Address by the Honourable Stephenson King Prime Minister and Minister for Finance on the Occasion of the 40th Anniversary of the Provision of Social Security in Saint Lucia

It is an honour to address you as we celebrate the 40th Anniversary of the advent of social security in Saint Lucia.  This moment is especially poignant, for I would have delivered this speech in October last year, were it not for Hurricane Tomas. Instead, I was stranded in Barbados while Tomas ravaged our country and destroyed lives and livelihoods. It is always sobering how the best laid plans can be set aside or reversed in the twinkling of an eye. Perhaps that experience can serve to remind us all, if at all we need reminding, that we must resolutely get on with solving our myriad problems, proceed apace with the business of development, and not fall prey to the distraction and debilitating effects of petty political squabbling.
 
Ladies and gentlemen, the literature on development is replete with references to developed, as opposed to under-developed countries, advanced versus backward, and industrialized versus developing.  There are many notions of development, but it is my firm belief that, whatever the definition, the true development of countries must, always and everywhere, be centred around people.

Society must make adequate arrangements to take care of its members and ensure their well-being.  Perhaps one of the measures of development, is the extent to which everyone is able to enjoy an adequate standard of living throughout their lives, including their senior years.  A society must be able to save and invest, in order to provide for its young and vulnerable inhabitants and its retired citizens.  This places social security at the centre of social and economic policy and the development effort.

The Foundation Years

We in Saint Lucia will be forever grateful to Sir John Compton, whose vision it was to establish social security in Saint Lucia. His exposure to the British system of social security, convinced him that a similar scheme, adjusted to suit our particular conditions, would be beneficial to Saint Lucians. It was fortunate that he was surrounded by like minded colleagues who had themselves experienced the effectiveness of other nascent schemes and who supported his initiative.

Let us also pay tribute to Mr. Francis Compton and his small team of dedicated professionals, who developed and implemented the social security system during its early years. They were all pioneers and we will always be indebted to them for persevering against tremendous odds, to ensure that social security took root in Saint Lucia. They worked tirelessly in the face of initial indifference, opposition and even hostility in some quarters. It was only later on, when the scheme started to make beneficial payments to participants, that the people as a whole began to embrace and support it.

Ladies and gentlemen, the social security experience in Saint Lucia is yet another reminder that certain policy decisions taken by Government, which may appear unpopular at the time of implementation, could prove to be in the long-term interest of the people of the country.  Of course, I can cite many other examples where this has turned out to be the case.

Saint Lucia was the fourth country in the English speaking Caribbean to establish social security, behind Jamaica, Barbados and Guyana. Its evolution began with the birth of the National Provident Fund in 1970, which received a loan of $30,000 from the government, to enable it to commence operations. At the time, the Fund only made lump sum payments to its participants who had reached the age of sixty years, and to meet death and invalidity benefits, as well as refunds to its members who were migrating.

The National Provident Fund evolved into the National Insurance Scheme in 1979, providing both short term and long term benefits to its contributors, and allowing for payments to dependents, as opposed to a named beneficiary upon death. Unlike the National Provident Fund, the NIS was a true insurance scheme, operating on insurance principles. The humble beginning of the Provident Fund, with its modest financing of $30,000 in 1970, had become a National Insurance Scheme with net assets of $23 million by 1979, less than a decade later.

The National Insurance Scheme underwent further development over the years, becoming the National Insurance Corporation in 1999, with a fund of $480 million. Today, after 40 years of social security in Saint Lucia, the NIC’s fund is valued at $1.4 billion.

Current and Future Challenges

Social security funds in the Caribbean and elsewhere, face significant challenges related to changes in demographic patterns. In Saint Lucia, the age composition of the population is projected to change significantly over the next 40 years. The percent of the population below 15 years of age, will decline from 25.8% to 18%, while those over 65 years old will form 18% of the population, up from 7% in 2010. The relationship between the retired population and the working population who contribute to the financing of social security on an ongoing basis, will change dramatically. In effect, the number of active workers available to support each retired person, is expected by the experts to decline from 8 in 2010, to between 3 and 4 by 2050. This will impose a greater burden on the social security fund and will require the adoption of measures to reduce expenditure or increase revenue, in order to maintain the long-term viability of the Fund.

Like other national insurance funds, we will have to make decisions about the structure of, and financing arrangements for the fund, in future years. The Fund is a national asset and ensuring its sustainability will require the co-operation of all sectors of society, including government, trade unions, the private sector, workers and staff associations. We will have to find solutions together and strive to improve the productivity of the active work force, in order to provide greater support for the retired population.

Some systems also have to contend with the problem of depletion of their funds arising from excessive government involvement.  We do not have that problem in Saint Lucia, as we have always allowed the NIC the autonomy required to run its affairs prudently.  The independent actuarial reports on the NIC indicate that it is fundamentally strong.

It is necessary to widen the coverage of social security in Saint Lucia, as doing so will help to relieve the burden on government, that is, the taxpayer, in assisting the aging poor. Additionally, casting a wider net not only provides more people with income during their years of retirement, but it also helps to sustain a maturing “Pay As You Go” social security system.

However, broadening the coverage of social security demands not only the participation of more self employed persons, but also the inclusion of the informal sector. The government (through legal means, public education and public assistance), as well as the private sector and the public at large, will have to co-operate in order to improve compliance and extend the coverage of the scheme. Earned income will have to be correctly declared by the self-employed and informal sector workers, and evaluated by professional personnel. The design of contribution plans will have to take account of those whose incomes are received in an irregular manner, while legal penalties will have to be enforced in cases where employers deduct contributions and fail to remit them to the NIC.

The social security funds play an important role in the mobilization of savings and their utilization for development in Saint Lucia. NIC reserves stood at approximately 64% of GDP at the end of December, 2009. To date, the NIC has approved over $411 million in loans for Agriculture, Tourism, Industry, Utilities and Education, and a further $250 million for public sector investment over the years.

A sound economy provides the basis for a potentially robust social security system. Good economic management helps support social security, but it is also the case that economic shocks can undermine its smooth functioning. High unemployment and stagnant economic conditions which severely affect the contribution base, can have an adverse impact on the national insurance Fund. In that regard, the NIC, like its sister organizations around the Caribbean, has had its share of challenges in recent years and we welcome the signs of recovery now emerging in the world economy along with their their likely positive impact on Saint Lucia.

Globalization brings with it an additional challenge to open economies like Saint Lucia, that is, the ease with which businesses can relocate between countries, in search of profits. Such actions can cause sudden and substantial changes in employment and the dislocation of social security systems. Profound changes in the domestic economy can also arise from instability in the markets (including regional markets), for capital, investment and finance. It is necessary for us to continue the dialogue on deepening the Caribbean Single Market and Economy (CSME), in order to develop a collective, more resilient approach to dealing with economic destabilization and its attendant problems.

Conclusion

As we traverse this first century of the new millennium, all the parties concerned with the effectiveness and sustainability of social security will have to join forces to ensure its good governance. In particular, the NIC itself, the government, working people and the private sector must all play their role in achieving proper accountability and management of our national social security resource.

I thank you.

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