Montserrat Social Security Fund
30th July, 2020The Office of the Auditor General is pleased to announce that its report entitled The Montserrat Social Security Fund: Governance & Sustainability was presented to the Legislative Assembly on July 28, 2020.
Background: The MSSF was enacted in 1985 and began operations in July, 1986. The Fund receives contributions from employees, employers, and self-employed persons. It provides [1] short-term benefits (e.g., paid sickness leave; paid maternity leave) and [2] long-term benefits – principally pensions (96% of benefits being paid) to over 1,000 persons.
Key Findings:
- There is adequate oversight of strategic planning, budgeting, operational processes, and spending. Internal financial controls are strong. However, there is excessive use of paper, and too little use of all the available digital technologies for information, communication, services, & payments, including the MSSF’s website.
- Contribution rates and the ceiling for insurable earnings are too low. They have not been raised for several years, and are below the cost of the benefits that are being paid whilst the cost of pensions is rising each year.
- The 2018 Census showed a further decline in the population, despite a 25% increase in immigration since year 2011. Falling and aging population directly leads to (a) reduced contributions to MSSF’s revenues, and (b) sharp increases in spending on benefits and especially on pensions.
- We found that poor diversification and losses from impairments have combined to produce increasingly poor performance of the portfolio of investments. During 2011 to 2018 the already low yield fell by half from 3.70% per annum to 1.90% per annum.
- The Fund has had a large deficit every year for the past decade. In recent years, it more than tripled: from $1.42 million (2015) to $4.63 million (2017). In turn, the reserves are falling rapidly and at a rising rate. Without immediate corrective action to boost contributions to the Fund, all reserves will be gone within as little as 3 to 4 years.
Key Recommendations:
- Increase contribution-rates and the ceiling for insurable earnings in line with cost of benefits.
- Gradually raise the qualifying age for full pension in line with high and rising life-expectancy.
- Abolish, suspend, or reduce early pensions, except in cases of hardship, to reduce losses.
- Rebuild & diversify the reserves to support the continued payment of benefits to pensioners.
In response to this Audit Report (on page 23) an excerpt from the Acting Director’s response is as follows:
I have reviewed your initial findings and I am in agreement with them. We, along with our Actuary, have been in discussions with the Honourable Financial Secretary and the new Premier about the current situation and these discussions will be ongoing until we arrive at a suitable solution to these problems.
Every effort has been made over the years to diversify the investment portfolio and increase investment returns, while attempting to maintain the balance between risk and return.
The full audit report highlights several other findings and recommendations. Their implementation will bring significant improvements in the funding of the MSSF to save it for present and future pensioners.
The report in its entirety can be found at the Montserrat Public Library or by visiting Publications or by requesting an electronic copy from the Office of the Auditor General