all pensioners at TT$2,000.

Revised projections appear in the report concerning the extension of coverage to self-employed that has been delivered to the NIBTT in 2010.
1 This report presents, in Appendix IV, projections based on the exact provisions adopted in 2008.

In that context, the present experience analysis concentrates on the comparison of observed results with the projections of the most recent actuarial report (the 2010 specia l report) which considers the exact evolution of the legislation during the period 2005- 2010.

It must be noted that this report uses the same methodology and assumptions as the 7th Actuarial Review.
1.2 Analysis of the experience of the NIS for the period 1 July 2005 to 30 June 2010 and comparison with projections Table 1.1 presents consolidated revenues and expenditures for all branches.

Miscellaneous income and expenditure, which represent minor amounts, are not included in the table.
The application of the recommendations of the actuarial review concerning benefit indexing, the increase of the maximum insurable earnings and the increase of the contribution rate (fully reflected in the 2010 special report) has caused a significant increase in both benefit expenditure and contribution income during financial years 2007-08 and 2008-09 (see Table 1.1. and Chart 1.1).

Recommendations were applied in the second half of 2007-08 and had their full impact only in 2008-09.
Contribution income increased by 93 percent from 2005-06 to 2009-10 while the increase of benefits has been 119 percent over the same period.

1 ILO, Report to the Government, Actuarial Review of the National Insurance System as of 30 June 2005.

ILO/TF/Trinidad and Tobago/R.16 (Geneva, 2010), p. 50.

22 ________________________________________________________________________ Contribution income and benefit expenditures have matched the projections relatively well.
Over the period, contribution income exceeded by only 4 percent the projections of the 2010 special report, while benefit payments were 7 per cent lower than the projections.

Employment injury benefits varied from projections by 15 percent while the deviations in long-term and short-term benefits were not material (respectively 2 and 5 per cent).
Table 1.1 Comparison of projected versus actual results of the NIS regarding the different components of revenue and expenditure (million TT$) 2005-06 2006-07 2007-08 2008-09 2009-10 Projections of the 7th Actuarial Review Contribution income Investment income * Benefit expenditure Administrative expenses Projections of the 2010 special report Contribution income Investment income * Benefit expenditure Administrative expenses Actual results Contribution income Investment income * Benefit expenditure Administrative expenses 1,314 1,409 1,023 93 1,314 1,409 1,023 93 1,373 - -23 2,066 125 2,425 1,635 2,381 122 2,609 1,686 2,268 122 2,645 677 2,191 129 * Note: Investment income includes realized and unrealized gains.
Sources: NIBTT audited financial statements, Seventh Actuarial Review of the National Insurance System as of 30 June 2005 and Actuarial Review of the National Insurance System regarding the Extension of Coverage for the Self-Employed as of 30 June 2005.
23 ________________________________________________________________________ Chart 1.1 Evolution of contributions and benefits (all funds combined) Table 1.2 presents a comparison of NIS total funds projected according to the 7th Actuarial Review and the 2010 special report with the corresponding actua l balance sheet data (minor items, namely “Other liabilities and borrowings”, are not considered as they are not relevant to actuarial reviews).
Table 1.2 Evolution of funds as at 30 June (million TT$) Projections of the 7th Actuarial Review Projections of the 2010 special report 2005 2006 2007 2008 2009 2010 13,076 14,684 16,376 17,928 19,405 20,963 13,076 14,684 16,376 18,108 19,861 21,767 Actual results 13,076 13,157 14,283 16,985 17,385 18,422 Ratio Actual / Projection of the 2010 report 90% 87% 94% 88% 85% Sources: NIBTT audited financial statements, Seventh Actuarial Review of the National Insurance System as of 30 June 2005 and Actuarial Review of the National Insurance System regarding the Extension of Coverage for the Self-Employed as of 30 June 2005.
Assets have been lower than expected at the end of each financial year.

The ratio of actual to projected fund has fluctuated from one year to the other and stands at 85 per cent on 30 June 2010.
Considering that actual results concerning contribution income and benefit expenditure have been relatively close to projections (as discussed above), the TT$3.3 billion shortfall in accumulated assets at the end of the financial year 2009-2010 is essentially due to unfavourable deviations regardin g investment returns.

The average annual rate of return of the fund over this five-year period has been 4.4 percent, compared to the average return of 9.3 percent assumed for that period in the actuarial review.
A comparison of actual versus projected rates of return is presented in Table 1.3.

24 8001,2001,6002,0002,4002,8002005-062006-072007-082008-092009-10TT miilionExpected Contr.

IncomeObserved Contr.

IncomeExpected Benefits Exp.Observed Benefits Exp.
________________________________________________________________________ Table 1.3 Rate of return of the fund (2005-06 to 2009-10) Year Rate of return Actual a Projected 2005-06 2006-07 2007-08 2008-09 2009-10 Average b -1.8% 5.4% 15.5% -0.1% 3.9% 4.4% 10.7% 9.8% 8.9% 8.7% 8.4% 9.3% a Calculated as 2 X I / (A + B - I), where I is the annual investment income, A is the fund at beginning of the year and B is the fund at the end of the year b Geometric average Chart 1.2 presents, for each financial year, the contribution of the various components of revenue and expenditure to the deviation in projected assets as at 30 June 2010.
In this chart, bars showing the distribution of sources of deviations in each financial year have all the same size.

Consequently, it has no relationship with the size of the total deviation, which is indicated separately with reference to the right axis.
Chart 1.2 Sources of deviations in the projected increase of assets from 2005-06 to 2009-10 25 -1 574-609919-1 410-904-3 578-4 000-3 500-3 000-2 500-2 000-1 500-1 000-50005001 0001 500-100%-80%-60%-40%-20%0%20%40%60%80%100%2005-062006-072007-082008-092009-10All yearsDeviation (million TT$)Percentage of total deviationContribution incomeAdministration expensesInvestment returnsBenefits expendituresDeviation (right axis) ________________________________________________________________________ The investment returns have been lower than the projection by $4.2 billion while the net impact of the other items is a surplus of $0.6 billion.
Other income 2 not considered in the actuarial review has generated a surplus of $0.2 billion.

Analysis of NIS demographic data Chart 1.3 shows the ratio of observed to projected number of contributors and beneficiaries.

The number of contributors has been larger than the projection in four out five projection years.

The pattern of deviations was irregular.

In 2009-10, the observations matched the projection.
It seems that the macroeconomic framework of the 7th Actuarial Review was a reasonable and prudent forecast of the economic outlook.

Chart 1.3 Ratio of observed to expected contributors and beneficiaries Note: The short-term adjusted curve does not include any maternity grant Long-term benefit recipients in 2009-2010 amounted to 115,945 or 3 percent below the forecasted number of recipients of 119,527.
The decreasing trend of the ratio is driven by the fall in the number of invalidity and survivors pensions.

Retirement pensions have been close to the forecast during the period while the retirement grants have been larger by an average of 10 per cent.

The trend of the ratio for short-term benefits is misleading due to the implementation of the special maternity grant based upon the eligibility of fathers.
On one hand, the use of the new maternity benefits may not have reached its full maturity and, on the other hand, it seems that the projection relied on a conservative approach due to the lack of reliable data to estimate the impact of the new provision.

Two sets of results are presented in the above chart for financial years 2007-08, 2008-09 and 2009-10 in order to capture the fundamental trend.
In order to better assess the experience of the 2 Those revenues are penalty income and surplus realized on the NIBTT staff pension plan.

26 0.750.800.850.900.951.001.051.101.151.202005-062006-072007-082008-092009-10ContributorsLong termShort termEmployment injuryShort-term adjusted ________________________________________________________________________ branch, it is advisable to rely on the adjusted ratio for assessing the situation of the branch.
The adjusted ratio also shows a decreasing trend, fluctuating between 0.88 and 0.98, but not as much as the non-adjusted one.

The trend is driven by sickness benefits for which the ratio was consistently below 1.0 (0.92 on average) while the ratio of maternity and funeral benefits was above 1.0 (averages of 1.10 and 1.05 respectively).

The employment injury ratio has started a steady decrease in 2007-08 and reached 0.86 in 2009-10.

This phenomenon deserves investigation.


It could be related to an improvement of the injury experience, increasing delays in claiming or an emergin g disincentive in claiming.

1.3 Comments on financial statements Certain accounting practices have changed since the 7th Actuarial Review.

Assets are now entirely allocated between the three benefit funds.

In addition, following a recommendation of the 7th Actuarial Review, the “Accumulated reserve” has been eliminated.
In addition, the “Revaluation reserve” has significantly reduced in size following the application of fair value accounting.

As regards the allocation of administrative expenditures by branch, this is presently done with reference to contributions only.

It must be recalled that the 7th Actuaria l Review was recommending to allocate administrative expenditures according to contribution income and benefit expenditure in equal proportions.
This method should be applied in the preparation of future financial statements.

Recommendation Administrative expenditures of the NIBTT should be allocated by branch according to contribution income and benefit expenditure in equal proportions, until a more accurate system can be developed.

27 ________________________________________________________________________ 2.
Projected demographic and macroeconomic environment of Trinidad and Tobago Future income and expenditure of the NIS will be closely linked to changes in the size and age structure of the population of the country, employment levels, economic and wage growth, inflation, and rates of return on investments.

Therefore, in order to estimate future NIS finances, a projection of Trinidad and Tobago’s total population and economic activity is required.
Demographic projections provide estimates of the size and composition of the labour force, while projections of the gross domestic product (GDP) and the growth of labour productivity are necessary to project the number of workers and their earnings.

Population and economic projections are interrelated.

They are thus performed together to ensure consistency of results.
Demographic and macroeconomic variables were projected for a period of 50 years, following an analysis of past trends and an estimate of plausible future experience.

Population and economic projections are an intermediary step to derive NIS projections.

2.1 Population projection The determinants of future population changes are fertility, mortality and net migration.

Fertility rates determine the number of births, while mortality rates determine how many, and at what ages people are expected to die.
Net migration represents the difference between the number of people who permanently enter and leave Trinidad and Tobago and is the most volatile of the three factors.

The last official population census took place in 2000, where the resident population was estimated at 1,262,000.

A new census has been conducted in 2010, but results were not available for use in this actuarial review.

The projection process thus starts in 2001.


Estimations of the population made by the CSO for the period 2000 to 2010, in conjunction with other statistical indicators, have been used to check the overall consistency of projections.

Fertility The total fertility rate (TFR) represents the average number of children each woman of childbearing age would have if she had all her children in a particular year.

If there is no migration, a TFR of 2.1 is required for each generation to replace itself.
The TFR has been fairly stable since the mid-1990s, fluctuating around 1.76.

It is assumed that this pattern will remain constant over the projection period.
29 ________________________________________________________________________ Table 2.1 Historical fertility rates in Trinidad and Tobago (1990-2006) Year 1991 1992 1993 1994 1995 1996 1997 1998 Total fertility rate 2.51 2.54 2.27 2.10 2.00 1.85 1.91 1.83 Year 1999 2000 2001 2002 2003 2004 2005 2006 Total fertility rate 1.85 1.84 1.78 1.65 1.71 1.62 1.61 1.68 Source: Central Statistical Office of Trinidad and Tobago Mortality Life expectancy and improvements in mortality are assumed to occur in accordance with UN estimates.
While deaths due to HIV and AIDS have not been explicitly accounted for, the rate of mortality improvements chosen considers implicitly the effects of the HIV/AIDS pandemic.

Life expectancy at birth in 2010 is 68.7 for males and 73.4 for females.

Life expectancy at advanced ages is a key driver of the cost of retirement pensions.

At age 60, life expectancy is 18.7 years for males and 21.0 years for females in 2010.

Mortality improvements are based on the UN medium variant.
Under this pattern of mortality improvements, it is projected that life expectancy will reach 75.4 for males and 80.3 for females in 2060.

Migration Data on migration is scarce in Trinidad and Tobago.

Information on new entries in the country has been obtained from the Integrated Border Management System of the Ministry of National Security.

However, exits from the country are not specifically accounted for, so the database cannot be a reliable source for estimation on net migration.
According to this department, the influx of immigrants would be positive in three Caribbean countries: Trinidad and Tobago, Barbados and Antigua.

On the other hand, some sources (like the UN) project a negative net migration for the short- and medium-term.

Given the lack of reliable information and the divergence of views on that question, it is assumed that net migration will be zero for the whole projection period.
Projected population Chart 2.1 presents the projected population of Trinidad and Tobago from 2010 to 2060 separated into three age categories: children (0-15), persons who can potentially contribute to the NIS (16-59) and persons at pensionable age (60 and over).

The evolution of the relative size of each age-group (notably the decrease of the population of children and the increase of the number of persons at pensionable age) illustrates the projected ageing of the population of Trinidad and Tobago.
30 ________________________________________________________________________ Chart 2.1 Projected population of Trinidad and Tobago, by age groups (2010-2060) Table 2.2 presents detailed population projections.

We may observe that the total population will increase from 1,317,714 in 2010 to 1,428,799 in 2040 and will then initiate a slow decrease to reach 1,341,694 in 2060.
The number of persons at pensionable age (60 and over) will grow from 161,051 in 2010 to 412,423 in 2060, while the population aged 16 to 59 will decrease by 18 per cent.

The number of working-age persons for each person aged 60 and over will thus fall dramatically from 5.4 to 1.7 over the projection period.
Table 2.2 Projected population of Trinidad and Tobago (2010-2060) Year Total 2010 2020 2030 2040 2050 2060 1,317,714 1,396,916 1,427,430 1,428,799 1,397,518 1,341,694 0-15 285,176 296,267 259,495 245,425 235,555 217,087 Age 16-59 60 & over Ratio of persons 16-59 to 60 & over 871,487 869,965 870,251 836,831 739,912 712,184 161,051 230,684 297,683 346,543 422,052 412,423 5.4 3.8 2.9 2.4 1.8 1.7 2.2 Macroeconomic framework Economic growth Trinidad and Tobago’s economy is driven by the energy sector.
This explains the high historical economic growth of the country (see Chart 2.2), but also its volatility over recent years and its slight decline (in real terms) since 2009.
The Trinidad and Tobago economy is projected to decline by 1.4 percent in real terms in 2011 as a 31 -200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 2010202020302040205020600-1560 and over16-59 ________________________________________________________________________ result of flat growth in the petroleum sector coupled with lower levels of economic activity in the non-petroleum sector.3 Chart 2.2 Real GDP growth of Trinidad and Tobago (1996-2011) Source: Central Statistical Office of Trinidad and Tobago.
Trinidad and Tobago’s economy will be challenged over the medium term by the weakness of the non-energy sector, the turbulence affecting international markets and the low recovery in the US, which is Trinidad and Tobago’s main tradin g partner.

In addition to the uncertainty about the energy-sector activity in the short- term, many have concerns about the performance of the construction sector, which is a major employer.
Furthermore, owing to the pessimistic outlook for the globa l economy, and the US in particular, which will have a negative impact on externa l demand for energy exports, GDP growth should be positive but weak in 2012 and 2013.4 In this valuation, it is projected that real GDP will grow by 1.4 percent in 2012 and 2.3 percent in 2013.

It is not anticipated that economic growth will revert to the high performance of the last decades.
In addition, the future shrinking of the labour force (driven by the decrease of the population aged 16 to 59) will put additiona l constraints on economic growth.
The long-term GDP growth assumption is the result of assumptions on the future evolution of the labour force, the wage share of GDP , assumed to remain constant at its level of 2010, and labour productivity (discussed 3 Government of the Republic of Trinidad and Tobago, Ministry of Finance, Review of the Economy 2011, From Steady Foundation to Economic Transformation.

4 Economist Intelligence Unit, Trinidad and Tobago Country Report, January 2012.
32 -6%-4%-2%0%2%4%6%8%10%12%14%16%1996199719981999200020012002200320042005200620072008200920102011Real GDP growth ________________________________________________________________________ below).

Under the macroeconomic framework hereby proposed, the resulting rea l GDP growth will gradually converge to 1 percent in the long-term.

Productivity Preliminary data indicate that the productivity of labour may reduce by 2.2 percent in 2011.
For this review, it is assumed that the productivity of labour will grow by 0.5 percent in 2012 and 1.5 percent per year from 2013.

This long-term assumption is in line with the average assumption used for the valuation of several socia l security systems around the world.
5 Table 2.3 Projected GDP growth, productivity and total employment Year 2011 2012 2013 2014 2015 2020 2030 2040 2050 2060 Real GDP growth (%) Increase of the productivity per worker (%) Increase of the number of workers (%) -1.4 1.4 2.3 2.1 2.0 1.5 1.5 0.9 0.6 1.0 -2.2 0.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 0.9 0.9 0.8 0.6 0.5 0.0 0.0 -0.6 -0.9 -0.5 Labour force As domestic economic conditions deteriorated during the recent economic crisis, the unemployment rate increased from 4.1 percent in 2008 to 6.3 percent in 2010.
In 2010, male unemployment was 4.9 percent, whereas female unemployment was 8.4 percent.

Young persons between the ages of 15 and 29 years account for more than half of the unemployed.

For the future, it is assumed that age-specific labour force participation rates will stay constant, at their level of 2010, for the entire projection period.

Under this scenario, the total participation rate is almost constant in the future.
The total male participation rate (15-64) will slightly increase from of 77 percent in 2010 to 79 percent in 2060 and the total female participation rate will remain stable around 55 percent.

5 See: International Social Security Association, Assumptions in the actuarial evaluation process – Comparison of demographic and economic assumptions in the actuarial analysis of 14 social security systems (Geneva, 2009), p.18.
33 ________________________________________________________________________ Chart 2.3 Projected total participation rate, by sex (2010-2060) Under this scenario, the unemployment rate of 6.1 percent in 2010 will gradually decrease to 5.5 percent in 2020 and will stay around that level thereafter.

Self- employed persons represent 23 percent of the total employed population in 2010.

It is assumed that this relationship will remain constant in the future.
34 0%10%20%30%40%50%60%70%80%90%201020202030204020502060MaleFemale ________________________________________________________________________ Table 2.4 Labour market balance (2010-2060) (in thousands) Total population Male Female Population 15-64 Male Female Labour force Male Female Total participation rate Male Female Total employed Male Female Salaried Male Female Self-employed Male Female Unemployed Male Female Unemployment rate Male Female Inflation Like many Caribbean countries, Trinidad and Tobago is exposed to supply-side inflationary pressures, owing to global commodity price volatility.
Historically, inflation has been under control for most of the period from the mid-1990s to 2004.

However, the inflation rate has increased significantly from 2005.

The annual average rate of inflation (ratio of the average CPI for the 12 months of a calendar year to the average CPI of the 12 months of the preceding year) was 12 percent in 2008, 7 percent in 2009 and 10.6 percent in 2010 (see Table 2.5).
Inflation peaked at 35 ________________________________________________________________________ 16.2 per cent in August 2010.

In the first half of 2011, inflation decreased on account of lower food price inflation.

It fell sharply from 12.5 percent in January 2011 to 0.6 percent in August 2011, but restarted to increase through the end of 2011, reachin g 5.7 percent in December 2011.
Table 2.5 Historical inflation rates in Trinidad and Tobago (1990-2006) Year Inflation rate (%) Year Inflation rate (%) Source: Central Statistical Office of Trinidad and Tobago Food prices are anticipated to remain high and maintain upward inflationary pressures in 2012-13, but at single-digit levels.
It is assumed that inflation will stand at 5.5% in 2012 and 5.1% in 2013.

6 It is projected that the inflation rate will gradually converge to 3 percent in 2021 and remain at that level thereafter.

Wage increases The real wage increase is assumed to gradually converge towards the productivity per worker, as it is expected that wages will adjust to efficiency levels over time.

Nominal wage increases will thus fluctuate slightly around 4.5% over the projection period.
Interest rates and yield on investments In a continuation of its accommodative policy adopted at the end of the 2008/2009 financial year, the Central Bank reduced the repo rate on three occasions between October 2009 and January 2010 to a level of 5.00 per cent.

As inflation started to rise, the Bank left the policy rate unchanged over the next six months.
However, with widespread evidence of low domestic business confidence, considerable spare capacity and stable core inflation, the Bank resumed its policy of repo rate reductions, lowering it on four occasions to 3.75 per cent by November 2010.7 The repo rate has continued to decline to 3.00 per cent in 2011.
Given the lack of evidence suggesting a significant pick-up of the domestic economy, and with the US policy rate set to remain at its current low, it is not anticipated that interest rates will increase in the short run.

6 Economist Intelligence Unit, Trinidad and Tobago Country Report, January 2012.

7 Central Bank of Trinidad & Tobago, Annual Report 2010.
36 ________________________________________________________________________ Concerning the projected yield on the investments of the Social Insurance Fund, we have considered the target asset allocation of a draft Investment Policy Statement of the NIBTT with an associated long-term expected return (see Table 2.6).
Table 2.6 Target asset allocation and projected long-term return Type of investment Local equities Overseas investments Property and mortgages Local fixed-income securities Cash and money market Total Target asset allocation 30% 10% 10% 45% 5% Projected long-term return Real Nominal 7.0% 4.0% 6.0% 1.5% 0.5% 3.8% 10.2% 7.1% 9.2% 4.5% 3.5% 6.9% Source: Investment Policy Statement of the NIBTT For the purpose of this actuarial review, it is thus assumed that the long-term nominal rate of return of the Social Insurance Fund will be 6.9 percent.
However, in the short-term, considering the uncertain environment following the recent financia l crisis, it is assumed that the real rate of return of the fund will gradually increase from 2011 to 2015.

A nominal rate of return of 8.5 percent from 2011 to 2015 is consistent with that objective.
Table 2.7 Projected inflation rate, wage increase and rate of return of the Fund Year 2011 2012 2013 2014 2015 2020 2030 2040 2050 2060 Inflation rate (%) Annual nominal increase of average wage (%) Rate of return of the Fund (%) ________________________________________________________________________ 3.
NIS demographic and financial projections This valuation deals with the ability of the NIS to meet its future obligations at the time they fall due.

This is done under an open-group approach.

It is assumed that workers will continue to be insured by the NIS indefinitely, thus payin g in contributions, accruing benefit entitlements and accordance with the legal provisions of the system.
Future contributions and benefits are calculated according to the demographic and economic assumptions presented in Section 2 and on the basis of the database and assumptions appearing in Appendix 3. later receiving benefits The main purpose of the valuation is to find out whether the financing of the NIS is on course, and not to forecast numerical values exactly.

Due to the long-term nature of the assumptions, absolute figures contain a high degree of uncertainty.
Therefore, results should be interpreted carefully and future actuarial reviews undertaken on a regular basis will make possible a validation of the assumptions in the light the actual experience.

This review deals with the expenditure and revenue of all branches administered by the NIS: long-term benefits, short-term benefits and employment injury benefits.

The key area of concern will be the long-term branch since it accounts for the largest proportion of future expenditure.
It is certain that this proportion will grow significantly in the future due to its current immature state.

Long-term benefits will attain a mature state only after the youngest of the first generation of contributors have become pensioners then died and all survivors’ pensions paid on their behalf ceased.

This requires that the situation of the system be analysed over the next 50 years.

The general methodology of the actuarial review is presented in Appendix 2.
3.1 Defining the “base scenario” NIBTT policy objective is to maintain the link between contributions and benefits and the economic conditions.

Given the design of the system, the technique that has been used in the past in order to reach that objective was to increase the maximum insurable earnings and pensions in payment on an ad hoc basis following the recommendations of periodic actuarial reviews.
In that context, base scenario projections presented hereunder are made on the following basis:  The maximum insurable earnings is increased in January 2013 to be equivalent to twice the national average wage of salaried workers (TT$11,800) and is increased thereafter at five-year intervals to maintain the same relationship between the MIE and the national average wage, and  Pensions in payment (before the application of the minimum pension) and fixed parameters of the system (excluding the minimum retirement pension, as discussed below) are increased in January 2013 by a percentage equal to the increase of the CPI over the period from July 2005 to June 2010.
Thereafter, all 39 ________________________________________________________________________ pensions in payment and fixed parameters of the system are increased at five-year intervals to reflect the increase of the CPI over the previous five years.
As regards the minimum retirement pension, when considering the actual increase of the CPI during the period from 1 July 2005 to 30 June 2010 (52.3 percent, as shown in Table 3.8), the recommendation would have been to increase the minimum pension to TT$3,047 in 2013 in the absence of the legislative change that took place at the beginning of 2012.
Since the minimum pension has been increased to TT$3,000 from February 2012, it is assumed in the base scenario that the minimum pension will stay at that level until the end of 2017 and will follow CPI increases thereafter.

Recommendation Pensions in payment and fixed-rate benefits (except the minimum retirement pension) should be increased by 52.3 percent in January 2013 to reflect the increase of the CPI since the last actuarial review (Appendix 6 presents the recommended benefit rates).
At the same time, the maximum insurable earnings should be increased to TT$11,800.

3.2 Demographic projections As shown in Table 3.1, the total number of pensioners is projected to increase significantly in the future, from 108,270 in 2009-10 to 321,953 in 2060, while at the same time the number of contributors will fluctuate around 500,000 for the next 25 years, but will then start to decrease to a level just over 400,000 in 2059-60.
The ratio of contributors to pensioners will thus decrease from 4.3 to 1.3 over the next 50 years.
40 ________________________________________________________________________ Table 3.1 Projected number of contributors and pensioners - Long-term benefits, 2010-2060 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 Number of contributors Retirement Invalidity Survivors Number of pensioners Total number of pensioners Ratio of contributors to pensioners Demographic projections concerning Short-term benefits are presented in Tables 3.2.
As regards Sickness and Maternity benefits, the number of beneficiaries is relatively stable until 2040 and decrease thereafter following the decrease of the number of active insured persons (see Table 3.1).

On the other hand, the number of Funeral grants increases significantly and continuously over the projection period, followin g the general ageing of the population.

On that account, the Funeral grant could be classified as a long-term benefit.
41 ________________________________________________________________________ Table 3.2 Projected number of beneficiaries - Short-term benefits, 2010-2060 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 Sickness benefit Maternity benefit * Special maternity grant Funeral grant * The number of “regular” maternity grants is assumed equal to the number of maternity benefit recipients.
Demographic projections concerning Employment injury benefits are presented in Tables 3.3.

All benefits except the Disablement pension follow the general evolution of the number of active insured persons.

Disablement pensions, on the other hand, are paid for long periods and this benefit will continue its maturing process over the next decades.
42 ________________________________________________________________________ Table 3.3 Projected number of beneficiaries – Employment injury benefits, 2010-2060 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 Injury allowance Disablement pension Disablement grant Death benefit Medical expenses Financial projections Apart from being driven by the number of beneficiaries, the cost of NIS is also determined by the average amount of benefit paid to these persons.
One indicator of the evolution of pension amounts is the evolution of pensions’ replacement ratios (ratio of the average pension to the average wage of active contributors).

Table 3.4 presents these replacement ratios for each type of pensions and by sex.

Replacement ratios do not change dramatically over time.
This reflects the fact that the system has already reached a certain state of maturity since it has been in existence for 40 years and the oldest active insured persons have had the possibility to contribute durin g (almost) the maximum potential period from age 16 to age 60.

The high replacement ratios of the retirement pension reveal that the minimum pension takes an important place in the benefit levels offered by the system, especially for women.
43 ________________________________________________________________________ Table 3.4 Projected replacement ratios – Long-term benefits, 2010-2060 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2019-20 2029-30 2039-40 2049-50 2059-60 Retirement Invalidity Survivors Males Females Males Females Widows Widowers For accounting purposes, NIBTT presents the financial results under three branches : long-term benefits, short-term benefits and employment injury benefits.
Provisions exist for transferring reserves between branches once certain ratios are met.

In this section, it is considered more convenient to present the evolution of total assets irrespective of their allocation by branch.

Financial projections assume that the present contribution of 11.4 per cent is maintained for the whole projection period, under the base scenario.

Chart 3.1 presents the projection of assets (until the fund is depleted) in current and constant TT dollars.
Chart 3.1 Projected evolution of total NIS assets, 2010-2060 Financial projections reveal that system’s expenditure will exceed contribution income from financial year 2012-13.
Total assets of the NIS will however continue to increase until 2026-27 (even if part of investment income will have to be used, in 44 01020304050201020152020202520302035BillionsCurrent TT$Constant 2010 TT$ ________________________________________________________________________ addition to contributions, to support the expenditure of the system during that period).
From 2027-28, assets will rapidly decrease and the NIS funds will be completely depleted in 2039-40 if nothing is modified in terms of contributions or benefits of the system.
Table 3.5 Key moments of the future evolution of NIS assets System’s expenditure first exceeds contributions System’s expenditure first exceeds contributions plus investment income (assets start to decrease) Assets are exhausted Year 2012-13 2027-28 2039-40 The ratio of assets to total expenditure of the system is presently equal to 8.0.

The increase of the minimum pension at TT$3,000 causes a sharp decrease of the ratio to 6.6 in 2012-13, as shown in Chart 3.2.
The ratio decreases to a level below 2.0 from year 2034-35.

Chart 3.2 Ratio of assets to total expenditure (funding ratio) 45 0246810201020152020202520302035 ________________________________________________________________________ Table 3.6 presents the future evolution NIS expenditures for each branch.

It also presents the total expenditure in relation to total insurable earnings (the pay-as-you- go rate) and to the GDP.
The PAYG cost rate is projected to increase from its current level of 9.2 percent in 2010-11 to 29.7 percent in 2059-60.

The general average premium (GAP)8 of the system (the constant contribution rate necessary to finance all NIS benefits over the next 50 years) is 17.6 percent.

This may be compared to the present contribution rate of 11.4 percent.

There is thus a need to plan for future contribution rate increases (see Chart 3.3).

Detailed financial projections are presented in Table 3.7.
Table 3.6 Projected NIS expenditure, 2010-2060 (thousand TT$) Benefit expenditure Short-term Employment injury Admin.

expenses Total expenditure Expenditure as % of Ins.
earnings GDP Year Long-term Retirement Invalidity Survivors 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 1,921,416 2,401,841 3,082,312 3,235,122 3,415,289 3,566,495 3,723,544 4,440,217 5,170,627 5,373,807 48,783 55,664 77,808 99,540 101,994 107,069 113,209 137,191 161,125 164,348 2024-25 7,780,239 219,288 2029-30 10,444,388 302,379 172,982 182,919 232,122 284,504 299,378 316,817 336,604 391,011 449,243 474,620 684,648 945,052 2034-35 2039- 2049-50 40,271,258 698,449 3,024,545 889,725 827,712 578,700 46,290,388 2059- There are two approaches for the calculation of the general average premium.
A first approach uses the reserve at the valuation date (and the investment income thereon) so that the application of the GAP during the whole projection period would lead to a zero reserve at the end of 50 years.

In that case, the value of the initial reserve, plus the present value of contribution (at the GAP rate) and investment income over the next 50 years is put equal the present value of benefit and administrative expenditures over the same period.
Under the second approach, the initial reserve (and the investment income thereon) is not used in the calculation, so that the GAP represents the actual constant contribution rate that would preserve (over the projection period) the reserve ratio observed at the valuation date.

The second approach is used in this report.
46 ________________________________________________________________________ Chart 3.3 Projected cost rates (as percentage of insurable earnings), 2010-2060 47 0%5%10%15%20%25%30%35%20102015202020252030203520402045205020552060PAYGContribution rateGAP ________________________________________________________________________ Table 3.7 Projected revenue, expenditure and assets, 2010-2060 (thousand TT$) Revenue Contribution income Investment income Total Benefits Expenditure Administrative expenses Total Year-end Assets Number of times current year's expenditure -82,277 13,204,207 23,043,932 424,423 18,410,004 -16,448,254 1,961,750 45,711,689 614,633 27,265,424 -65,535,501 -38,270,077 70,244,702 890,018 2,423,965 2,984,205 3,787,241 4,068,089 4,286,917 4,480,544 4,682,252 5,533,485 6,403,291 6,655,425 9,495,093 12,700,236 17,111,866 23,468,354 46,326,322 71,134,720 20,894,704 22,738,900
 24,531,993 26,678,924 28,937,021 31,302,543 33,690,128 35,875,944 37,745,130 39,513,633 45,085,903 43,508,072 30,130,907 -6,365,634 8.6 7.6 6.5 6.6 6.8 7.0 7.2 6.5 5.9 5.9 4.7 3.4 1.8 -0.3 -268,786,908 -1,037,260,023 -5.8 -14.6 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 48 ________________________________________________________________________ 3.4 Reconciliation with the results of the 7th Actuarial Review According to the 7th Actuarial Review, NIS assets would increase until 2035-36 and then start to decrease, as shown in Chart 3.4.
On the basis of the last review, the fund would be depleted in financial year 2045-46.

Amendments to the system Two series of amendments have modified fund projections since the 7th Actuaria l Review.

First, as mentioned in Section 1.1, the actual legislative changes adopted in 2008 were not identical to the recommendations of the 7th Actuarial Review.
In particular, the base scenario of the 7th Actuarial Review did not include the contribution rate increases, it was assuming that the minimum retiremen t pension of TT$2,000 would increase linearly to TT$2,500 for the highest earnings’ class (while in reality the adopted minimum pension was the same for all pensioners at TT$2,000), and it was assuming that the minimum pension would be frozen at its 2008 level in the future instead of being indexed every five years like the other parameters of the system.
Globally, these differences have caused an increase of the general average premium from 13.8 percent to 15.1 percent, but did not affect the year of reserve exhaustion (see Table 3.9).

Second, the minimum pension was increased at TT$3,000 in February 2012.

This modification has caused an increase of the general average premium from 15.1 percent to 15.9 percent and has shortened the period before reserve exhaustion by four years.
Chart 3.4 Evolution of NIS fund projections since the 7th Actuarial Review, considering amendments to the system during the period 2005-2010 (billion TT$) 49 -200000200004000060000800002005201020152020202520302035204020457th AR2008 Amendments2012 Amendment ________________________________________________________________________ Experience of the period 2005-2010 Investment return.
Lower than expected investment earnings during the period from 1 July 2005 to 30 June 2010 have slowed the fund increase and have shortened the period before reserve exhaustion by another three years.

Adjustment of pensions in payment and MIE in 2013 following inflation and wage increase over the past five years.
As mentioned earlier, under the base scenario, pensions in payment and fixed-parameters of the system are increased in January 2013 by a percentage equal to the increase of the CPI over the period from July 2005 to June 2010, and the MIE is increased in January 2013 at twice the national average wage.

Table 3.8 presents the difference between the 7th and the 8th Actuarial Reviews concerning the assumptions used for adjusting those parameters in 2013.
Table 3.8 Comparison of assumptions concerning projected pensions and MIE increases in 2013 Increase of the CPI Assumed in the 7th Review Experience used for the 8th Review 6.7% 5.8% 4.9% 4.7% 4.4% 7.6% 8.1% 10.0% 9.5% 8.8% Year 2005-06 2006-07 2007-08 2008-09 2009-10 2011 2012 2013 Total Assumed increase of the average national wage 7th Review 8th Review 15.1% 10.2% 9.5% 8.9% 8.3% 11.4% * 7.3% 5.6% 6.7% 34.6% 29.4% 52.3% 63.8% * Calendar year 2010 Concerning pension increases, in the 8th Actuarial Review, pensions in payment are assumed to increase by 52.3 percent in 2013 (compared to a previous assumption of 29.4 percent), reflecting the significantly higher inflation observed during the period 2005-2010.
The minimum retirement pension was increased by 50 percent (instead of 52.3 percent) and was established at TT$3,000, in line with the legislative change of February 2012.
Concerning the increase of the MIE, in the 8th Actuarial Review, the projected increase of the MIE in 2013 (TT$11,800 per month) is calculated as twice the average national wage observed in 2009, projected in 2013 using the assumed general wage increase for the period 2009-2013, in line with the macroeconomic framework described in Section 2.
In the previous valuation, the adjustment of the MIE in 2013 was calculated as twice the average wage in 2007-2008, projected in 2013 using the observed wage increases during the period 2005-2010, leading to a MIE of TT$13,600 per month.
There was thus, in the previous valuation, a time la g 50 ________________________________________________________________________ in the period used for the adjustment, hence the high wage increases of the period 2005-2007 (experienced before the calculated 2007-2008 average wage) were influencing the level of the projected MIE in 2013.

It is considered that the new method will better reflect the actual level of the average wage at the moment the increase of the MIE actually takes place.
The global impact of these differences is a global increase in costs since pensions are adjusted in 2013 by a factor larger than anticipated and, at the same time, total insurable earnings will not increase as much as projected under the previous valuation.

These factors have the effect of increasing the general average premium by 1.1 percent and of shortening the period before reserve exhaustion by 4 years (see Table 3.9).
The present system provides for an adjustment of past pension rights based on the CPI index and is based on the premise that wages normally increase faster than inflation.

In the context of the present earnings class system, an indexing of pension rates lower than the increase of the MIE will prevent a full recognition of past pension rights for persons in the highest earnings classes (Appendix 6 presents recommended pension rates based on a 52.3 percent pension increase with a MIE of TT$11,800).
This is an argument for the modification of the present earnings class system (see Section 4.2).

Furthermore, at the moment of determination of the 2004 and 2008 earnings class conversion tables, the choice has been made to reflect the full CPI increase observed over the previous five years.

This was in a context of inflation levels lower than what has been observed during the period 2005-2010.
In the case of the determination of conversion tables for the period 2013-2017, the full recognition of the 52.3 percent CPI increase from July 2005 to June 2010 puts a disproportionate weight on recent earnings (particularly on 2011 and 2012 earnings) for the determination of the average earnings class of an individual, and exacerbates the problem of a system that adjusts its parameters only every five years.
It has however been decided to stand with the usual practice, considering that the existence of the minimum pension will reduce this impact on new calculated pensions, and also considering that there is a strong intention to move to a career-average indexed-earnings formula under which appropriate adjustments could be introduced to avoid this unwarranted impact.

The cost estimates presented under the base scenario are done on that basis.
Modification of assumptions A series of modifications have been introduced in the methods and assumptions in the 8th Actuarial Review:  Projected wage increases for the period 2011-2021 are slightly higher in the 8th Actuarial Review.

 The long-term nominal rate of return of the fund has been reduced from 7.0% to 6.9%.

 Retirement rates have been refined in order to better take into account the age of insured persons on a financial year basis.
51 ________________________________________________________________________  Eligibility rates to widowers’ pensions and number of eligible children have been revised on the basis of recent experience.

 The incidence of sickness benefits, according to sex, has been revised on the basis of recent experience.

 The incidence and average amounts of disablement pensions and grants have been revised on the basis of recent experience.
These factors had the effect of reducing the general average premium by 0.9 percent and have extended the period before reserve exhaustion by 5 years (see Table 3.9).
Table 3.9 Reconciliation of the 7th and 8th Actuarial Reviews Pay-as-you-go rate 2014-15 2034-35 2054-55 General average premium Year of reserve exhaustion According to the 7th Actuarial Review 9.0% 15.0% 28.8% 13.8% 2045-46 Amendments to the system  2008 (differences with initial projections)  Contribution rate increases  Flat instead of modulated minimum retirement pension  Systematic increase of the minimum pension at 5-year intervals in the future instead of a freeze at the 2008 level  2012  Increase of the minimum pension at TT$3,000 Experience of the period 2005-2010   Investment return lower than expected Inflation and wage increases for the period 2005-10 affecting the 2013 adjustment of pensions and MIE + 1.3% + 1.6% + 0.9% + 1.3%  + 1.2% + 0.8% + 0.5% + 0.8% - 4 years     - 3 years + 1.0% + 1.0% - 0.1% + 1.1% - 4 years Modification of assumptions - 1.1% - 0.4% + 0.4% - 0.9% + 5 years Change in period used for the calculation of GAP (2011-2060 versus 2006-2055)    + 1.5%  According to the 8th Actuarial Review 11.4% 18.0% 30.5% 17.6% 2039-40 52 ________________________________________________________________________ 3.5 Actuarial liability For the purpose of this valuation, actuarial liability refers to the present value, as of the valuation date, of future payments related to pensions-in-payment and to the accrued rights of the present participants.
Table 3.10 shows the actuarial liability related to pensions-in-payment at the valuation date.

It also presents the relationship between the actuarial liability and the annual benefit expenditure (2009-2010).

Results indicate that, for all three branches, the value of total funds held at the valuation date does not cover the actuarial liability related to pensions in payment.
Table 3.10 Actuarial liability related to pensions in payment on the valuation date (million TT$) Long-term benefits Short-term benefits Employment injury benefits A.

Actuarial liability related to pensions in payment B.

Annual benefit expenditure Ratio ( A / B ) Funds as at 30 June 2010 23,128 1,983 11.7 17,668 302 145 2.1 289 647 52 12.5 517 An additional actuarial liability is also determined in relation to the accrued rights of the present insured persons.
For this purpose, the following approach is used:  Long-term benefits.

The actuarial liability refers to the value of pensions accrued at the valuation date.

It is supposed that the amount of pensions accrued at the valuation date will be indexed based on CPI after the valuation date.

The minimum retirement pension is not considered.

 Short-term benefits.


The actuarial liability refers to the value of sickness and maternity benefit payments that relate to events that occur after the valuation date, but for which the right was vested at the valuation date.

 Employment injury benefits.

The actuarial liability refers to the value of future benefit payments that relate to accidents that occurred before the valuation date.
This part of the actuarial liability is subject to uncertainty and unavoidable arbitrariness in the case of long-term benefits.

In addition, given that this perspective of the actuarial review is considered secondary in relation to the financial projections presented, data collection and methodology are not as refined as for the rest of the valuation process.

Consequently, certain approximations are involved and the estimation error is more significant.
Nevertheless, it is considered that the results presented in Table 3.11 are valuable for the present exercise.
53 ________________________________________________________________________ Table 3.11 Total actuarial liability on the valuation date (million TT$) Long-term benefits Short-term benefits Employment injury benefits Actuarial liability Ratio of accrued liabilities to annual benefit expenditure 49,320 24.9 312 2.2 1,055 20.4 It can be observed from Table 3.11 that the actuarial liability of the Long-term branch represents 24.9 times of the annual expenditure.
In the case of Short-term and Employment injury benefits, the respective ratios are 2.2 and 20.4.

These ratios may be compared to the present reserve objectives of 2.0 in the case of Short-term benefits and 10.0 in the case of Employment injury benefits.

Though the estimation of the actuarial liability is interesting for various purposes, they do not necessarily represent the target assets that should maintained for each branch.

Other considerations must also be taken into account.
The determination of the contribution rate and the method of calculation of reserves must be established together.
Recommendation Reserve objectives to be maintained for each fund should continue to be established as follows:  Short-term: 2 times the annual benefit expenditure  Employment injury: 10 times the annual benefit expenditure  Long-term: the remaining excess of income over expenditure 3.6 Sensitivity analysis Projections include an extensive set of demographic, economic and system-specific assumptions.

Actual experience will inevitably differ from the projections.
This section analyses two series of alternative assumptions regarding (1) the real wage increase and (2) the investment yield.

The impact of alternative scenarios is presented on the GAP and on the year of reserve exhaustion.

Sensitivity of real wage increase The results of the valuation are very sensitive to the difference between the assumed future average wage increase and the inflation rate (the real wage increase).

Under the base scenario, the real wage increase is 1.5 percent.
The sensitivity test assumes a 1.0 percent real wage increase.

Under the sensitivity test, the GAP increases from 17.6 percent to 18.6 percent and the reserve is depleted two years earlier.
54 ________________________________________________________________________ Table 3.12 Sensitivity test on real wage increase Scenario Base scenario (real wage increase of 1.5%) Sensitivity test (real wage increase of 1.0%) Sensitivity of investment yield GAP (% of insurable earnings) 17.6% 18.6% Year of reserve exhaustion 2039-40 2037-38 The base scenario assumes a nominal investment yield of 6.9 percent.
Sensitivity test have been performed by assuming a yield of 1 percent higher and 1 percent lower than the base scenario.

Under the lower yield test, the GAP increases to 18.4 percent and the reserve is exhausted two years earlier.

Under the higher yield test, the GAP decreases to 16.9 percent and the reserve is exhausted three years later.
Table 3.13 Sensitivity test on investment yield Scenario Sensitivity test  1 (yield of 5.9%) Base scenario (yield of 6.9%) Sensitivity test  2 (yield of 7.9%) GAP (% of insurable earnings) Year of reserve exhaustion 18.4% 17.6% 16.9% 2036-37 2039-40 2042-43 3.7 Future contribution rate increases On the basis of this actuarial review and the observations of this section, it is recommended to gradually increase the contribution rate.
One possible schedule of contribution rate increases is presented in Table 3.14.

First, the contribution rate should be increased to 12 percent from January 2013 to face the PAYG cost of the system over the period 2013-2017.

Thereafter, there is a need to plan for long-term contribution rate increases.
The illustrated schedule supposes a constant contribution rate during successive periods of 20 years, starting in 2021, so that the reserve ratio is equivalent to the one resulting from the application of a GAP rate of 17.8 percent during the whole projection period.

As can be seen, financial sustainability would require substantial increases of the contribution rates if the system’s provisions are not modified.

The steps illustrated in Table 3.14 are for illustrative purposes only.
55 ________________________________________________________________________ Table 3.14 Illustration of a possible contribution rate schedule (all branches combined) Period 2013 to 2017 2018 to 2020 2021 to 2040 2041 to 2060 Contribution rate 12% 15% 17% 25% Until the next actuarial review, it is recommended to keep the same contribution allocation by branch as the one that is presently applied: 89 percent to the Long-term branch, 6 percent to the Short-term branch and 5 percent to the Employment injury branch.
Recommendation The total contribution rate for salaried workers should be increased to 12.0 percent for the period January 2013 to December 2017.

Contribution income should be allocated to the three benefit funds according to the following proportions:  Long-term fund: 89 per cent  Short-term fund: 6 per cent  Employment injury fund: 5 per cent The pay-as-you-go cost rate at the end of the projection period in 2060 is considered unsustainable at 30 per cent of insurable earnings.
It is recommended to adopt reforms, either by way of increasing contribution income and/or reducing benefit promises, in order to ensure the long-term financial sustainability of the NIS.

Particular consideration should be given to the development of a strategy for gradually increasing the contribution rate over the next three decades whilst favouring the gradual increase of the retirement age.

56 ________________________________________________________________________ 4.
Financial impact of proposed modifications This section discusses various modifications that are being envisaged to the NIS.

It presents the financial implications of these modifications and, where appropriate, their effects on contributors and beneficiaries of the system.

4.1 Increase of the maximum insurable earnings Recent actuarial reviews have recommended to establish the MIE at two times the averages national wage.
Actuarial reviews (and this is the current practice) also assume that the MIE will be adjusted every five years in the future in order to keep this same relationship between the MIE and the national average wage.

There is a need to immediately increase the MIE in order for the NIS to keep its relevance.
In addition, the adjustment of the MIE should be more frequent than at five-year intervals, since the present practice causes: important contributions shifts every time the MIE is adjusted;   delays between actual wage increases and its NIS recognition, thus deprivin g the system from important contribution revenue during that time interval.
For 2009, we may compare the insurable earnings of NIS insured persons, the total earnings of insured persons and the average national wage of salaried workers, as shown in Table 4.1.

It must be noted that the average wage of all salaried workers in the economy is lower than the average insurable earnings of NIS contributors because the NIS covers only workers earning more than TT$120 per week (or TT$520 per month).
Table 4.1 Comparison of average earnings under different basis in 2009 (TT$) NIS insured persons Average monthly insurable earnings Average monthly total earnings Average monthly wage of all salaried workers in the economy Male Female Total 6,069 4,842 5,477 8,950 6,435 7,735 5,395 4,401 4,946 Source: NIBTT, CSO and authors’ calculations In 2010, 34 percent of NIS insured persons have contributed in earnings class XVI, meaning that one third of contributors do not have their earnings fully recognized under the NIS.
In fact, Table 4.1 shows that the NIS presently covers 71 percent of the total wage of the average contributor (or, alternatively, the NIS covers 71 percent of the total wage base of its contributors).
57 ________________________________________________________________________ If the intention is that the MIE should cover 80 to 85 percent of total wage base of the insured workers, then the MIE would have to be increased, in 2013, to a level rangin g between TT$14,000 and TT$16,000.9 On the other hand, considering the intention of the government to extend coverage to self-employed persons, the same objective applied to the total workforce (salaried plus self-employed) would lead to a lower MIE.
Alternatively, if we apply the present practice of establishing the MIE at a leve l equivalent to twice the average national wage, the MIE would be set at TT$11,800 per month in 2013.

A MIE of TT$10,000 would be a little lower than the targets mentioned above, but still appropriate in the present NIS context, as long as it is regularly and frequently adjusted in the future.

Options Three options are analysed in this section.
The first two options were suggested as part of the terms of reference of this review.

Option 3 is more in line with the current practice.

 Under option 1, the MIE would be increased to TT$10,000 in 2013, TT$12,000 in 2014 and increasing by TT$1,000 per year thereafter until 2020.

Annua l adjustments of the MIE after 2020 would be based on a general wage index.

 Under option 2, the MIE would be increased to TT$10,000 in 2013 and by TT$1,000 per year thereafter until 2015.
From 2016, it would be set at three times the average national wage.

It must be noted that this option causes an important jump of the MIE in 2016.

 Under option 3, the MIE would be increased to TT$11,800 in 2013 and adjusted annually thereafter using a general wage index.
Table 4.2 Future evolution of maximum insurable earnings under different options (TT$) Year 2013 2014 2015 2016 2017 2018 2019 2020 Base scenario Option 1 Option 2 Option The Public Service Association considers that a NIS ceiling of TT$15,000 would be appropriate, considering that the maximum salary of the civil service is around TT$16,000.
However, a MIE at TT$15,000 would cover more than the 85 percent of the wage base of this group of workers.

58 ________________________________________________________________________ Financial implications Under Options 1 and 3, the increase of the MIE is not significantly different from the general trend of MIE increases assumed for the base scenario of the valuation.
The main difference is the application of a five-year adjustment in the base scenario compared to annual adjustments under the alternative options (annual adjustments precede cumulative adjustments under the five-year base scenario).

Option 2 brings significant cost reductions because of the sharp increase of the MIE in 2016.

The increase of the MIE has an immediate positive effect on contribution income, while the impact on benefit expenditures is delayed.
Table 4.3 Financial implications of the increase of the maximum insurable earnings under different options Indicator Base scenario Option 1 Option 2 Option 3 General average premium Year of reserve exhaustion 17.6% 17.3% 16.4% 17.3% 2039-40 2041-42 2044-45 2041-42 4.2 Conversion of the retirement pension formula: from an earnings class system into a system based on a percentage of earnings It is the intention to move from the present earnings class system to a career-average indexed-earnings formula for the calculation of pensions.
This section presents criteria to be considered in the choice of a formula and also presents the financia l implications of different proposals.

Criteria for the implementation of a new pension formula In reviewing the NIS pension formula, the following objectives are pursued:  The reform should simplify the administration.

 It should make the NIS pension more pertinent and equitable.

It is not a requirement that the new formula exactly reproduces the replacement rates of the present system.
 The reform should be cost neutral.

 The equivalence between the old and the new formula (as measured in 2010 ) should continue to stand in the long-term.

 The attention should be focused on classes of earnings V and over.

The minimum pension is there to stay for some time, and it can take care of persons standing in the lowest earnings classes.
 Even if the present condition to be eligible to the retirement pension is to have contributed for a minimum of 15 years, the formula should allow the possibility to pay pensions to persons with less than 15 years of contribution (but without paying them a full minimum pension).

59 ________________________________________________________________________  At the same time, the formula should encourage participation to the NIS and try to be more advantageous for persons with long contribution histories.
 The new formula should seek to reduce the importance of the minimum pension, even if it is expected that the minimum pension will still be there for some time.

It may be the opportunity to question the existence of a minimum pension for retirees between the ages of 60 and 65.

 A transition period between the present and the new formula will have to be designed so that new retirees will not be significantly affected in the short run.
Description of possible formulas Under the new formula, contributions made each year are taken into account and equal weight is given to the earnings of each year, with older earnings revalued (or indexed) to bring them to a current value.
The proposed method would work as follows: a) obtain the amount of insured earnings for each contribution period; b) using a cumulative wage index, adjust each insured earnings so that it is revalued to current dollars; c) calculate the average revalued earnings; d) apply the chosen pension rate to the average revalued earnings.
The pension rate selected will depend on (1) the replacement rate desirable for those with a full career, (2) the weight to be placed on the earlier years of the career versus later year and (3) the weight to be placed on low versus high earnings.

1.
1.

Reproduction of the present pension formula Example: 2 percent for the first 15 years of contribution plus 1.1 percent for each year over 15  This formula reproduces precisely the present formula for the earnings classes V and above, independently of the number of years of contribution.
 It represents the option that meets directly the objective of reducing the administration burden inherent in the present earnings class system without trying to reach any objective of redistribution of income or further simplification of the formula itself.

 With this formula, there is a need to maintain the minimum pension for the lowest earnings classes.
However, with a partial indexing of the minimum pension (lower than CPI), the relative importance of the minimum pension (compared to emerging new pensions) would decrease over time.

60 ________________________________________________________________________ 2.

Fixed-rate per year of contribution Example: 1.6 percent per year  This represents an option aiming directly at simplifying the pension formula.
The single accrual rate applicable to all years of contribution is easy to understand and communicate.

 It is more advantageous than the present formula for persons with lon g contribution histories, but less advantageous for shorter careers.

Such a formula would encourage participation to the NIS.

 With this formula, there is a need to maintain the minimum pension for the lowest earnings classes.
However, with a partial indexing of the minimum pension (lower than CPI), the relative importance of the minimum pension (compared to emerging new pensions) would decrease over time.

3.
3.

Redistributive formula putting more weight on low earnings Example: 1.8 percent per year for earnings below TT$4,150 (50 percent of the MIE) plus 1.2 percent per year for earnings above TT$4,150  This formula provides the same replacement rate as Option 2 for persons at the MIE, but is more generous for persons with low earnings.

 The formula would accomplish some form of income redistribution by weighting the pension in favour of persons with lower earnings.
Among the three formulas presented here, it represents the one that is closer to the present formula for persons with low earnings.

 This is the most appropriate formula in the context of an eventual elimination of the minimum pension.

 The threshold of TT$4,150 would be adjusted automatically at each increase of the MIE.

Appendix 5 presents a comparison of pension amounts resulting from the application of the different formulas.
Illustration An example is presented here of the application of the career-average indexed- earnings formula to the case of Formula 3 described above.

In the example, the person has contributed to the NIS for 35 years (from 1976 to 2010) and had average monthly insurable earnings of TT$8,000 in 2010.

During his/her career, the earnings of the insured person increased at a rate of 5.25 percent per year, while the nationa l average wage increased by 4.5 percent per year.
The first step consists in adjusting past insurable earnings of the person.

Chart 4.1 illustrates how past earnings would be adjusted in order to give them a 2010 value.

To operate this revaluation, all monthly earnings of the career of the individua l would be multiplied by the ratio of the MIE of the year of retirement to the MIE of the year during which the earnings were actually earned.
61 ________________________________________________________________________ Chart 4.1 New pension formula – Revaluation of past earnings The second step is the calculation of average revalued career earnings.

The sum of monthly revalued earnings of the whole career is then divided by the total number of months of contribution.

In our example, the average career monthly earnings is equa l to TT$7,103.

The third step is the application of the pension rate to the average revalued earnings.
The monthly pension is equal to 1.8 percent of average career monthly earnings below TT$4,150 plus 1.2 percent of earnings above TT$4,150, multiplied by the number of months of contribution, divided by 12.

Chart 4.2 shows how the formula would be applied by earnings bands.
The monthly pension of the person would be calculated as: (420 months of contribution) X  (1.8% X 4,150) + (1.2% X 2,953)  / 12 = 3,854.76 62 -1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 Revalued earningsActual earningsAverage monthly earnings of the year ________________________________________________________________________ Chart 4.2 Pension formula No.
3 – Application of the pension rate in the case of average monthly earnings of TT$7,103 Recognition of accrued rights and transition between the old and the new system Two possibilities may be envisaged concerning the treatment of accrued rights prior to the application of the new pension formula, their recognition under the new formula and the transition between the present and the new system.
Under a first approach, the annual accrual rate of the new formula would be applied to the entire contribution period (pre- and post- reform).

This approach would be simple to apply and is straightforward in the case of Option 1 since this formula essentially reproduces the present NIS retirement pension calculation for earnings classes V and above.

There would thus be no difference in the treatment of past and future earnings for the purpose of calculating pensions.
The transition between the old and the new formula would be smooth and would not affect future retirees, in the short- and the long-term.

A second approach would consist in freezing the dollar amount of the accrued pension at the date of introduction of the reform and to index that amount annually with reference to a specified index.

Thus the new annual accrual rate would apply only to service accomplished after the reform date.
In that case, by freezing past service, new retirees would not be affected in the short-term.

This approach could be applied in the case of Options 2 and 3 since the formula under those two options depart somewhat from the present retirement pension calculation and may generate winners and losers compared to the present formula.
Hence the preservation of the exact accrued pension (in terms of dollars) would ensure that only contributions after the reform date would be calculated under the new rules, and this would limit the impact on current insured persons during the transition period, and particularly on new pensioners in the short-term.

We must however take into account the existence of a generous minimum pension that cannot simply be abolished by reason of the introduction of a new pension formula.
Our simulations have shown that, because of the presence of this minimum pension, very few persons would be affected negatively by the application of the new pension formula, for any of the three options presented, but there would be some cases that would be affected in the case of Options 2 and 3.
In that case, it 63 1.8%1.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%First TT$4,150Next TT$2,953 ________________________________________________________________________ would be appropriate, at least for a certain period, to compare the pension amount of new pensioners under the old and the new formula and to grant the higher of the two pensions.

Financial implications Table 4.4 presents cost implications for the three options presented above.
It must be noted that Option 1 has a cost which is equivalent to the present system and very few people would be affected by the new formula applied to the total service of the individuals.

Therefore, in the case of Option 1, there would be no need to compare, for new pensioners, the pension amount calculated under the old and the new formula and to grant the higher of the two.

We expect no losers under Option 1.


The case is different under Options 2 and 3, as demonstrated by the fact that the cost of these options, when comparing the situation with and without the floor benefit (benefit calculated under old rules), is significantly different.

Options 2 and 3 would make it more difficult to reach the objective of a cost neutral conversion to the new pension formula.
Table 4.4 New pension formula – Comparison of costs (salaried employees) GAP related to pension benefits Base scenario (status quo) Option 1  Without floor benefit  With floor benefit equal to present provisions Option 2  Without floor benefit  With floor benefit equal to present provisions Option 3  Without floor benefit  With floor benefit equal to present provisions 16.32% 16.30% 16.33% 15.95% 16.47% 16.11% 16.69% Another useful information is the comparison of the cost of the different options when the minimum pension is not considered.
This gives a better idea of the rea l equivalence of formulas in the long-term.

If the minimum pension is not considered, the GAP related to long-term benefits is 13.2% under the present provisions.

This may be compared to:  13.1 percent under Option 1;  11.8 percent under Option 2;  12.1 percent under Option 3.
This shows that Option 1 is almost equivalent to the present provisions, while Options 2 and 3 would bring a gradual reduction of NIS benefits as the minimum pension would decrease in relative value.

64 ________________________________________________________________________ Criteria for decision Table 4.5 presents a comparison of the three options on the basis of the most significant criteria mentioned at the beginning of this subsection.
Table 4.5 New pension formula – Criteria for decision Option 1 Option 2 Option 3    Simplified administration Cost neutrality Maintenance of the equivalence of the old and new formulas in the long-term Encouragement to participate to the NIS (reward to longer contribution histories) Redistribution to low earnings (reduction of the importance of the minimum pension)   2   1  2   1 Option 3 considers two wage bands.

This may require more administrative treatment than Options 1 and 2.
2 Given that Options 2 and 3 may generate losers (and thus require a measure to assure a floo r of benefit), a small cost could be associated with the conversion.

Recommendation The present earnings class system should be converted into a career-average indexed-earnings system.

The report presents three possible formulas for such a conversion and indicates a series of criteria that should be considered for their evaluation.
It is recommended that the various stakeholders be consulted on those options and the suggested criteria before deciding on the most appropriate option.

Steps for implementation The implementation of a new pension formula will require different actions:  Agreement on the proposed modification.
There will be a need to consult the different stakeholders (workers and employers associations) on the proposed modification, to obtain a decision of the Board of Directors of the NIBTT on the final direction and timetable for the change and to obtain an agreement in principle at the government level.

65 ________________________________________________________________________  Institutional adjustments.
The database recording monthly earnings for each insured persons will have to be modified in order to include the information required for the application of the new formula.

Personnel will have to be trained in the calculation of new pensions.

 Establishment of the legal and regulatory framewo rk.

The new pension formula will have to be codified in a new law.

In particular, the law will specify the treatment of old and new pensioners and the recognition of accrued rights under the previous system.
Regulations will include a table of historical MIE that will be used for the determination of indexed average earnings.

 Communications.

The communication plan will be very important.

For workers, there will be a need to announce the modifications a certain period in advance and to reassure them about the protection of their past accrued rights.

For employers, communication will focus on the advantages of a simplification of procedures for the calculation of contributions.
These actions will have to be analysed in more detail under a separate mandate, by specialists with the appropriate expertise.

4.3 Extension of coverage to self-employed persons Background Although the coverage of self-employed workers is part of the Social Insurance Act No.

35 of 1971, the relevant social security provisions regulating contributions and benefits under the Act have not yet been implemented.
It is assumed in this section that the application of specific provisions concerning self-employed persons (SEP ) would be introduced on 1 July 2012.

The International Labour Office (ILO) has produced, in 2010, an actuarial review regarding the extension of coverage to the self-employed persons.

The analysis presented in this section is consistent with the findings of the 2010 ILO report, but adapted to the basis of the 8th Actuarial Review.
Coverage of self-employed workers presents considerable inherent difficulties : irregular nature of self-employed work, heterogeneous types of work and socia l security needs, compliance difficult to enforce, low cash flow management problems, limited scope and lower levels of coverage, and mistrust due to governance failures in some social security systems.

The extension of coverage to the SEP thus requires appropriate design and administrative measures in order to guarantee the success of this extension.
Elements to consider representatives on benefit design, NIBTT held discussions with SEP earnings/contribution classes, inter-agency cooperation, reporting, financial information/marketing campaign, enforcement and other conditions for success.

66 ________________________________________________________________________ Discussions focussed on the role of all stakeholders in the successful implementation and ongoing operations of this system.
Also, during their mission in Port-of-Spain, the actuaries have met the following SEP associations: Maxi-taxis (5,000 owners and 10,000 operators), Small Tourism Accommodation Owners (20 members), Farmers (5,000 members), and Fishermen (10,000 members).

The following issues were discussed.

 Earnings basis for the calculation of contributions and benefits.

The definition of covered earnings is an issue.

Many SEP have irregular earnings over the year and many self-employed jobs are seasonal.
There is thus an issue concerning the equalization of earnings over the year for many SEP.

Frequency of contribution payment should also be adapted to the reality of each industry.

The SEP associations also mentioned that earnings for NIS coverage should be based on earnings net of expenditures.

 Definition of self-employed status.

The employment status may be difficult to establish in some industries.
For example, fishermen may be classified as self- employed or salaried (and presently few salaried fishers pay NIS contributions).

 Definition of retirement.

Retirement is not a clear-cut event for a self-employed.

For example, the owner of maxi-taxi may continue to receive income from the operation of his taxi after he retires.

 Need for an age credit.

Some employees have moved to self-employment without having the 750 minimum contribution periods.
There is thus a need for an age credit, at implementation of the system, for these persons.

 Necessary links with SEP associations.

These associations offer services to their members.

They may help in the collection of NIS contributions.

Self-employed persons in many industries need a license to operate.

This allows SEP associations to maintain records of their members and may represent a useful too l to ensure NIS coverage.

 Information campaign.


There is a need to sell correctly the benefits of NIS in order to be able to attract SEP into the National Insurance System; otherwise they would resist contribution payment.

Hence, information and communication is a very important aspect in the introduction of these measures.

Profile of self-employed persons The number of self-employed persons is estimated at 130,890 in Trinidad and Tobago.

They represent 23 percent of the total labour force.
Among them, 30,607 are aged 50 and over.

Their averaged earnings are estimated at TT$5,097 per month in 2010.
67 ________________________________________________________________________ Table 4.6 Number and average earnings of self-employed persons, by age and sex (2010)* Male Female Total Age 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 Total Number 3,504 10,491 13,792 11,577 10,697 10,283 10,861 9,996 7,386 3,264 2,030 93,879 Average monthly earnings (TT$) Number Average monthly earnings (TT$) Average monthly earnings (TT$) 2,725 3,790 4,564 5,143 5,537 5,728 5,762 5,702 5,592 5,349 5,071 5,097 Number 4,784 14,501 19,669 16,567 15,046 14,450 15,268 13,742 9,796 4,340 2,729 130,890 * Based on 2009 CSO data, projected in 2010 Self-employed persons may be divided in two groups: those who are employers and may have staff (sole proprietors) and those who operate on their own (sole traders).
Sole proprietors, who represent about one for every five SEP, are considered more likely to be operating formally and are relatively easy to identify.

Sole traders can be divided in two subgroups, assumed here to be roughly of equal size, according to the degree of informality of their work activities.

One subgroup is formally engaged in economic activities and the other is not.
It should be possible to eventually register a large proportion of the sole proprietors, but there is high uncertainty about the capacity to register a significant proportion of the sole traders, even in the long-term.

The determination of earnings for contribution purposes will be a major administrative challenge for NIBTT.

In cases where a person produces enough valid evidence for a particular level of annual earnings, such earnings shall be used in determining the contribution class.
However, it is anticipated that assessment problems and/or unreliability of declared income will impede this process.

In such cases, each SEP shall be assigned a minimum earning based on his or her occupation.

NIBTT will generate and regularly review the minimum earnings ’ categories so that they correctly reflect the reality of each occupation.
Specific provisions applying to self-employed persons Benefits offered to this group would include Long-term benefits (retirement, invalidity, survivorship) and Short-term benefits (incapacity, maternity, funera l grant).

They would have access to a retirement pension from age 60 (as for salaried employees) with mandatory retirement at age 65.

They would need 750 weekly contributions to qualify for a retirement pension.
Age credits (for eligibility purposes) would be granted at a rate of 50 contribution weeks 68 ________________________________________________________________________ for each complete year elapsed between the age of 50 and the attained age of the person at the introduction of these measures (up to a maximum of 6 years of credit).

However, to receive the age credits, the persons will have to register within twelve months of the appointed day.
Financial implications for the NIS Despite intensive efforts of implementation, the registration of SEP will be gradual.

It should increase significantly over the first five years of implementation and will slowly reach maturity over time.

The coverage of the self-employed population is also dependent on the administrative capacities of the NIBTT to enforce it.

It is assumed here that registration would be consistent with the administrative capacities of the NIBTT.
The assumed evolution of SEP coverage rates is presented in Table 4.7.

Table 4.7 Assumed self-employed coverage rates Year Coverage rate 2012-13 2013-14 2014-15 2015-16 2016-17 - - - 10% 20% 30% 35% 40% Linear increase From 2056-57 60% The administrative expenditures will be higher during the year of implementation.

From the third year, it is assumed that these expenditures will represent 0.4 percent of total insurable earnings (see Table 4.8).
Table 4.8 Projected administrative expenditures for SEP as a percentage of total insurable earnings (2012-13 to 2016-17) Year 2012-13 2013-14 2014-15 2015-16 2016-17 Admin.

ratio 2.3% 0.7% 0.4% 0.4% 0.4% The number of SEP pensioners will slowly increase through the projection period.

By the end of the projection period, the ratio of contributors to pensioners will reach a level of 1.8, which is comparable to the ratio observed 20 years earlier in the case of salaried employees (see Table 4.9).
69 ________________________________________________________________________ Table 4.9 Projected number of self-employed contributors and pensioners - Long-term benefits (2010-2060) Ratio of contributors to pensioners - - 273.9 158.7 102.2 80.2 58.8 42.9 33.6 19.8 15.5 9.2 5.0 2.3 1.8 Total 0 0 93 242 440 643 891 1,238 1,598 2,851 3,851 6,860 12,916 27,814 35,905 Year Number of contributors Retirement Invalidity Survivors Number of pensioners Until 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059- ________________________________________________________________________ Table 4.10 presents the projected number of benefit recipients for short-term benefits.
The number of beneficiaries of Incapacity and Maternity benefits is relatively stable after the period of implementation.

The number of Funeral grants is influenced by the population ageing.
Table 4.10 Projected number of self-employed benefit recipients - Short-term benefits (2010-2060) Year Until 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 Incapacity benefit Maternity benefit * Funeral grant * The number of Maternity grants is assumed equal to the number of Maternity benefit recipients.
Benefit expenditures are presented in Table 4.11.

The benefits-to-earnings ratio increases very slowly but reaches a level that is significant at the end of the projection period.

The ratio of benefits to expenditures for long-term benefits increases steadily over the projection period while the ratio for short-term benefits is fairly stable from 2015-16.
After the first year of implementation, during which administrative costs would be higher, the total PAYG rate would slowly increase from 1.4 percent in 2013-14 to 3.5 percent in 2019-20, and will reach 25 percent from year 2053-54.

Total GAP is 9.4 percent (8.9 percent for Long-term benefits and 0.5 percent for Short-term benefits).
71 ________________________________________________________________________ Table 4.11 Projected benefit expenditures, Self-employed persons (2010-2060) Year Until 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 Benefit expenditure (million TT$) Benefits as a % of Retirement Invalidity Survivors Short-term Total Insurable earnings GDP - 0.7 0.7 0.8 1.0 1.3 1.7 2.4 3.2 6.0 6.9 5.5 8.7 20.8 24.9 - 0.00 0.01 0.01 0.02 0.03 0.04 0.06 0.08 0.17 0.20 0.17 0.26 0.57 0.72 Financial projections concerning SEP are presented in this section using a contribution rate of 10.5 percent.
This rate represents 89 percent of the contribution rate of salaried workers for Long-term benefits (10.0 percent) plus the expected cost of Short-term benefits (0.5 percent).

Table 4.12 reveals that the fund would be continuously increasing until 2049-50, but would then start to decrease.

However, the fund would still be positive at the end of the projection period, representing 2.1 times the annual expenditure.
Table 4.12 Key moments of the future evolution of SEP assets System’s expenditure first exceeds contributions System’s expenditure first exceeds contributions plus investment income (assets start to decrease) Assets are exhausted Year 2041-42 2050-51 After 2059-60 It is interesting to compare the size of the projected fund for SEP based to the projected fund for paid workers.
Chart 4.1 shows that the SEP fund will reach a leve l (in dollar value) almost equal to the fund for salaried employees, but 25 years later.
The reason why the relative value of the SEP fund reaches values closer to the fund for salaried employees, compared to the estimates of the 2010 Special SEP report, is 72 ________________________________________________________________________ due to the fact that the cost of the salaried fund has increased significantly between the two valuations (the GAP has increased from 13.8 to 17.6 percent), leading to a smaller fund accumulation and an earlier fund exhaustion in the present valuation.
In addition, the number of covered SEP projected in the present valuation is estimated to be 30 percent higher in the long-term than the 2010 estimates.

Detailed financia l projections regarding self-employed persons are presented in Table 4.13.
Chart 4.3 Comparison of fund projections (SEP versus Salaried employees) 73 0102030405020102015202020252030203520402045205020552060BillionsSEPSalaried employees ________________________________________________________________________ Table 4.13 Projected revenue, expenditure and assets, Self-employed persons, 2010-2060 (thousand TT$) Revenue Contribution income Investment income Total Benefits Expenditure Administrative expenses Total Year-end Assets Number of times current year's expenditure - - 2.3 8.1 13.3 15.6 16.4 16.2 14.8 13.6 11.5 13.0 20.9 17.2 7.9 2.1 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50
 2059-60 74 ________________________________________________________________________ SEP proposed contribution rate In the establishment of a contribution rate specific to SEP, it is necessary to ensure that it will be sufficient to cover the financial needs of the system.
If the rates are expected to evolve significantly in the future, it would be advisable to develop a plan of subsequent increases and to communicate the long-term perspectives to stakeholders.

Equity among the various stakeholders must be preserved.

As the protection offered in the Long-term branch is the same as the one that is available to salaried workers, equity suggests using the same contribution rate for both salaried workers and SEP.
However, the long-term financial sustainability of the fund does not necessarily require a rate that is as high as the rate for salaried workers at the onset.

Indeed, the benefits-to-earnings ratio increases very slowly in the first two decades.

On the one hand, SEP had the opportunity to register in the past and to accrue rights when contribution rates were lower, but they did not.

On the other hand, SEP may switch during their career from one status to another.
Fairness suggests that these workers should pay the same amount for the same benefits, irrespective of their status.

Concerning Short-term benefits, the cost is stable throughout the projection period.

Hence, the contribution rate determined at onset is not subject to structural changes.

Thus the rate for Short-term benefits should be in line with the expected cost.
On the above basis, the following recommendations are made:  The contribution rate for Long-term benefits should be identical to that for salaried workers.

 The contribution rate for Short-term benefits should adequately cover benefit and administrative expenditures of the branch.

On that basis, the contribution rate for salaried workers for Long-term benefits would be 10.7 per cent (89 percent of the total contribution rate of 12 per cent, rounded).
The expected cost of Short-term benefits is 0.5 per cent.

The total SEP contribution rate would thus be 11.2 percent.

The government could consider the possibility to support part of the contributions of low-income self-employed workers.

However, this support should come from outside the system, as a government subsidy.

Recommendation The contribution rate for the SEP fund should be established at 11.2 percent (10.7 percent for Long-term benefits and 0.5 percent for Short-term benefits).
Age credits for eligibility purposes should be granted at a rate of 50 contribution weeks for each complete year elapsed between the age of 50 and the attained age of the person at the introduction of these measures (up to a maximum of 6 years of credit).
The government should consider the possibility to support (through a direct subsidy) part of the contributions of low-income SEP. 75 ________________________________________________________________________ Application of the new pension formulas to SEP Table 4.4 presents the cost implications of applying the new pension formulas presented in Section 4.2 to self-employed persons.
Since coverage of this group is only for future service (with no need to recognize past service), there are no cost implications that could result from comparing the present and the new formula.

Hence, for the SEP, no formula would lead to a cost higher than the base scenario.
Table 4.14 New pension formula – Comparison of costs (self-employed persons) GAP related to pension benefits Base scenario Option 1 (2% for first 15 years and 1.1% after 15 years) Option 2 (1.6% per year) Option 3 (1.8% below TT$4,150 and 1.2% above TT$4,150) 8.60% 8.60% 8.58% 8.55% 4.4 Modification of survivors’ benefits The terms of reference of this actuarial review include the assessment of four options concerning a revision of survivors’ benefits.
Under option 1, minimum survivors’ benefits would be modified as follows:  Spouse: TT$600  Child: TT$600  Dependent parent (if both are alive): TT$300 each  Dependent parents (if only one is alive): TT$600  Orphan: TT$1,200 If these modifications are introduced in January 2013, the financial consequences will not be important since the base scenario of the actuarial review already takes into account an increase of 52.3 percent of all fixed-rate benefits at the same date.
Table 4.14 shows that the GAP would increase from 17.6 to 17.8 percent and that the year of reserve exhaustion would be one year earlier than under the base scenario.
Under option 2, survivors’ benefits would be expressed as a percentage of the greater of (1) the insured person’s pension or (2) the minimum retirement pension:  Spouse: 60%  Child (if at least one parent is alive): 10%  Child (if no parent is alive): 15% per child, but not exceeding 60%  Dependant parents: 40% If these modifications are introduced in January 2013, the GAP would increase from 17.6 to 18.6 percent and the year of reserve exhaustion would be five year earlier than under the base scenario (see Table 4.14).
The important financial impact results from the fact that, in the short and medium term, survivors’ pensions would be 76 ________________________________________________________________________ determined with reference to the minimum pension which will be, in most cases, higher that the theoretical retirement pension.
Under option 3, minimum survivors’ benefits would be modified as follows:  Spouse: $1,000  Child: $600  Dependent parent: $600  Orphan: $1,200 If these modifications are introduced in January 2013, the GAP would increase from 17.6 to 18.4 percent and the year of reserve exhaustion would be four year earlier than under the base scenario (see Table 4.14).

The main impact results from the important increase of the minimum benefit paid to the spouse.
Under option 4, survivors’ benefits would be expressed as a percentage of the greater of (1) the insured person’s pension or (2) the minimum retirement pension:  Spouse: 30%  Child: 20%  Dependant parents (per parent): 10%  Dependant parents (if only one parent is alive): 20%  Orphan: 40% This option has no significant financial impact on the results of the valuation because of the decrease of the spouse’s benefit which compensates for the fact that the new benefit would now be calculated with reference to the minimum pension.
This option would not affect the GAP and the year of reserve exhaustion.
Table 4.15 Financial implications of modifications to survivors’ benefits Indicator Base scenario Option 1 Option 2 Option 3 Option 4 General average premium Year of reserve exhaustion 17.6% 17.8% 18.6% 18.4% 17.6% 2039-40 2038-39 2034-35 2035-36 2039-40 Recommendation Minimum survivors’ benefits should be increased as follows:  Spouse: $600  Child: $600  Dependent parent: $600  Orphan: $1,200 77 ________________________________________________________________________ 4.5 Modification of maternity benefits It is envisaged to extend the maximum duration of maternity benefits from 13 to 14 weeks.
It may be noted that ILO Convention 183 (Maternity Protection) provides for a 14-week duration of Maternity benefits.With this modification, the GAP related to Short-term benefits would increase from 0.560 percent to 0.575 percent of insurable earnings and the total GAP of the system would increase from 17.644 percent to 17.658 percent.

Recommendation The maximum duration of maternity benefits should be increased from 13 to 14 weeks.
4.6 Eligibility to the retirement pension It has been asked to estimate the financial impact of a reduction from 750 to 260 weeks (from 15 to 5 years) of the period of contribution necessary to be eligible to the retirement pension.

If such a modification is implemented, it would be necessary to modulate the amount of the minimum pension for persons who have less than 750 weeks of contributions.
This modulation could be done on a pro rata basis, for example with the minimum pension being equal to 50 percent of the present minimum pension for persons with 10 years of contribution.

Even with this modulation of the minimum pension, the modification would have an important impact on the cost of the system.

The total GAP would increase from 17.6 percent to 20.4 percent and the year of reserve exhaustion would be 10 years earlier than under the base scenario (2029-30 instead of 2039-40).
It must be realised that 25 percent of males and 30 percent of females who reach the first age of eligibility to the retirement pension (age 60) have a history of past NIS contributions that stands between 5 and 14 years.

With the modification, these persons would become eligible to a pension instead of a grant.

In addition, survivors’ pensions (instead of grants) would become payable in case of death of a retirement pensioners who had between 260 and 750 weeks of contribution.
If implemented, this modification should also apply to self- employed persons.

Recommendation Conditional to the conversion of the present earnings class system into a system based on a percentage of earnings, the number of weeks of contributions required for eligibility to the retirement pension could be reduced from 750 to 260.

However, for persons having paid contributions for less than 750 weeks, the minimum pension should be prorated.
4.7 Automatic adjustment of system’s parameters Different elements of the system need to be adjusted to keep their value over time : the maximum insurable earnings (MIE), minimum and maximum pension rates, 78 ________________________________________________________________________ grants and pensions in payment.

In the case of the NIS, these adjustments are made at five-year intervals, following the recommendations of the periodic actuaria l reviews.
The current practice has the following shortcomings:   It introduces a lag between the actual increase in the cost-of-living and the adjustment of benefits.

This puts pensioners behind actual cost-of-livin g increases.

It makes periodic adjustments dependent on the political will to introduce them, with all the uncertainties associated with it.

If it is decided to automatically adjust the system’s parameters, a decision has to be made as to the choice of the index.
For benefits, the normal choice would be the CP I increase.

For the maximum insurable earnings, a wage index is more appropriate since the MIE should follow the evolution of the national average wage.

It is recommended to start the application of an automatic annual adjustment of the system’s parameters as soon as possible.
The introduction of automatic adjustment of system’s parameters would have no material effect on the financial projections presented in this report since those projections were already performed assumin g future regular indexing of the system’s parameters.

Recommendation From January 2014, all system’s parameters should be subject to an automatic annual adjustment.
Pensions in payment and fixed-rate benefits should be adjusted based on the evolution of the CPI and the maximum insurable earnings should be adjusted according to a wage index.

4.8 Retirement age An increase of the NIS retirement age could be justified considering the projected increase of the life expectancy in Trinidad and Tobago.
With retirement presently possible at age 60 without any penalty, the average worker spends 35 years in the labour force (from age 25 to age 60) and may expect to receive a pension for approximately 20 years (from age 60 to age 80).

This represents a relatively short period for financing a long period of inactivity.
And with the projected increase of life expectancy, which could add 2 years of retirement over the next 50 years, the pressure will become important on the shoulders of employers and workers for financing the system.

The increase of the retirement age may also be justified by the labour force shortage that is anticipated for Trinidad and Tobago in the future, namely on account of the shrinking of the population aged 16 to 59.

Any increase of the retirement age does not have to be implemented suddenly.
In most countries where such a measure has been implemented, a transition period has been introduced in order to allow people to adjust their retirement planning to the new rules.
79 ________________________________________________________________________ We do not suggest here a precise scenario of retirement age increase for the NIS, but as a rule of thumb, it can be estimated that an immediate increase of two years of the minimum retirement age would reduce by 8 percent the cost of the system as measured over the next 50 years (the GAP would be reduced from 17.6 percent to 16.2 percent).

The longer the transition period, the lesser the reduction of costs.
4.9 Alternative reform scenario This section presents the financial impact of an alternative reform scenario that would spread over a certain period the principal modifications that are recommended in this report.
The alternative scenario includes the following measures:  Contribution rate at 11.7 percent in 2013 and 12.0 percent in 2015 (instead of a single increase at 12.0 percent in 2013);   Indexing of pensions in payment in two steps, 35 percent increase in 2013 and 13 percent in 2015 (instead of a single increase of 52.3 percent in 2013); Increase of the maximum insurable earnings according to Option 1 : TT$10,000 in 2013, TT$12,000 in 2014, increasing by TT$1,000 per year to reach TT$18,000 in 2020;  Automatic adjustment of system’s parameters from 2016 (instead of 2014).
Financial projections according to this scenario are presented in Table 4.16.

Under that scenario, the GAP would be 17.5 percent and the reserve would be exhausted in 2041-42 (compared to 17.6 percent and 2039-40 respectively under the base scenario).

The favourable financial impact, compared to the base scenario, is mainly due to the faster increase of the MIE.
80 ________________________________________________________________________ Table 4.16 Projected revenue, expenditure and assets under an alternative reform scenario, 2010-2060 (thousand TT$) Revenue Contribution income Investment income Total Benefits Expenditure Administrative expenses Total Year-end Assets Number of times current year's expenditure -12,921,034 7,401,224 47,771,303 614,633 30,094,976 -59,479,189 -29,384,213 73,732,681 890,018 48,385,936 74,622,699 -214,214,231
 -943,760,281 -4.4 -12.6 Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2024-25 2029-30 2034-35 2039-40 2049-50 2059-60 81 ________________________________________________________________________ 5.
Other issues In addition to the analysis of modifications to the system, a certain number of issues concerning the NIS need to be considered.

5.1 Duplication of compensation in case of work injuries Background 10 Prior to the introduction of workers compensation programs, workers that suffered from a work related injury had little other choice than to sue their employer for their medical treatment, their loss of wages and all other physical and moral prejudices.
Then again, depending on the laws in force and the jurisprudence of their case, they could receive anywhere between nothing to some form of compensation that was, in the majority of cases, nowhere near the actual pecuniary loss incurred.
Apart from the generally inadequate compensation, this approach also implied certain other constraints for the injured workers:  The burden of proof was on the worker, so there had to be enough evidence that the employer was in fault in order to hope receiving any compensation.

 Understandably, suing the employer lead to losing one’s job and the perspectives of finding another, especially with residual impairment, was not easy.
 The most common (and often only) witnesses were coworkers, who would obviously be reluctant to risk their job in testifying against their own employer.

 In cases where the worker actually received some compensation, part of it had to be spent in lawyers’ fees and other legal costs.

The earliest workers compensation programs introduced a compromise between employers and workers, a truce from these expensive and adversarial legal affairs.
This compromise still holds today in the vast majority of workers compensation systems.

On one side, workers gave up the right to sue their employer for work related injuries and in return, employers would fund a compensation system that would cover the loss of income and the cost of medical care.

The situation in Trinidad and Tobago In Trinidad and Tobago, both social insurance and employer liability systems co- exist, making overcompensation possible in some circumstances.
On one side, the social insurance system includes a branch that provides compensation to injured workers, while on the other side the Labour Law stipulates compensation to be provided by employers to their injured worker.

Employers seek insurance in the private market for that risk (or may choose self-insurance).

A comparison of the two systems is presented in Table 5.1.
10 Extracts from: ILO, Protection in case of employment injury – Background paper for the World Social Security Report (November 2011) 83 ________________________________________________________________________ Different problems may be identified within the present compensation system:  There is a possibility of double compensation: a person may claim both Employment injury benefits under NIS and compensation under the Workmen’s Compensation Act (WC Act).

The two systems are not coordinated.


It is understood that Article 49A of the National Insurance Act cannot be used to recover any excess payment received from the NIS when a person is also compensated by the WC Act.

 Even if it appears to exist a potential for double compensation, it is not so obvious that the total compensation of the existing two systems adequately compensate for the real long-term loss of earning capacity of injured workers.
 In case of permanent incapacity and in case of death, the WC Act provides for the payment of lump sums, while the NIS pays periodic pensions.

In fact, employers who function through self-insurance are not equipped to administer long-term pensions, and for those who get insurance coverage, we may understand that insurers prefer to administer lump-sums instead of pensions, even for these long- term risks.
 The weight that is given to pure medical criteria compared to the persona l characteristics of the individual (age, education, experience, possibility of rehabilitation) in the determination of the incapacity is not clear.

 It appears that only large employers have the financial capacity to buy liability insurance for work injury.
Small employers, who do not want to bear the apparently high cost of those premiums, face the risk of bankruptcy in the case of large claims while, at the same time, employees bear the risk of under- compensation.

There seems to exist no monitoring of the actual insurance coverage of employers for work injuries.

In fact, the experience shows that it is almost impossible to manage and monitor a private compulsory employers’ insurance system in the context of employment injury.
 Another awkward feature of the WC Act is that employees can sue their employer even if the employer has taken an insurance coverage.

 In principle, the present system is more expensive than it appears because it would be surprising that insurance companies could be cheaper than the NIB (in terms of administration costs) for offering similar types of benefits at similar amounts.

 EI medical expense reimbursements under the NIS are considered low.
This may result from the fact that a large proportion of injured persons receive their health care from the public health system and/or that some insurance plans contracted by employers cover EI medical expenses.

 It must be noted that neither the NIS nor the Workmen’s Compensation Act offer structured programs of vocational rehabilitation and work reintegration.
84 ________________________________________________________________________ Table 5.1 Comparison of employment injury benefits offered by the NIS and the Workmen’s Compensation Act National Insurance System Workmen’s Compensation Act Temporary disablement 66⅔% of earnings, for a maximum of 52 weeks Adult: 66⅔% of earnings, for a maximum of five years Minor: 100% of earnings before age 17 and 66⅔% thereafter, for a maximum of five years Permanent disablement Total 66⅔% of earnings, multiplied by the degree of disablement, payable for total duration of disablement Lump sum:  Adult: 48 months of earnings  Minor: 96 months of earnings Death Partial Lump sum equal to product of:  degree of disablement  number of weeks the disablement is expected to last (maximum 365)  50% of average weekly earnings Same percentages of injury allowance as Survivors’ benefits are of Retirement Pensions Lump sum equal to the benefit paid in case of total disablement multiplied by the degree of disablement Lump sum:  Total dependants: 36 months of earnings  Partial dependants: proportion of total dependant benefit, as agreed by parties or determined by Commissioner  If no dependant: burial expenses (maximum TT$500) Medical expenses Doctor’s fees, drugs, hospital, operations, attendance allowances (maximum TT$22,500 per injury) None The specific role of OSHA The Occupational Safety and Health Authority (OSHA) was established on 17 August 2007.
It reports to the Minister of Labour.

They have presently 32 inspectors who are members of a compliance unit which ensures the enforcement of the legislation.

The organisation also makes prevention campaigns and has established a hotline to receive complaints from workers.

Information on accidents is provided to OSHA with the use of a special form.

With this procedure, OSHA can compile data on the number of days lost because of work injuries.
However, only around 1,000 accidents are reported each year to OSHA compared to 2,000 employment injury claims received annually by the NIBTT (see Chart 5.1).

There is thus an important underreporting of accidents to OSHA.

The 85 ________________________________________________________________________ types of inspections undertaken by OSHA on work sites include routine inspections, complaints inspections, accident inspections and stakeholders request inspections.
It is not mandatory for employers to register to OSHA.

They are however required to establish safety and health committees.

Government agencies and ministries are also subject to the Act.
Chart 5.1 Number of industrial accidents reported to OSHA and Injury allowance claims received by NIBTT (2008-2010) Source: OSHA (calendar year) and NIBTT (financial year) Comments There is a need for a better coordination between Employment injury benefits paid by the NIS and the compensation offered under the WC Act in order to avoid duplication of benefits.

One possibility would be for each incapacitated worker to choose between the two existing programs.
It must be realised that the lump-sums presently paid under the WC Act are attractive to workers, who prefer the illusion of a high immediate lump- sum to the security of a long-term pension (even if the value of the lump-sum is lower).

The present provisions of the WC Act are also lucrative for insurers and other intermediaries, like lawyers, who would oppose the elimination of this business.
In the case the WC Act would continue to apply, there would be a need for more involvement of covered workers in the functioning of the system.

In that regard, Article 24 of ILO Convention No.
121 states that: Where the administration is not entrusted to an institution regulated by the public authorities or to a government department responsible to a legislature, representatives of the persons protected shall participate in the management, or be associated therewith in a consultative 86 05001000150020002500200820092010Industrial accidents reported to OSHAInjury allowance claims received by NIBTT ________________________________________________________________________ capacity, under prescribed conditions; national legislation may likewise decide as to the participation of representatives of employers and of the public authorities.
Another possibility, in line with the social protection point of view, would be that employment injury benefits would be paid by the NIS only.

Elimination of the compensation offered under the WC Act could be an opportunity to increase benefits paid by the NIS with a corresponding increase in employers’ contributions (compensated by the elimination of premiums paid by employers to comply with the WC Act).
The NIS would then be in a better position to exert a complete administration of employment injury benefits, monitor information and make the necessary follow-up.

If there is no appetite for changing the current dual system and for ensuring that all employers have insurance coverage under the WC Act, then the NIBTT could offer liability insurance to employers.

The NIBTT would then act as an insurer.


Because such coverage would be optional, adverse selection should be expected and the rate setting process should ensure that this specific block of business would not be subsidized by the universal program.

Rates would have to be differentiated by risk.

An alternative optional insurance product offered by the NIBTT could be an EI benefit package that would be more generous than the current one, for example through a higher replacement rate.
This package could be offered to enterprises in which there is a consensus between employers and workers to give up benefit s available under the WC Act.

Because this coverage would be optional, the same remark about the rate setting process would apply.

This set-up could be a step towards the elimination of the liability features in the compensation of work injuries.

In any circumstances, there is a need for greater collaboration between NIBTT and OSHA on various aspects.
This has been the choice of many countries to group the Safety and Health Authority, which has the responsibility of monitoring employment injuries and supporting prevention, and the Social Security system, the body that pays benefits.
An important element of the employment injury program is long-term disability, and in particular those cases of partial disability where employment injury programs around the world face most problems when trying to offer appropriate compensation and to exercise the necessary follow-up.

Before taking any decision concerning the coordination of the two existing systems, it appears necessary to analyse the adequacy of compensation of injured workers with permanent disabilities.
This can be achieved through a survey of the situation of workers with permanent loss of earnings capacity at different points in time after the accident.

Fair compensation of permanently disabled workers requires a refined analysis of the injured workers’ situation that takes into consideration their education, work experience, ability to follow a vocational rehabilitation program and capacity to occupy a suitable employment.
87 ________________________________________________________________________ Recommendations The Ministry of Finance and the Ministry of Labor should jointly investigate the extent of duplicate compensation between Employment injury benefits paid the NIS and the compensation offered under the WC Act.
In addition, the NIB should undertake, in collaboration with the Ministry of Labour, the measurement of the adequacy of compensation offered to injured workers by the existing systems of compensation, particularly for persons with a permanent loss of earning capacity.
5.2 National Insurance Plan (NIP) The objective is to offer the possibility to pay optional contributions to the NIS, beyond the requirements of the existing system (as regards the maximum insurable earnings), for the purpose of yielding enhanced retirement income.

About existing occupational pension plans According to the Central Bank of Trinidad and Tobago 11, 196 active occupationa l pension plans were registered under the Insurance Act at the end of 2011.
About half of those plans use deposit administration contracts and the other half is self- administered.

Another six plans using annuity contracts.

According to the Centra l Bank website, pension plan assets totaled TT$26.6 billion at the end of 2009, a sum equivalent to total NIS assets.

OPPs in Trinidad do not cover only large enterprises, but also small enterprises.

Pension plans were in surplus in the 1990s.

But since 2005, inflation increased, wages increased and interest rates decreased.
They now face important deficits.

Hence, no new OPPs were introduced over recent years.

Moreover, some defined- benefit plans have been converted into defined-contribution plans.

In general, existing OPPs in Trinidad and Tobago are generous and not coordinated with the NIS.

It even happens that the combined retirement income from NIS and the OPP is higher than pre-retirement earnings.
Elements to consider In that context, one may question the appropriateness of offering a way of payin g additional contributions to the NIS.

 Is there a real potential for raising optional contributions to the NIS, considerin g the existing coverage under occupational pension plans (OPP)?

 Do people not covered by OPPs have the financial capacity to save?

Are those people in lower paid jobs?

11 Central Bank of Trinidad and Tobago, Financial Stability Report, December 2011.
88 ________________________________________________________________________  The level of maximum insurable earnings under the NIS may influence the willingness of higher-paid workers to pay additional contributions to the system.

A too low ceiling leaves room for additional contributions to the system.

Presently, it is estimated that 34 percent of NIS contributors have part of their earnings not covered under the system because of the presence of the earnings’ ceiling.
However, if the MIE is increased for example at TT$ 11,800 according to Option 3 of Section 4.1, the proportion of uncovered wages would decrease to 27 percent.

An immediate increase of the MIE to TT$15,000 would leave only 18 percent of the total wage base uncovered by the NIS, thus reducing the attractiveness of optional contributions to the NIS.
 Does the fiscal system provide enough tax incentives to save for retirement over and above contributions already paid to the NIS and to occupational pension plans?

 What should be the role of a public institution regarding the management of voluntary individual retirement savings accounts?

It must be realised that the private sector already offers investment and savings products for people wantin g to accumulate funds for retirement.
The offer of savings tools by the NIS could be seen as unwarranted at a time the country may want to stimulate the private sector.

The problem with savings instruments offered by banks and insurance companies is often linked to the high fees they charge for the distribution and management of these accounts.

This could be an argument for the government to offer an alternative to those costly private products.
Hence it would be necessary to study the investment instruments currently offered by the private sector and the level of their management fees, and then decide on the opportunity to introduce a new player in the field of retirement savings instruments.
In addition, given the comments appearing in Section 5.4 concerning some weaknesses in the allocation by branch of the administrative expenditures of the NIBTT, an inappropriate costing of the administration of optional NIS contributions would provide an undue advantage to the NIBTT against the private sector.

Design features of a system of optional contributions Type of benefits.

Benefits paid from optional contributions could be of a defined- benefit (DB) or defined-contribution (DC) type.
Under the DB type, optiona l contributions would be combined with basic NIS contributions for the application of the retirement pension formula provided by the law.

This may cause problems of application for persons already affected by the MIE for whom additiona l contributions could not be considered.

It may also give rise to anti-selection whereby persons will choose to contribute in a way to maximize the impact on their pensions, insured persons.
A capita l thus introducing equity accumulation (DC) type of plan would avoid those complications and equity issues.

issues relative to other Rate of return credited and investment of funds.

Persons paying extra contributions to the NIS will want to receive a regular statement of their accumulated contributions and will closely look at the rate of return offered by the NIBTT on their account.

It will be necessary to design an investment fund specific to the optional contributions accounts.
The level of risk of such a portfolio is not easy to establish.

It should normally be less risky than the funds held for regular NIS pensions which have a long-term horizon and may support more fluctuations.

Financial institutions in North America have started to offer life-cycle portfolios that 89 ________________________________________________________________________ provide for a level of risk that decreases with age in the case of individual savings accounts.
But this would require a complete review of the way the NIS manages its investments.

It is also important to know that there will be pressure from the contributors for the NIS to guarantee some minimum interest rate on optiona l accounts.

This would have an impact on the types of securities selected.
It is not sure that the NIBTT will be able to find appropriate investments in Trinidad and Tobago (or elsewhere) to operate an adequate asset-liability matching to reduce the level of risk to be supported by the institution in the case of a minimum interest rate guarantee.

Form of payment.

Since those contributions are optional, some flexibility should be offered to contributors at the time of liquidation of the accumulated accounts.
The best benefit to ensure periodic income until death is a life annuity.

The NIBTT is equipped to pay periodic pensions and to check the survival of beneficiaries.

This should thus be the privileged form of benefit payment.

It may also be possible to allow the conversion of accumulated funds into a series of scheduled payments over a pre-determined period of time (e.g.

10 or 15 years).
10 or 15 years).

Some people have other retirement savings and may want to adapt the schedule of benefit payments to their specific income needs or tax profile.

It is also possible to offer to pay all or part of the accumulated funds in the form of a lump-sum, but it must be recalled that in such a case, some people will take the wrong decision and will end-up with insufficient income later in life.

Benefits at death and invalidity.


The optional system should provide for a specific treatment of accumulated funds at death or invalidity of the person.

For example, the accumulated account could be paid at the inception of invalidity, or the NIBTT could offer the widow of an optional contributor to convert the accumulated funds into a periodic pension that could be added to the basic NIS widow’s pension.
Recommendation Before permitting new optional contributions in a new National Insurance P lan, it would be necessary to study the investment instruments already offered by the private sector and the level of their management fees.

5.3 Investment policy invested the portfolio The investment portfolio of the NIBTT has evolved over recent years as shown in Table 5.2.

The asset mix has been relatively stable during the last six years.
In 2011, approximately half of in fixed-income securities is (government securities, corporate bonds, debentures, fixed-deposits and money market instruments).

Because of the limited equity market in Trinidad and Tobago, local equities are concentrated in a small number of enterprises, hence diversification may be achieved only by investing overseas.

The proportion of overseas investments in the NIBTT portfolio has increased from 4 to 16 percent of the total portfolio over the period 2006-2011.
It is hoped that the legislative constraints applied to overseas investments will be relaxed, so that the NIBTT will have more flexibility to diversify its portfolio.
90 ________________________________________________________________________ Table 5.2 Evolution of the NIBTT investment portfolio from 2006 to 2011 Type of investment 2006 2007 2008 2009 2010 2011 Year Local investments Fixed Deposit/Demand Deposit T&T Government Securities T&T Debentures / Bonds Subsidary Company Bonds Subsidary Company Equities Subsidary Company Debentures Mortgages Local Equities Investment properties Other Equity Mutual Funds Sub-Total - Local Overseas investments Regional Equity US$ Equity US$ Debentures/ Bonds US$ Cash RBC Shares Sub-Total - Overseas Total Source: NIBTT Comments on the investment policy statement During their mission, the actuaries received a copy of the draft Investment Policy Statement of the NIBTT, dated 1 December 2011.
This document was raisin g different questions that are addressed below.

However, many of the followin g comments were already taken into account in the new Investment Policy Statement dated 19 June 2012.

The asset allocation of a social security system should be established with reference to the time-horizon of the system.
In the establishment of the investment policy, the evolution of future revenues and expenditures of the system should normally be presented as background to the Investment Policy Statement for the purpose of showing that a social security pension system has a long-term investment horizon.

This information comes from the actuarial review.


In the context of Trinidad and Tobago, various constraints, like the structure of the economy and the limits imposed on overseas investments, make it difficult for the NIBTT to adopt an investment policy that exactly fits these long-term objectives, but the NIBTT should keep that objective in mind and tend to it.
The asset allocation should be established by takin g 91 ________________________________________________________________________ into account these objectives and constraints.

Actuaries are often involved in this exercise by making sensitivity analysis on the fund based on various scenarios of asset allocation and they comment on the approach adopted in order to establish the level of risk and the projected return.
It is likely that the expected long-term rate of return used by actuaries for the projection of the National Insurance Fund will differ from the expected rate of return appearing in the Investment Policy Statement.

Normally, investment managers determine their forecasts concerning rates of return based on shorter time-horizons than those made for actuarial reviews.
In the actuarial review, the actuary makes a risk/return analysis and determines a long-term expected rate of return that may differ from the expected rate of return of the investment policy.

The actuary must ensure the likelihood of long-term assumptions taking into account the investment policy, historical returns and governance practices.

The actuary also takes into account short-term trends to ensure consistency with the other parameters of the macroeconomic framework at the basis of the valuation.
Consequently, these factors may cause a difference in the projected rate of return used in the actuarial review compared with the forecasts made by the persons responsible for the establishment of the investment policy.

In addition to the general comments made above, here are some comments on the draft Investment Policy Statement that has been remitted to the actuaries during their mission.
 The investment policy statement should include an additional section presentin g the future evolution of revenues and expenditures of the NIS, as projected according to the most recent actuarial review.

 On page 4, the document mentions that: NIBTT's liabilities are long-term in nature as 96% are retirement related.

The remaining 4% is related to short-term and employment injury benefits paid by NIS.
Considering that the Employment Injury fund exists principally to support disability and survivors’ pensions which are long-term in nature, this sentence should be modified for: NIBTT's liabilities are long-term in nature as 96% are retirement related and most of the 3% of employment injury related are pensions.

Only 1% is related to short-term benefits paid by NIS,  The investment policy does not need to be reviewed every year.

The Socia l Insurance Fund has a long-term horizon.
Thus the general principles set out in the policy will remain valid for a certain period.

The investment policy could be reviewed, for example, every three years, and could provide that it can be reviewed more frequently if particular circumstances justify.

An investment strategy, on the other hand, could be reviewed more frequently, for example each year, since the investment strategy focuses more on short-term considerations.
 As regards local equities and debt securities, the limits imposed on investments in a single industry or single entity appear high and may lead to a high concentration risk.

 As regards overseas investments, the NIBTT should seek to obtain an increase of the 10 percent limit.

 The duration of the fixed-income securities portfolio could be increased, considering the long-term horizon of the fund.
 As regards the benchmark index used for overseas investments, the MSCI World Index may not be appropriate considering the nature of NIBTT’s overseas investments.

If those investments are mainly US-based, a US equity index would 92 ________________________________________________________________________ be more appropriate.

The choice of the index used for overseas investments should also consider if these investments are principally made in equity or in fixed-income securities.
Recommendation Closer links should be established between the Investment Policy Statement and the actuarial review in order to adequately reflect the time-horizon of the system in the determination of the NIBTT asset allocation (taken into account in a new Investment Policy Statement dated June 2012).

In addition, the NIBTT should continue its representations for an increase of the limit presently imposed on overseas investments.
5.4 Level of administrative expenditures Assessment of the appropriate level of administrative expenditure for any socia l security systems must be based on several criteria that are necessarily based, at least in part, on judgment.

Sufficient resources are necessary to provide the appropriate level of service while maintaining a reasonable cost.
The type of benefits, the leve l of maturity of the system, the level of contributions in relation to benefits must all be considered when establishing the analysis of administrative indicators for expenditures.

There is no reliable unique benchmark valuable in all circumstances.

Guidelines can be inspired by comparison with other systems and genuine consideration of the differences between them.
In the case of NIS, the practice of applying indexation every five years also contributes to make even more difficult any interpretation of these indicators because of the discontinuities that situation generates.

Table 5.3 shows NIBTT administrative expenditures, their year-to-year variations and various ratios established for the past five financial years.
93 ________________________________________________________________________ Table 5.3 NIS administrative expenditures 2005-06 2006-07 2007-08 2008-09 2009-10 Administrative expenditures (TT$ Million) 97 Variation with previous year Financial data (TT$ Million) Contribution income Benefit expenditure Ratio of administrative expenditures to: Contribution income Benefit expenditure Expected ratio in the 7th Actuarial Review (as percentage of contribution income) Source: NIBTT The Board of Directors of the NIBTT has established a limit on administrative expenditures equal to 7.5 percent of contribution income.
In 2010, administrative expenditures have represented 4.9 percent of contribution income.

Analysis of the correlation between the evolution of economic variables and the NIBTT administrative expenditures does not enable the identification of a reliable indicator, even if an observation period longer than the last five years is used.

For this actuarial review, it is again assumed that administrative expenditures would increase according to wage increase and price inflation in equal proportions.
The most important component of administrative expenditures is wages.

The other expenses are subject to various inflationary pressures.

Price inflation was thus considered appropriate for these other expenses.

One can expect that administrative costs may also be subject to additional upward pressures if workload increases.

Such workload may increase during the maturin g phase of the system because the number of beneficiaries will grow steadily.
It was assumed that productivity gains would offset this factor.

The administrative costs of the Trinidad and Tobago’s social security system should eventually stand at levels experienced in highest-developed countries.
94 ________________________________________________________________________ Table 5.4 Comparison of administrative expenses of social security systems in different countries Country Bahamas Barbados Belize Canada Dominica Saint Kitts and Nevis Saint Lucia Trinidad and Tobago Year 2010 2008 2009 2010 2010 2009 2008 2010 Administrative expenses as % of Contribution income Benefit expenditure 22.8% 4.6% 31.9% 2.2% 12.2% 17.4% 10.3% 4.9% 21.7% 6.7% 35.8% 2.6% 12.8% 31.0% 19.6% 5.9% Source: Annual reports of the various administrations Table 5.5 presents projected administrative expenditures in terms of contribution income for the next five years if the contribution rate remains at 11.4 percent.
By comparison, Canada Pension Plan’s administrative expenditures have represented 2.2 per cent of contribution income in 2010 (see Table 5.4).

However, one must consider that the size of Trinidad and Tobago (and of the NIS itself) may preclude the attainment of the same economies of scale as those possible in a country like Canada.

It must also be mentioned that NIBTT is responsible for the administration of Short-term and Employment injury benefits.
These benefits normally generate higher administrative costs than the Long-term branch.

Moreover, in North American and Western European countries, they are generally not under the responsibility of the pensions’ administering body.
Table 5.5 Projected NIS administrative expenditures as a percentage of contribution income (2010-2011 to 2014-2015) 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Ratio 4.7% 4.4% 3.9% 3.7% 3.8% In the NIS financial statements, administrative expenditures are allocated by branch of benefits in proportion to funds.

This may not properly reflect the workload that each branch generates.

In particular, it seems that the Short-term fund may not support its appropriate share of administrative expenditures.
Short-term benefits do not generate a significant need for reserving, but are very demanding in terms of benefits follow-up.

It is suggested to use contribution income and benefits expenditures in equal proportion to allocate administrative expenditures between branches.

The basis for allocation by branch could be improved in the future if the NIBTT introduces mechanisms to precisely measure administrative expenditures for each branch.
95 ________________________________________________________________________ Appendix 1 Overview of the legal provisions of the National Insurance System This appendix provides a general overview of the key coverage, contribution and benefit provisions of the National Insurance System (NIS) as of 30 June 2010.
A1.1 Contingencies covered These funds provide for the following benefits:  Long-term benefits: Retirement pension, Invalidity pension and Survivors’ pension  Short-term benefits: Sickness benefit, Maternity benefit, Maternity grant and Funeral grant  Employment injury benefits: Injury allowance, Disablement pension, Disablement grant, Death benefit and Medical expenses Section 43 of the National Insurance Act establishes three funds:  Long-term fund  Short-term fund  Employment injury fund These funds are operated and managed by the National Insurance Board of Trinidad and Tobago for the purpose of providing monies required for the payment of benefits.
The funds are credited with contributions paid by employers, employed people and voluntary contributors.

A1.2 Coverage The NIS covers all employed people aged 16 to 64 who are in insurable employment.

Insurable employment means any employment that is not explicitly excluded according to Section 29(2) of the National Insurance Act.

Insurable employment excludes:  People who earn less than TT$120 per week.
However, a person who was employed on 29 February 2004 and continues in such employment on and after 1 March 2004 and earns less than TT$120 per week is regarded as an employed person or insured person for the purposes of the Act and such employed person pays contributions as specified in Class I.

 People employed by international organizations that are granted specific exemptions.

Employed people under the age of 16 or over the retirement age (i.e.
age 65 or 60-64 if the person ceases to be engaged in insurable employment), and unpaid apprentices are covered only for employment injury benefits.

97 ________________________________________________________________________ People under the age 60 who cease to be in insurable employment may elect to become voluntary contributors.

Voluntary contributors may qualify only for retirement benefits, survivors’ benefits and funeral grants.
A1.3 Maximum insurable earnings On 30 June 2010, earnings covered for the purpose of determining contributions and benefits are limited to TT$1,915 per week or TT$8,300 per month.

A1.4 Financing Contributions payable by employers and employed people are based on the earnings class of the insured person.

Total contributions on behalf of an employed person represent 10.8 percent of average weekly insurable earnings (the contribution rate was increased at 11.4 percent from 2 January 2012).
Contributions are shared between employer and employee in a proportion of 2 to 1.

For voluntary contributions, the earnings class is determined with reference to the average weekly insurable earnings of the person over the two-year period preceding the application for voluntary contribution.

The earnings classes and respective contribution rates in application on 30 June 2010 are set out in Table A1.1.
Income from contributions is allocated to the three benefit funds according to the following proportions:  Long-term fund: 89 per cent  Short-term fund: 6 per cent  Employment injury fund: 5 per cent Reserves held for each fund are established as follows:  The Short-term fund is maintained at 2 times the annual benefit expenditure;  The Employment injury fund is maintained at 10 times the annual benefit expenditure;  The remaining excess of income over expenditure is allocated to the Long-term fund.
98 ________________________________________________________________________ Table A1.1 Earnings classes and contributions in application on 30 June 2010 (based on a contribution rate of 10.8%) Earnings classes Weekly earnings Monthly earnings Assumed weekly earnings Weekly contribution Employee Employer Total weekly contributions Class Z weekly contribution I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 120.00 – 199.99 520.00 – 866.99 200.00 – 269.99 867.00 – 1,169.99 270.00 – 359.99 1,170.00 – 1,559.99 360.00 – 449.99 1,560.00 – 1,949.99 450.00 – 549.99 1,950.00 – 2,382.99 550.00 – 659.99 2,383.00 – 2,859.99 660.00 – 769.99 2,860.00 – 3,336.99 770.00 – 879.99 3,337.00 – 3,812.99 880.00 – 1,009.99 3,813.00 – 4,376.99 1,010.00 – 1,129.99 4,377.00 – 4,896.99 1,130.00 – 1,259.99 4,897.00 – 5,459.99 1,260.00 – 1,399.99 5,460.00 – 6,066.99 1,400.00 – 1,549.99 6,067.00 – 6,716.99 1,550.00 – 1,719.99 6,717.00 – 7,452.99 1,720.00 – 1,914.99 7,453.00 – 8,299.99 1,915.00 and over 8,300.00 and over Contributions
8.72 9.71 1.77 11.94 13.27 13.98 Contributions payable by an employer in respect of employment injury coverage for an employed person who has not yet attained the age of 16 years, who is in receipt of a retirement pension or who has attained the age of 65 are as set out in Class Z of the above table.
For unpaid apprentices, the contribution is TT$1.00 per week.

A1.5 Benefit provisions A1.5.1 Long-term benefits Retirement pension Contribution requirement: 750 weeks of contributions paid or credited.

Age requirement: Amount of benefit: Age 60 or over and retired from the workforce, or age 65 and over regardless of whether or not the person is retired.
30% to 48% of average weekly earnings over the whole period for which contributions are paid or credited, based on the 16 earnings classes, plus 0.56% to 0.71% of average weekly earnings for each 25-week period of contributions (not including age credits) exceeding 750.

Minimum basic pension: TT$2,000 per month (increased to TT$3,000 in February 2012).
99 ________________________________________________________________________ Retirement grant Contribution requirement: Less than 750 weeks of contributions paid or credited.

Eligibility: Age requirement: Amount of benefit: The person is ineligible for the retirement pension.

Same as retirement pension.

Three times total employee and employer contributions.

Min.
Min.

: TT$2000 Invalidity pension Eligibility: Amount of benefit: Duration of pension: Survivors’ pension Eligibility: Amount of benefit: The insured people must have met certain contribution requirements, less than age 60, incapacity not caused by employment and have medical certification that they are likely to remain incapable of work for a period of at least 12 months.

Same as retirement pension, but not subject to the minimum pension.
Payable until age of 60 (or until recovery from invalidity) and then converted to a retirement pension of the same amount whether or not 750 weeks of contributions have been paid or credited.

Deceased insured less than age 60, or receiving a retirement pension, or aged 60 or over entitled to receive a retirement pension as at date of death.

Benefit not paid where the deceased insured would have been entitled to a Retirement grant.

Death not caused by employment.


A minimum of 50 weeks of contributions paid.

 Widow or widower: legal or common law spouse.

 Child: less than age 19, including an unborn child.

In the case of an orphan, when only one of the deceased parents was an insured, this orphan is considered as a child.

 Orphan: less than age 19.

 Parent: wholly or mainly maintained by deceased insured.
Proportion of retirement or invalidity pension, to which the spouse/child/orphan/parent was entitled, as follows:  Widow/widower: 60 per cent (min.

: TT$400 per month)  Child: 30 per cent (min.

: TT$400 per month)  Orphan: 60 per cent (min.

: TT$800 per month)  Parents: 30 per cent (min.

: TT$200 per month) Where one parent dies, the surviving parent receives the tota l amount of dependent parents benefit.
Maximum family benefit: 100 per cent 100 ________________________________________________________________________ Duration of benefit:  Widow or widower: the pension is paid for life or until remarriage.

 Child/orphan: Payable up to age 19.

If the child/orphan was mentally or physically disabled before age 19, the benefit is paid until the incapacity ceases.

 Parents: the pension is paid for life or until remarriage.
Remarriage grant Eligibility: Amount of benefit: Payable at remarriage of widow or widower.

Lump-sum equal to 52 weeks of widow/widower pension.

A1.5.2 Short-term benefits Sickness benefit Contribution requirement: A minimum of 10 weekly contributions in the 13 weeks Eligibility: Amount of benefit: Waiting period: Duration of benefit: Maternity benefit immediately preceding the week in which illness began.
The insured person must have been in insurable employment at the time of illness and is losing earnings.

Illness not caused by employment.

60 per cent of the insured average weekly earnings over the best 10 out of the 13 weeks immediately preceding the illness, based on the 12 earnings classes.

Min.

: TT$96 per week.

Max.

: TT$1,149 per week.

Three days.

Payable for a maximum of 52 weeks.


Eligibility: Contribution requirement: A minimum of 10 weekly contributions in the 13 weeks immediately preceding the sixth week before the expected week of confinement.

The insured woman is not in insurable employment during the period of leave and pregnant for a minimum of 26 weeks or delivered a live child as certified by a medical practitioner.

The benefit is not dependent upon loss of earnings.
60% of the insured average weekly earnings over the best 10 out of the 13 weeks immediately preceding the illness, based on the 12 earnings classes.

Min.

: TT$96 per week.

Max.

: TT$1,149 per week.

Payable for a maximum of 13 weeks.


Duration of benefit: Amount of Benefit: 101 ________________________________________________________________________ Maternity grant Eligibility: Amount of benefit: Funeral grant Eligibility: Amount of benefit: A woman who satisfies the contribution requirement for maternity benefit.

Where the mother does not qualify in her own right, based on father’s contributions (then named Special maternity grant).

Payable for each birth in case of multiple births.


Paid in addition to maternity benefit.

TT$2,500.

Death of an insured person.

The deceased insured must have made a minimum of 25 contributions or was in receipt of employment injury benefit at the time of death or would have been entitled to receive employment injury benefit but for death.

TT$5,000.
TT$5,000.

A1.5.3 Employment injury benefits Injury allowance Eligibility: Amount of benefit: Duration of benefit: Disablement pension Eligibility: Amount of benefit: Duration of benefit: At least one contribution paid.

Incapable of work as a result of an accident arising out of insured employment, or as a result of a prescribed disease.

This includes employed insured persons who are under 16 or over 65 years.

The benefit is not dependent upon loss of earnings.
66⅔% of weekly earnings related to the contributions paid for the week during which the accident occurred or the disease was diagnosed.

Min.

: TT$106.84 per week.

Max.

: TT$1,276.67 per week.

Payable for a maximum of 52 weeks.

At least one contribution paid.

Disablement resulting from an accident at work or a prescribed disease and the insured person is certified to be at least 20 per cent disabled.

Percentage of the amount of employment injury allowance, proportional to the degree of disability.
After injury allowance has ceased, payable for life or until disablement ceases.

102 ________________________________________________________________________ Disablement grant Eligibility: Amount of Benefit: Death benefit Eligibility: Amount of Benefit: At least one contribution paid.

The insured person must be ineligible for disablement pension i.e.

the insured person is certified to be less than 20 per cent disabled.
A lump sum equal to the product of the degree of disablement (minimum of 3 per cent) times the number of weeks it is expected that the disablement will last (maximum of 365) times 50 per cent of the average weekly earnings that would be used for injury allowance.

At least one contribution paid.

The death of an insured person in the course of insurable employment as a result of an accident or a prescribed disease.
Pension payable to widow, a dependent widower, a child, an orphan and dependent parents subject to similar conditions as survivors’ benefits.

Death benefits are the same percentages of injury allowance as survivors’ benefits are of the retirement pension.

Medical expenses Eligibility: Expenses covered: Amount of benefit: An insured person who incurs the cost of medical treatment for the personal injury or prescribed industrial disease arisin g out of insured employment.
Doctor’s fees, drugs, private hospital, operations, attendance allowances.

Maximum of TT$22,500 per injury.

A1.6 Benefit indexing There is no automatic indexing of pensions in payment and benefit amounts.

In practice, pensions in payment and benefit amounts are adjusted every five years, following the recommendations of the periodic actuarial review.
103 ________________________________________________________________________ Appendix 2 Methodology of the actuarial valuation This actuarial review makes use of the comprehensive methodology developed at the Financial, Actuarial and Statistical Services of the ILO for reviewing the long-term actuarial and financial status of national pension systems.
These modelling tools include a population model, an economic model, a labour force model, a wage model, a long-term benefits model, a short-term benefits model and an employment injury model.

The review has been undertaken using the version of the ILO models that were delivered to the NIBTT following the Seventh Actuarial Review of the NIS, and that the actuaries of the CIPQPE have adjusted to reflect the situation of the system as at 30 June 2010.
The actuarial valuation starts with a projection of the future demographic and economic environment of Trinidad and Tobago.

Next, projection factors specifically related the demographic/economic framework.
the NIS are determined and used in combination with to A2.1 Modelling the demographic and economic environment The use of the ILO actuarial projection model requires the development of demographic and economic assumptions related to the general population, the economic growth, the labour market and the increase and distribution of wages.
Other economic assumptions relate to the future rate of return on investments, th e indexation of benefits and the adjustment of parameters like the maximum insurable earnings and the future level of flat-rate benefits.

The selection of projection assumptions takes into account the recent experience of the NIS to the extent this information was available.

The assumptions are selected to reflect long-term trends rather than giving undue weight to recent experience.
General population General population is projected starting with most current data on the genera l population, and applying appropriate mortality, fertility and migration assumptions.

Economic growth Increase of the productivity of labour, wage share of GDP and inflation rates are exogenous inputs to the economic model.

The long-term GDP growth assumption is the result of assumptions on the future evolution of the labour force, wage share of GDP and labour productivity.
Labour force, employment and insured population The projection of the labour force, i.e.

the number of persons available for work, is obtained by applying assumed labour force participation rates to the projected number of persons in the general population.

Employment rates are assumed for the future and unemployment is calculated as the difference between labour force and 105 ________________________________________________________________________ employment.
This exercise is performed separately for salaried and self-employed persons.

The model assumes movement of participants between the groups of active and inactive insured persons.

Wages Based on an allocation of total GDP to capital income and to labour income, a starting average wage is calculated by dividing the wage share of GDP by the tota l number of employed persons.

In the medium term, real wage development is checked against the labour productivity growth.
In specific labour market situations, wages might grow at a pace faster or slower than productivity.

However, due to the long-term perspective of the present review, the real wage increase is assumed to gradually converge with rea l labour productivity.

It is expected that wages will adjust to efficiency levels over time.
Wage distribution assumptions are also needed to simulate the possible impact of the social protection system on the distribution of income, for example through minimum and maximum pension provisions.

Assumptions on the differentiation of wages by age and sex are established, as well as assumptions on the dispersion of wages between income groups.

A2.2 Modelling the financial development of the NIS The present actuarial review addresses all revenue and expenditure items of the NIS.
The most important components of this budget concern long-term (pension) benefits.

This section focuses on them.

For Short-term benefits, income and expenditures are projected using simple projection methods based on recent experience.

For Employment injury benefits, income and expenditures are projected using a model specifically developed by the ILO for that branch.

Projections for pensions are done for each sex separately.

Groups of insured are separated between salaried and self-employed persons.
Purpose of pension projections The purpose of the pension model is twofold.

First, it is used to assess the financia l viability of the Long-term benefits branch.

This refers to the measure of the long- term balance between income and expenditure of the system.

In case of imbalance, a revision of the contribution rate or the benefit structure is recommended.
Second, the model may be used to examine the financial impact of different reform options, thus assisting policy-makers in the design of benefit and financing provisions.
More specifically, the pension model is used to develop long-term projections of expenditures and insurable earnings under the system, for the purpose of:  assessing the options to build up a contingency or a technical reserve; 106 ________________________________________________________________________  proposing schedules of contribution rates consistent with the funding objective;  testing how the system reacts to changing economic and demographic conditions.
Pension data and assumptions Pension projections require the demographic and macro-economic frame already described and, in addition, a set of assumptions specific to the NIS.

The database as of the valuation date includes the insured population by active and inactive status, the distribution of insurable wages among contributors, the distribution of past credited service and pensions in payment.

Data are disaggregated by age and sex.


System-specific assumptions such as the disability incidence rates and the distribution of retirement by age are determined with reference to the system provisions and the historical experience under the system.

The projection of the annual investment income requires information on the existin g assets on the valuation date.
A rate of return assumption is formulated on the basis of the nature of the system’s assets, the past performance of the Fund, the system’s investment policy and assumptions on future economic growth and wage development.

Pension projection approach Pension projections are performed following a year-by-year cohort methodology.

The existing population is aged and gradually replaced by the successive cohorts of participants on an annual basis according to the demographic and coverage assumptions.
The projection of insurable earnings and benefit expenditures are then performed according to the economic assumptions and the system’s provisions.

Pensions are long-term benefits.

Hence the financial obligations that a society accepts when adopting financing provisions and benefit provisions for them are also of a long-term nature.

Participation in a pension system extends over the whole adult life, either as contributor or beneficiary, i.e.
up to 70 years for someone entering the system at the age of 16, retiring at the age of 65 and dying some 20 or so years later.

During their working years, contributors gradually build entitlement to pensions that will be paid even after their death, to their survivors.

The objective of pension projections is not to forecast the exact development of income and expenditures of the system, but to check its financial viability.
This entails evaluating the system with regard to the relative balance between future revenue and expenditure.
107 ________________________________________________________________________ Appendix 3 NIS specific data and assumptions In addition to the demographic and economic assumptions presented in Section 2, the projection of the future financial development of the National Insurance System requires a database specific to the system (characteristics of insured persons and pensions in payment) and some particular actuarial assumptions.
A3.1 Data and assumption on the insured population Number of insured persons Data on the insured population were obtained from the NIBTT.

The database presents a population of 488,536 insured persons who have contributed in 2009-10.

In addition, to simulate the impact on the system of workers who have ceased participation but who have accumulated in the past a certain number of contribution credits, it has been assumed that the system counts 80,784 inactive insured persons.
The number of inactive insured persons has been estimated from NIBTT data on persons who have already contributed to the NIS in the past, have not contributed to the system for a certain period and have not yet reached the retirement age.

Those data were confronted with different simulations on the number of emergin g retirement pensions which would result from the recognition of different numbers of inactive insured persons and a comparison with the retirement experience of recent years.
The distribution of these insured populations, by age and sex, is shown in Table A3.1.
Table A3.1 Insured persons, by age and sex, in 2009-2010 Age Active Inactive 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 Total Male 6,116 31,295 40,432 34,037 30,183 26,839 29,326 26,084 20,214 5,932 Female Total Male Female Total 5,872 30,491 41,179 35,113 29,727 26,175 27,190 21,921 15,569 4,841 11,988 61,786 81,611 69,150 59,910 53,014 56,516 48,005 35,783 10,773 - - 461 1,437 5,432 7,268 7,753 9,147 10,624 - - - 527 2,914 6,455 6,077 6,766 7,236 8,687 - - - 988 4,351 11,887 13,346 14,519 16,383 19,311 - 250,458 238,078 488,536 42,122 38,663 80,786 The projection of the insured population is calculated by applying constant coverage rates (by age and sex) to the employed population as determined under the economic 109 ________________________________________________________________________ framework.
Age-specific coverage rates are assumed constant for the whole projection period.

Coverage rates appearing in Table A3.2 are calculated as the ratio of insured persons to the labour force at the corresponding age.
Table A3.2 NIS coverage rates, by age and sex (2010) Age Male Female 17 22 27 32 37 42 47 52 57 62 Total 29% 69% 73% 78% 77% 72% 72% 67% 65% 43% 69% 37% 93% 96% 106% 105% 97% 89% 85% 90% 65% 93% Insurable earnings Table A3.3 shows the average insurable earnings of active contributors in 2009-10 on a monthly basis, by age and sex.
Average earnings of the insured population have been separated into three subgroups of earnings: the lowest 30 per cent, a medium range of 40 per cent and the highest 30 per cent, in order to capture the effect of the minimum pension.
Table A3.3 Average monthly insurable earnings of active contributors in 2009-10, by age and sex (TT$) Age 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 Total Male 3,045 4,981 6,103 6,428 6,558 6,514 6,420 6,427 6,286 5,816 6,110 Female 2,601 3,871 5,048 5,411 5,394 5,158 5,005 5,003 4,949 4,156 4,912 110 ________________________________________________________________________ Density of contributions Density of contribution represents the proportion of the year during which the average contributor pays contributions.
Density factor by age and sex were obtained from the NIBTT.

Sample density factors appear in Table A3.4.

Table A3.4 Density factors, by age and sex Age Male Female 17 22 27 32 37 42 47 52 57 62 Total 0.28 0.61 0.75 0.79 0.81 0.82 0.83 0.84 0.84 0.66 0.77 0.27 0.63 0.80 0.84 0.85 0.85 0.86 0.86 0.86 0.68 0.80 Accrued past credits A complete distribution of accrued past credits for the active and inactive insured populations was obtained from the administrative records of the NIBTT.
Average data are shown in Table A3.5.
Table A3.5 Average past contribution years of insured persons, as of 30 June 2010, by age and sex Age 17 22 27 32 37 42 47 52 57 62 Active insured persons Inactive insured persons Male Female Male Female ________________________________________________________________________ A3.2 Demographic assumptions related to the system Mortality of insured persons Mortality rates for the insured population have been assumed to be equal to the mortality rates of the general population (sample mortality rates are presented in Table A3.6).
Mortality rates are assumed to decline continuously during the projection period in line with the assumed increase of the average life expectancy.

This mortality pattern is also used to project survivors’ benefits payable on the death of insured persons or pensioners.

For invalidity pensioners, it is assumed that mortality rates are equal to five times those of the general population at age 20 years, decreasing gradually to two times at age 60 years.
Table A3.6 Sample mortality rates, by age and sex (per 100) Age Male Female ________________________________________________________________________ Invalidity incidence Invalidity incidence rates are based on the experience of the NIS.
They are assumed constant for the whole projection period.

The rates are shown in Table A3.7.

Table A3.7 Rates of entry into invalidity, by age and sex Age 27 32 37 42 47 52 57 Male 0.00011 0.00024 0.00049 0.00102 0.00212 0.00439 0.00912 Female 0.00011 0.00020 0.00039 0.00074 0.00142 0.00270 0.00516 Retirement behaviour The first possible age of retirement under the NIS system is 60 years.
The actuaria l model used for the present actuarial review considers retirement as the residua l element of a series of factors.

The macro-economic frame described in the previous chapter provides the number of people employed each year.

For a given age (at which retirement is possible under the NIS), the difference between the number of insured in two consecutive years (for two consecutive years of age) is considered to be new retirees.

Resulting retirement rates appear in Table A3.8.


Consistency checks are performed to reproduce the retirement pattern observed under the system.

Table A3.8 Retirement rates, by age and sex Age Male Female 60 61 62 63 64 65 0.57 0.32 0.19 0.13 0.50 1.00 0.35 0.23 0.14 0.10 0.43 1.00 Family structure Information on the family structure of the insured is necessary for the projection of survivors’ benefits.
Assumptions have to be established on the probability of bein g married at death, the average age of the spouses, the average number or children possibly eligible to an orphan’s benefit and the average age of the orphans.

Sample assumptions are shown in Table A3.9.
113 ________________________________________________________________________ Table A3.9 Family statistics Age Male Average age of spouse Probability of having an eligible spouse (%) Average number of eligible children Average age of children Probability of having an eligible spouse (%) Female Average age of spouse Average number of eligible children Average age of children - 0.19 0.31 0.36 0.35 0.31 0.24 0.16 0.08 - - - - - - - 2 3 5 6 8 9 10 10 - - - - - - A3.3 Other assumptions - 6% 12% 17% 20% 22% 23% 23% 21% 18% 15% 11% 9% 6% 4% 17 22 29 35 40 46 51 56 60 65 69 74 78 83 87 - 0.19 0.29 0.33 0.31 0.26 0.18 0.10 0.01 - - - - - - - 1 4 6 8 10 12 13 14 - - - - - - Indexing of system’s parameters and pensions in payment Under the base scenario, the maximum insurable earnings is increased in January 2013 to be equivalent to twice the national average wage of salaried workers and is increased thereafter at five-year intervals to maintain the same relationship between the MIE and the national average wage.
Pensions in payment (before the application of the minimum pension) and fixed-parameters of the system (excluding the minimum retirement pension) are increased in January 2013 by a percentage equal to the increase of the CPI over the period from July 2005 to June 2010.

Thereafter, all pensions in payment and fixed-parameters of the system are increased at five-year intervals to reflect the increase of the CPI over the previous five years.
Administrative expenses Administrative expenses are determined as the amount paid in 2009-10 increasin g annually in line with the average of the wage increase and the inflation rate.
114 ________________________________________________________________________ A3.4 Pensions in payment in June 2010 Table A3.10 Retirement pensions Age Male Number 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 Total 15,279 12,891 8,760 5,797 3,630 2,046 803 190 49,396 Average monthly pension 1,985 1,981 1,990 1,997 1,997 1,999 1,999 2,000 1,988 Female Number Average monthly pension Total Number Average monthly pension Table A3.11 Widows and widowers’ pensions (according to sex of dead spouse) Age Male Number Average monthly pension Female Number Average monthly pension Total Number Average monthly pension 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 - 148 196 414 662 1,243 1,782 2,185 2,749 3,344 3,516 3,277 2,595 1,555 635 173 Total 24,474 - ________________________________________________________________________ Table A3.12 Invalidity pensions Age Male Number 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 Total
 1 12 39 63 146 381 719 1,571 2,932 Average monthly pension 1,229 1,067 968 936 900 889 882 890 891 Female Number 2 11 30 41 96 235 372 678 1,465 Average monthly pension 1,174 1,011 915 962 837 811 826 830 834 Total Number 3 23 69 104 242 616 1,091 2,249 4,397 Average monthly pension 1,192 1,041 945 946 875 859 863 872 872 Table A3.13 Children, orphans and parents pensions Age Number Average monthly pension 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 Total 306 661 1,036 2,093 - - - - - 51 72 74 92 183 154 117 55 32 11 5 4,942 410 412 411 416 - - - - - 218 236 228 216 211 217 210 209 219 200 200 380 116 ________________________________________________________________________ Appendix 4 Detailed information on NIS results (1 July 2005 to 30 June 2010) This appendix presents a detailed reconciliation of financial and demographic data of the NIS over the period 1 July 2005 to 30 June 2010.
A4.1 Reconciliation of financial results Internal accounting procedures allow for proper monitoring of experience and of the different financing methods, consistent with the fact that each type of benefits has its specific characteristics and funding objectives.

Each branch is also expected to meet its expenditures from its own income and accumulated reserves.
Table A4.1 Long-term benefits fund (Million TT$) Fund at start of year Contribution income Investment income * Miscellaneous income Transfer from Short-term and EI funds ** Total receipts Retirement pension Retirement grant Invalidity pension Survivors’ pension Administration expenses Transfer to Accumulated reserve ** Total expenditure Fund at year-end 2005-06 2006-07 2007-08 2008-09 2009- -13 63 2,585 4,904 1,607 56 44 170 111 0 1,989 16,657 16,657 2,354 661 33 62 3,110 1,707 52 46 178 116 0 2,099 17,668 Includes realized and unrealized gains and losses in 2008-09 and after * ** Before 2007-08, transfers from or to Accumulated Fund 117 ________________________________________________________________________ Table A4.2 Short-term benefits fund (Million TT$) Fund at start of year Contribution income Investment income * Miscellaneous income Transfer from Accumulated reserve ** Total receipts Sickness benefit Maternity benefit Special Maternity grant Funeral grant Administration expenses Transfer to Long-term fund ** Total expenditure Fund at year-end 2005-06 2006-07 2007-08 2008-09 2009- -1 0 351 503 35 75 1 27 8 207 353 274 274 159 7 0 0 166 40 76 2 28 6 0 151 289 Includes realized
 and unrealized gains and losses in 2008-09 and after * ** Before 2007-08, transfers from or to Accumulated Fund Table A4.3 Employment injury benefits fund (Million TT$) Fund at start of year Contribution income Investment income * Miscellaneous income Transfer from Accumulated Reserve ** Total Receipts Disablement benefit Disablement grant Injury allowance Medical expenses Survivors’ benefits Administration expenses Transfer to Long-term fund ** Total expenditure Fund at year-end 2005-06 2006-07 2007-08 2008-09 2009- Includes realized and unrealized gains and losses in 2008-09 and after * ** Before 2007-08, transfers from or to Accumulated Fund 118 ________________________________________________________________________ Table A4.4 Accumulated reserve (Million TT$) Balance at start of year Adjustment at restatement of financial statements Transfers from: Long-term Benefits Fund Short-term Benefits Fund Employment injury Benefit Fund Less: Administrative expenses Accumulated Reserve Misc.
Income Balance at year-end 2005-06 2006-07 2007-08 2008-09 2009-10 1,708 - 515 35 51 2,309 - 811 46 81 3,248 - -2,369 99 83 1,062 1,725 -2,335 -351 -100 2,309 3,248 1,062 0 - - - - - -, Note: The accumulated reserve was abolished in 2008-2009.
Table A4.5 Revaluation reserve (Million TT$) Balance at start of year Adjustment at restatement of financial statements Revaluation reserve movement Balance at year-end 2005-06 2006-07 2007-08 2008-09 2009-10 2,651 1,643 1,506 1,704 - -1,008 1,643 - -137 1,506 - -1,652 198 1,704 -13 39 39 - -5 35 119 ________________________________________________________________________ A4.2 Comparison of demographic data Table A4.6 Comparison of expected and observed number of contributors and beneficiaries 2005-06 2006-07 2007-08 2008-09 2009-10 Expected Contributors Retirement pensioners Retirement grants Survivor pensioners Invalidity Total Long-term Sickness Maternity benefits Maternity grants* Funeral grants Total Short-term Injury allowances Medical expense pay ments Disablement pensioners Disablement grants Death benefits Total Employment injury Contributors Retirement pensioners Retirement grants Survivor pensioners Invalidity Total Long-term Sickness Maternity benefits Maternity grants* Funeral grants Total Short-term Injury allowances Medical expenses payments Disablement pensioners Disablement grants Death benefits Total Employment injury Contributors Retirement pensioners Retirement grants Survivor pensioners Invalidity Total Long-term Sickness Maternity benefits Maternity grants Funeral grants Total Short-term Injury allowances Medical expenses payments Disablement pensioners Disablement grants Death benefits Total Employment injury 453,277 59,972 2,928 31,895 4,353 99,149 12,009 5,550 5,550 4,915 28,024 2,895
Observed 525,755 66,100 2,662 33,419 4,998 107,179 11,370 6,293 80 5,263 23,006 2,256 133 2,956 119 559 6,023 Ratio observed / expected 0.000
1.137 0.098 1.066 0.802 0.601 0.492 0.863 0.000 1.000 0.830 * For 2005-06 and 2006-2007, it refers to the “regular” Maternity grants.
For 2007-08 and after, it refers to the Special maternity grants introduced in January 2008.
120 ________________________________________________________________________ Appendix 5 Comparison of pension amounts resulting from the application of different pension formulas This appendix presents an illustration of retirement pensions resulting from the application of the different formulas considered in the report regarding the conversion of the present earnings class system into a system based on a percentage of earnings.
Pension amounts are presented for 15, 25 and 35 years of contribution to the NIS.
121 ________________________________________________________________________ Table A5.1 Comparison of pension amounts under different pension formulas – 15 years of contribution (TT$) 122 DistributionPension takingEarningsof insuredPensionReplacementinto accountPensionReplacementPensionReplacementPensionReplacementclasspopulationamountrateminimum pensionamountrateamountrateamountrateI1%33648.4%300020830%16624%18727%II1%43742.9%300030630%24424%27527%III5%51737.9%300041030%32824%36927%IV5%59834.1%300052730%42124%47427%V4%67231.0%300065030%52024%58527%VI6%79630.4%300078730%62924%70827%VII6%93730.2%300093030%74424%83727%VIII8%107830.2%3000107330%85824%96527%IX3%122930.0%3000122930%98324%110627%X6%139030.0%3000139130%111324%120826%XI6%155230.0%3000155430%124324%130625%XII5%163228.3%3000172930%138324%141124%XIII4%190729.8%3000191830%153424%152424%XIV4%211429.8%3000212630%170024%164923%XV4%235029.8%3000236330%189124%179223%XVI34%247629.8%3000249030%199224%186723%AverageAll earnings class1646164313141306Earnings classes V and above1860187014961480Present provisionsOption 31.1% over 15 years1.2% on earnings above TT$4,1502% first 15 years1.8% on earnings below TT$4,1501.6% per yearOption 1Option 2 ________________________________________________________________________ Table A5.2 Comparison of pension amounts under different pension formulas – 25 years of contribution (TT$) 123 DistributionPension takingEarningsof insuredPensionReplacementinto
 accountPensionReplacementPensionReplacementPensionReplacementclasspopulationamountrateminimum
pensionamountrateamountrateamountrateI1%43462.6%300028441%27740%31245%II1%57456.3%300041841%40740%45845%III5%69150.6%300056041%54640%61445%IV5%80846.0%300072041%70240%79045%V4%91942.4%300088841%86740%97545%VI6%109641.8%3000107541%104940%118045%VII6%128841.6%3000127041%123940%139445%VIII8%148441.5%3000146641%143040%160945%IX3%169041.3%3000167941%163840%184345%X6%191541.3%3000190141%185540%201443%XI6%213541.2%3000212341%207140%217642%XII5%228139.6%3000236341%230540%235241%XIII4%262741.1%3000262141%255740%254040%XIV4%291241.1%3000290541%283440%274839%XV4%323741.1%3237323041%315140%298638%XVI34%341141.1%3411340241%331940%311238%AverageAll earnings class2266224521902177Earnings classes V and above2563255524932466Present provisionsOption 31.1% over 15 years1.2% on earnings above TT$4,1502% first 15 years1.8% on earnings below TT$4,1501.6% per yearOption 1Option 2 ________________________________________________________________________ Table A5.3 Comparison of pension amounts under different pension formulas – 35 years of contribution (TT$) 124 DistributionPension takingEarningsof insuredPensionReplacementinto accountPensionReplacementPensionReplacementPensionReplacementclasspopulationamountrateminimum
pensionamountrateamountrateamountrateI1%53276.7%300036152%38856%43763%II1%71169.8%300053052%57056%64263%III5%86463.3%300071052%76456%86063%IV5%101758.0%300091352%98356%110663%V4%116653.8%3000112752%121356%136563%VI6%139653.2%3000136352%146856%165263%VII6%163952.9%3000161152%173556%195263%VIII8%188952.8%3000185952%200256%225263%IX3%215152.5%3000212952%229356%258063%X6%243952.6%3000241152%259756%281961%XI6%271852.5%3000269352%290056%304659%XII5%293150.8%3000299752%322756%329257%XIII4%334752.4%3347332452%357956%355656%XIV4%371052.4%3710368452%396856%384754%XV4%412452.4%4124409752%441256%418053%XVI34%434652.4%4346431552%464756%435753%AverageAll earnings class2885284830673048Earnings classes V and above3266324134903453Present provisionsOption 31.1% over 15 years1.2% on earnings above TT$4,1502% first 15 years1.8% on earnings
 below TT$4,1501.6% per yearOption 1Option 2 ________________________________________________________________________ Appendix 6 Recommended contribution and benefit schedules to be applied from January 2013 Table A6.1 Earnings classes and contributions (based on a contribution rate of 12 percent) Earnings class Weekly earnings Monthly earnings Assumed average weekly earnings Employee weekly contribution Employer weekly contribution Class Z weekly contribution I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 180 - 300 300 - 410 410 - 540 540 - 680 680 - 830 780 – 1,300 1,300 – 1,777 1,777 – 2,340 2,340 – 2,947 2,947 – 3,597 830 – 1,000 3,597 – 4,333 1,000 – 1,170 4,333 – 5,070 1,170 – 1,340 5,070 – 5,807 1,340 – 1,530 5,807 – 6,630 1,530 – 1,720 6,630 – 7,453 1,720 – 1,910 7,453 – 8,277 1,910 – 2,130 8,277 – 9,230 2,130 – 2,360 9,230 – 10,227 2,360 – 2,610 10,227 – 11,310 2,610 – 2,723 11,310 – 11,800 2,723 and over 11,800 and over ________________________________________________________________________ Table A6.2 Basic retirement and invalidity pension rates Earnings class Basic pension
 (weekly) Basic pension (monthly) I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI Table A6.3 Increments for retirement and invalidity pensions Earnings class Increment (weekly) Increment (monthly) I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 7.37
IV V VI VII VIII IX X XI XII XIII XIV XV XVI ________________________________________________________________________ Table A6.4 Basic survivors’ pension rates Earnings class I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI Weekly Monthly Widow / widower Dependent child Dependent parents Dependent orphan Widow / widower Dependent child Dependent parents Dependent orphan Table A6.5 Increments for survivors’ pensions Earnings
 class Weekly Monthly Widow/ widower Dependant child Dependant parents Dependant orphan Widow/ widower Dependant child Dependant parents Dependant orphan I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 7.59
________________________________________________________________________ Table A6.6 Employment injury benefit rates Earnings class Weekly I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 160.26 239.42 315.70 403.44 507.15 616.09 725.40 834.73 952.22 1,077.89 1,203.53 1,339.31 1,496.66 1,656.67 1,777.76 1,815.34 Monthly 694.46 1,037.49 1,368.03 1,748.24 2,197.65 2,669.72 3,143.40 3,617.16 4,126.29 4,670.86 5,215.30 5,803.68 6,485.53 7,178.90 7,703.63 7,866.47 Table A6.7 Employment injury death benefit rates Earnings class Widow Dependent child Dependant parent Weekly Monthly Weekly Monthly Weekly Monthly I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 497
71 95 120 153 185 217 251 285 323 361 402 449 497 533 545 128 ________________________________________________________________________ Table A6.8 Constant attendance and care allowance rates Earnings class Weekly Monthly I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI 23.75 39.38 52.08 68.24 87.07 106.50 125.72 148.42 171.32 196.02 222.43 263.25 292.58 323.86 347.54 354.89 Table A6.9 Sickness and maternity benefit rates Earnings class I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI Weekly 144.00 214.87 285.00 362.25 456.78 554.66 652.88 751.11
Monthly 624.00 931.10 1,235.00 1,569.75 1,979.38 2,403.53 2,829.15 3,254.81 3,714.62 4,200.47 4,694.43 5,226.00 5,837.00 6,461.00 6,933.25 7,079.80 ________________________________________________________________________ Table A6.10 Rates for medical expenses Expense a) Doctor’s visit General Practitioner Office visit Visit by doctor to site Specialist Office visit Visit by doctor to site Psychiatrist Initial consultation Follow up From January 2008 From January 2013 TT$46.88 per visit TT$93.13 per visit TT$71.40 per visit TT$141.84 per visit TT$116.25 per visit TT$155 per visit TT$177.05 per visit TT$236 per visit TT$140 per hour TT$116.25 per visit TT$213per hour TT$177.05 per visit b) Drugs and dressing Up to TT$775 per injury Up to TT$1,180 per injury c) Hospital expenses TT$232.50 per day TT$354.10 per day d) Operations Minor Intermediate Major Up to TT$620 Up to TT$1,240 Up to TT$2,480 Up to TT$944 Up to TT$1,889 Up to TT$3,777 Maximum total medical expenses per injury TT$22,500 TT$34,300 130