In the meeting of the House of Assembly on December 12th, 2023, the Honourable Premier and Minister of Finance, Dr. Ellis Webster, explained the implications behind the adjustments of Social Security contributions which are scheduled to take effect from January 1st, 2024.
“Madam Speaker, it was laid before this House a report of the actuary, Mr. Derek Osborne of Lifeworks, who made an analysis of the finances of Social Security in December of 2020,” the Premier said. “In the Executive Summary of that report, it is noted the following: ‘If major reforms are not soon made, the Social Security Fund can enter a crisis state in the next ten years when draconian measures will be required.’ These Contributions Amendment Regulations are to put a stop gap to that crisis occurring.”
He said in that same report the actuary stated that by 2037 the Social Security Fund would become defunct if nothing is done to address the depleting funds. The Premier said there were many recommendations made which included that there should be a reduction of administrative costs, and the Board is working on that; that a temporary hold be placed on hiring new staff; and that there be a restructuring of staff to carry out specific roles. It was also recommended that a new approach for contributions and benefits for self employed persons be devised.
“During the last Social Security Week,” the Premier noted, “there was a public discussion concerning self employed persons being involved in making Social Security contributions and creating new policies. One of those new policies was to increase the contributions rate.”
He explained it was determined that the Social Security contribution rate should be raised from 10% to 12%. This would mean that instead of 5% paid by the employee, as it is now, 6% would be paid by the employee; and instead of 5% paid by the employer, as it is now, 6% would be paid by the employer.
“We took the policy decision that this increase should be introduced in a phased fashion,” the Premier noted. “This means that a quarter of 1% per year for four years is to be paid by the employee, and a quarter of 1% per year for four years is to be paid by the employer.”
The Premier also explained that it was further suggested that the pensionable age be raised from 65 years of age, as it is currently, to 67years of age or beyond. “However,” he said, “the choice was made by this administration not to raise the pensionable age. We would want to try other options before we go to that one.”
“There was a suggestion during a public consultation meeting with the actuary that the ceiling be raised,” he said. “The ceiling right now is set at EC$7,000 per month, above which no contributions are taken. This was put to the actuary, and his response in that regard was that increasing the ceiling in significant steps, as it occurred in the past, is not a measure that enhances sustainability. These are the words of the actuary. In fact, he said that to increase the ceiling will hurt efforts to improve long term finances. While more contributions would be received in the early years, the increase in the value of benefits to those higher-paid persons who would qualify in the years after would be excessive.”
“If such an increase were to occur,” he said, “there would need to be an adjustment factor applied to average insurable wages when pensions are being calculated to ensure that the increased value of benefits is consistent with contributions collected.”
“The actuary went on to state that a better approach to ensure that Social Security maintains its relevance to higher paid workers is to increase the ceiling every year or even every two years relative to the actual increase in wages. This approach occurs in the British Virgin Islands, the Bahamas and Barbados,” Premier Webster said.
The Premier told the Assembly the actuary concluded that the ceiling is now at an adequate level where only around 10% to 12% earn more that the current ceiling of EC$7,000 per month. Most of these are public sector employees who would have other pensions.
According to the Premier’s confirmation, the increases to Social Security contributions will take effect from January 1st 2024. From January 1st to December 31st, 2024, employees will pay into Social Security 5.25% of their gross salaries. The employers will match this rate. Effective January 1st 2025, the employee will pay 5.50% of gross wages as contributions and the employer will match that rate.
Effective January 1st 2026, the employee will pay into Social Security a contribution of 5.75% and the employer will match that rate. Finally, effective January 1st 2027, the employee will pay 6.0% of gross salaries as Social Security contributions and the employer will match that rate.
