When was Social Security established and why?
The Social Security Act was passed into law on July 11, 1972 and the Social Security Scheme was launched on April 2, 1973.
Social Security was created to provide benefits to insured persons and their beneficiaries where there is a loss or reduction of earnings as a result of sickness, pregnancy, invalidity, retirement or death.
How does Social Security operate?
Security operates a Defined Benefit Fund where the benefits accruing to beneficiaries are specifically defined by law or regulation. Contributors who satisfy certain criteria are entitled to a pension that is determined by their income and number of contributions. This pension is paid for life, and benefits could also accrue to a survivor.
Social Security operates a pay-as-you-go system. Current contributors pay benefits due to beneficiaries, the primary benefit being Old Age Pension.
Insurable income is presently $4,500; employees pay 3.5% and employers pay 5%.
Because Social Security operates a pay-as-you-go fund, it is necessary to maintain a satisfactory dependency ratio – that is a minimum acceptable number of active contributors in relation to the number of pensioners.
What is the required ratio?
The sustainable ratio is 10:1.
Does the Antigua and Barbuda Social Security Scheme operate at the required ratio?
The last occasion that Social Security was close to meeting the sustainable dependency ratio was in 1991 when it stood at 9.5:1. This ratio has declined steadily over the years, and, as at August 2012, it stood at 4.2:1.
How many pensioners depend on Social Security?
The active insured population is 34,753; while the number of pensioners is 8,213.
How many people are added to the pensions' register monthly?
At present, Social Security receives requests that result in the addition of an average of 50 new pensioners monthly or 600 pensioners per year. This figure is likely to increase during each of the next five years.
What are the specific challenges facing Social Security Scheme?
The untenable dependency ratio is compounded by the fact that life expectancy has increased, meaning that Social Security has to pay more in benefits to pensioners.
The fact that at one end there is an ageing population and, at the other end, families are having fewer children, indicates that the dependency ratio can continue to deteriorate.
The Board operates with a deficit in excess of $1 million monthly.
How will Social Security become viable?
Reforms are necessary if Social Security is to become viable. These reforms include raising the retirement age. Over time, this would reduce the rate at which new pensioners are added while extending the time that employed persons contribute to the fund. This should have a positive impact on the dependency ratio.
Social Security has been in operation for over 39 years. To qualify for a full pension, under the existing guidelines, one must have contributed to the fund for 33.33 years. Most new pensioners satisfy the criteria, and, therefore, qualify for the maximum pension based on their insurable earnings.
Are the sustainability issues confronting Social Security Scheme new?
The problems with Social Security are neither new nor peculiar to Antigua and Barbuda. Looking specifically at Antigua and Barbuda, over the years, actuarial reports have consistently recommended that major reforms be undertaken to avert a solvency / liquidity challenge.
What are the specific recommendations of the Board of Directors?
Extend the pensionable age from 60 to 65, in a phased-in approach over a period of five years;
Increase the insurable income from $4,500 to $6,500 monthly;
Introduce new benefits that broaden the social safety net, while providing new revenue streams for the fund. These include the introduction of Unemployment Insurance and Employment Injury Insurance;
Increase the fines and penalties. They have remained unchanged since 1973 and no longer serve as a deterrent for individuals who fail to remit contributions to the fund or those who make fraudulent claims;
And broaden the powers of the Director to recover monies legally due to the fund from defaulting employers.