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Social Security Administrative Costs: a recipe for the collapse of the pension program in Sierra Leone
GENERAL DESCRIPTION:
As the nation waiting for the second actuarial valuation of the National Social Security and Insurance Trust (NASSIT), a thorough analysis and understanding of initial actuarial valuation report conducted by the Canadian company based actuarial Régie des ent du Québec (RRQ) for the period ended December 31 2004 is instructive in assessing the performance and future viability of the national pension plan.
In accordance with Article 47 of the National Social Security and Insurance Trust Act 2001 an actuarial evaluation of pension scheme is required by law every three years during the first ten years of pension scheme and once every five years. The system was initially implemented in 2002 with the first actuarial valuation performed in 2004. The second statutory valuation should therefore be out in 2007/2008 and an actuarial report issued soon thereafter.
RRQ Studies 2004 actuarial report, while recognizing the overall good financial health of the scheme as expected from the implementation of pension plans without payment liabilities, however highlighted areas of concern and deficiencies in both Sierra Leonean politicians pension and participants should be aware of and necessary to address the measures taken to prevent the failure of trust and possible bankruptcy.
Apart the need for the insured population growth and the need for more data system experience, the actuarial report paid special focus on the exorbitant costs administrative and management costs and investments, as areas of concern requiring corrective action.
ADMINISTRATIVE EXPENSES
An analysis of the administrative costs of the pension system, according to the actuarial report, reveals that NASSIT of "administrative expenses compared with the insurable earnings were higher than the level expected in the initial report. "
It is worth noting that at the beginning of the scheme of industry best practices for administrative expenditure costs set at 1% of insured earnings as recommended by the International Organization Labour Organization (ILO).
However, since 2002, when administrative costs were at 1.691 million Lions, administrative costs have increased progressively 3250 million Lions in 2003 and a whopping 6.407 million Lions in 2004. As noted in the report actuarial RRQ, 2004, costs exceeded the ILO recommended 1% for administrative costs of the scheme by a ratio of 230%.
In the recently published annual report for 2006, NASSIT reported overheads management in 15.3 billion, while Lions Trust pension payments amounted to a paltry 1.9 billion Leones. The 15.3 billion in administrative costs Lions representing an increase of 14.4 billion Leones in the previous fiscal year 2005. Thus, from 2005, administrative costs represented 5 percent of insurable earnings of the scheme. This relationship is clearly economically unsustainable, as even when compared with other African countries by 1.5% for administrative costs, the trajectory of NASSIT administrative costs remains one of the highest in the world.
The growth of the administrative costs amoebic Foundation has continued to balloon as figures for the year ended 2007, revealed that the stratospheric sum of 22.1 billion was spent as Lions administrative costs and expenses.
While acknowledging that rising pension systems generally have higher administrative costs in principle schemes maturing and factoring in the money "seed money of 4.5 billion Leones provided by the government for creating the system was fully repaid at the end the third year, the continued growth of administrative costs, without apparent oversight or checks and balances by the Trustees / Board of Directors reflects a lack of good governance controls and potential inefficiencies that must be addressed and corrected.
Because if this trend continues, the trust is to bankruptcy and the country, the legal guardian of pensions are charged to unfunded pensions for the time period for balance and pension obligations are in your eyes. As fiduciaries, board members should be seen as the exercise of their fiduciary duties on behalf of pension plan participants-workers in Sierra Leone.
STAFF COSTS
Staff costs represent a large percentage of administrative costs and is estimated to consume over 55% of total expenditure pension scheme. For example, payroll costs increased from 5100000000-8200000000 Lions Lions from 2005-2006. As in the period ended in December 2006, the scheme employed 227 employees representing a net increase of six employees from the previous year. In 2005 the system reported a total of 221 employees on its payroll. The 6 new employees of the system of employees in 2006, plus any cost of living salary increases for existing employees could certainly not explain the exorbitant increase in the payroll system.
From the second quarter of 2008, the reports, the Trust has a total of 275 employees, an increase rolls of employees to 227 in 2006.
Moreover, in addition to staff costs, the remuneration of key management personnel salaries and allowances substantially increased 1600000000-2200000000 Lions from 2005-2006.
According to NASSIT staff matrix, the system has eight executives and 13 senior management positions. If "key management" refers only to these positions, thus represents 21 staff for a period of one year received pay and compensation of an additional amount of 2.2 billion Leones giant pension fund of workers in Sierra Leone.
GENERAL COST
Apart from staff costs, the foregoing analysis, the amorphous category of "General Costs" represents about 30 percent of the costs of the scheme. While initially Lions 543 million in 2002, general expenses had soared to 963 million Leones in 2003 and an exorbitant 2.1 one billion Leones in 2004.
It should be noted that while the administrative costs for 2004 accounted for 95.4 percent of spending total and 24.0 percent of revenue benefits of the pension contributions integer, the continued fiscal viability of the pension scheme is largely a game excessive amount of the contributions of workers hard earned wages seem to be around system management and staff costs.
INVESTMENT PORTFOLIO ANALYSIS
As one of the main sources of funding for the Trust is investment income, derived from the combination of appropriate investment and returns determines and ensures that the level of pension participants, this article will not be complete without an analysis of the strategy of the current investment NASSIT.
The policy of strategic investment regime has been considered in the actuarial report well-designed economic and actuarial. The devil, however, is in implementing well-designed policy. Particularly as it relates to stocks in companies, the absence of an adequate financial infrastructure that quotas and reservations can easily be traded to free up cash flow exposes the Trust for investment additional risks.
Despite this deficiency in the country's financial environment, the plan has spent more than 39 billion Leones in capital investments, although the country not have a functional stock market.
A review and analysis of the types of businesses and business capital investment plan has been directed towards the causes concerns the risks to achieving the stated objectives of the strategic and portfolio investments on an ongoing basis.
The Plan in 2006 increased its mix capital assets from 11.4% in 2005 to 20% in 2006. This category represents, apart from Treasury bills, a higher percentage investment in the system.
LONG Long Term Investments
Starting in 2006, while the regime of the investment portfolio amounted to long-term Lions 39.6 billion, consisting of investments capital in the following:
1) Issuance of obligations of 8.2 billion SierraBlocks Leon.
Two) capital investment in 7.1 billion of SierraBlocks Lions.
3) capital investment in the investment of 7.268 million Barock
4) Equity Regimanual Gray SL Limited 6,000,000.
5) Equity Investment property 9,129,992 Goujian.
6) Equity investment in Eco Bank of 3,033,917 Leones.
7) Investment income variable Kimbima 5,296,414 Hotel.
capital of Sierra Leone Brewery 7005.
The exhibition of investment regime accountability in the concrete block making company, SierraBlocks represents a 60% equity in the property with a concomitant 60% of the responsibility. This equity exposure of the system and considering the high cost of housing is selling gray Regimanuel Goodrich should serve a warning signal that returns from this company is not likely to comply with the minimization of costs and risks associated with investments, a key objective of the investment policy of the regime.
The experience with property investment scheme when Goujian prematurely recalled their capital investments and apparently only received a portion of investment Trust's initial capital is very instructive.
At present, the accumulation of contribution represents the main source of growth in the portfolio of assets the scheme. Since the scheme is young and growing trend to continue. However, the law of diminishing returns soon set in and contributions not only remain standing, but inevitably, a regression that results in an adverse impact on the investment mix of the scheme.
CONTRIBUTION DELIQUENCIES
As a statutory pension scheme to all employers and employees are required to contribute to the Trust. However, a alarming trend witnessed in the last five years of the Trust shows that government departments and parastatals are the biggest offenders mounting arrears of contributions due to the Trust Fund on behalf of their workers. For example, as recorded in the 2006 annual report of Trust, the total contribution crime increased from 9.1 billion Leones in 2004-12900000000 Lions in 2006. This number rose to 16.2 billion Leones in 2007 and from the second quarter 2008, the contribution arrears stood at 19.4 billion Leones.
The main reason given for this crime is the lack of compliance by ministries, departments and parastatals whose contribution arrears increased from 2.1 billion Leones in 2004-5500000000 Lions in 2006. The trend of non-compliance parastatal enterprises in particular has not diminished since the recent statistics for the second quarter shows that non-compliance is currently at 10 billion Lions.
With all the legal means at its disposal, the trust must be aggressive to ensure outstanding shares recovered immediately. The reduction and elimination of arrears should be a benchmark in assessing the productivity and management efficiency. The landscape is dotted with Sierra Leone government services institutions and companies that have failed for its inability to ensure service payments by the user are in time for collection services, whether insurance electricity, water and other utility services. At this rate and trends, NASSIT is preparing for death itself.
MOTION FOR THE EXPANSION OF THE INSURED POPULATION
The involvement of diasporas in Sierra Leone in the country's pension system, the NASSIT, represents a creative and thinking outside the box that the management and the government must urgently explore.
the participation of the diaspora could be achieved NASSIT through a system of purchase of foreign currency loans in the pension scheme, inspired by the concept of "Diaspora Bonds", where countries obtaining financing from its overseas diaspora through a debt instrument.
However, unlike a debt instrument, the sale of credits in NASSIT pension scheme allows the diaspora to participate in the social security system with benefits for both the participant inuring diaspora and NASSIT. In the case of diasporas that ensures:
Patriotism, as it allows continued participation connection to the country of origin.
Satisfaction to contribute and participate in national economic growth of the country of origin.
Protection as a tool for risk management as a component of the benefit survival of the pension scheme benefits are granted to beneficiaries in the country of origin, in the event of death or disability of the participant diaspora.
In the case of the country and NASSIT, which states:
Extension of the population covered, providing an additional private sector capacity, the plan is desperately needed to meet the actuarial projections.
Access to foreign capital remittances as a contribution will be made in foreign currencies.
diversification of risks, including the infusion of foreign capital in the scheme would be invested in foreign investment and international bonds, stocks and indexes.
capital needed for development programs such as low cost housing project NASSIT current.
CONCLUSION:
The establishment of the pension scheme in Sierra Leone is a singular achievement in the implementation of public policies in the past 30 years and if properly implemented, and long-term management will generations of workers and contribute positively to economic and social development of the country. Therefore, the According to the enormous expectations for the success of the plan that criticism and suggestions over the restriction of administrative expenses of the Trust to escape has been offered not only management, but especially the Board of Directors.
About the Author
The author, Mr. Kortor Kamara has over 25 years experience in the insurance industry both in Sierra Leone and the United States. He is a Chartered Property & Casualty Insurer and holds the Workers Compensation Claims Professional (WCCP) designation. He is a Member of the Chartered Insurance Institute ( London); Certified Self-Insurance Claims Administrator-State of California; Registered World Bank Consultant and has served as a Consultant on various Insurance initiatives in Sierra Leone, including design of the country’s first Title Insurance Policy.
In addition, Mr. Kamara is a graduate of Fourah Bay College, University of Sierra Leone, 1978-1981; studied Law at both the Univerisity of West Los Angeles School of Law and the California Southern School of Law in Riverside. He is currently a Doctoral Candidate in Insurance and Risk Management.
Through association with Saddleback Re, were he serves as the Regional Manager, Africa Division, Mr. Kamara is intimately involved in the provision of reinsurance coverage, policy design, loss control, training and risk management services to the African Insurance marketplace. Mr. Kamara can be contacted via e-mail at: Kortorkamara@yahoo.com.
www.saddlebackre.com.
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