The National Insurance Scheme (NIS) was established in 1966 and is a compulsory, contributory, funded social-security scheme. Employers and employees make contributions to the National Insurance Fund (NIF), and these contributions are used to finance NIS benefits and administrative costs.
Annual surpluses of contributions over benefits and administrative costs are invested and have accumulated over time. Today, the NIF has a market value of over $100 billion.
In the event that the NIF is unable to finance the payments of NIS benefits, the burden falls to the Consolidated Fund. Failure to adequately safeguard the long-term sustainability of the NIF, therefore, represents a significant long-term fiscal risk. The NIS Act explicitly recognises this by giving the minister of finance certain consent, review and decision-making responsibilities with respect to the NIS and NIF.
Since inception, the benefits paid from the NIF under the NIS have expanded beyond old-age pension to include an employment injury benefit, a medical and dental/optical benefit, among others. Today, more than 100,000 Jamaicans receive benefits from the NIS, which forms the bedrock of our social security system.
In addition, since the inception of the National Health Fund (NHF) in 2003, 20% of NIS contributions have been diverted to the NHF.
As a result, the programmed outflows from the NIF on an annual basis are significant. In 2016, the NIF received contributions of approximately $13 billion and paid out $15 billion in benefits. Indeed, for the 10 years to 2016, annual benefits from the NIF exceeded annual contributions to the NIF. So far, investment income has covered this difference.
However, as the population ages, this trend is projected to quickly worsen until investment income is no longer sufficient to make up for the deficit of benefit payments over contributions. The NIF would then experience negative cash flow and begin to rapidly reduce in size.
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