SOCIAL SECURITY ADMINISTRATIVE COSTS: A RECEIPE FOR COLLAPSE OF SIERRA LEONE’S PENSION PROGRAM

OVERVIEW:


As the republic awaits the second actuarial research of the National Social Security & Insurance Trust (NASSIT), the consummate research as good as bargain of the primary actuarial gratefulness inform conducted by Canadian formed actuarial organisation Regie Des Rentes Du Quebec (RRQ) for the duration finale Dec 31, 2004, is exegetic in assessing the opening as good as destiny viability of the nation’s grant scheme.

Pursuant to Article 47 of the National Social Security & Insurance Trust Act, 2001 an actuarial research of the grant intrigue is by law compulsory each 3 years during the primary 10 years of the grant intrigue as good as once each 5 years thereafter. The intrigue was primarily implemented in 2002 with the primary actuarial gratefulness completed in 2004. The second orthodox gratefulness should to illustrate be conducted by 2007/2008 as good as an actuarial inform released shortly thereafter.

The 2004 RRQ actuarial studies inform whilst acknowledging the ubiquitous great monetary condition of the scheme, as approaching of start-up schemes though grant arrangement liabilities, however highlighted areas of regard as good as deficiencies which both Sierra Leonean policymakers as good as grant participants contingency be done wakeful of as good as claim stairs taken to residence in sequence to hinder the Trust’s disaster as good as intensity bankruptcy.

Aside from the need for expansion in the insured race as good as the need for some-more intrigue knowledge data, the actuarial inform paid individual concentration upon the unreasonable executive losses as good as costs as good as the supervision of investments, as areas of regard requiring visual measures.

ADMINISTRATIVE COSTS

 

An research of the grant scheme’s executive costs, according to the actuarial report, reveals which NASSIT’s “administrative losses compared to insurable gain were aloft than the turn approaching in the pregnancy inform ”.

It is value observant which during pregnancy of the intrigue an attention many appropriate use output for executive costs was pegged during 1% of insured gain as endorsed by the International Labor Organization (ILO).

However, given 2002 when executive costs were during 1,691 billion Leones, the executive costs have gradually increasing to 3,250 billion Leones in 2003 as good as to the whopping 6,407 billion Leones in 2004. As remarkable in the RRQ actuarial report, the 2004 costs exceeded the ILO endorsed 1% for the scheme’s executive costs by the suit of 230%.

In the not prolonged ago published annual inform for 2006, NASSIT reported ubiquitous executive losses during 15.3 billion Leones whilst the Trust’s payments in pensions amounted to the insignificant 1.9 billion Leones. The 15.3 billion Leones in executive costs represented an enlarge from 14.4 billion Leones in the before 2005 mercantile year. Thus as of the year 2005, executive costs represented 5 percent of the insurable gain of the scheme. Such the comparative measure glaringly is economically illogical as even when compared with alternative African countries 1.5% for executive costs, the arena of NASSIT’s executive costs stays the single of the top in the world.

The amoebic expansion in the Trust’s executive costs has the single after another to fill up as sum for the year finished 2007, suggested which the stratospheric sum of 22.1 billion Leones was depleted as executive costs as good as expenses.

While acknowledging which nascent grant schemes in all have aloft executive costs during commencement than grown schemes, as good as factoring which the “initial seed income of 4.5 billion Leones supposing by the supervision for sourroundings up of the Scheme was entirely refunded by the finish of the third year”, the the single after another expansion in executive costs with no strong slip or checks as good as balances by the Trustees / Board of Directors reflects the miss of great governance controls as good as intensity inefficiencies which contingency be addressed as good as corrected.

For should this direction continue, the Trust will be rendered broke as good as the country, the orthodox guarantor of the pensions will be saddled with unfunded pensions by the time the balance duration ends as good as grant liabilities have been during their peek. As fiduciaries, the house members contingency be seen as sportive their fiduciary duties upon interest of the grant scheme’s participants- the workers of Sierra Leone.

 

STAFF COSTS

Staff costs paint the vast commission of the executive costs as good as were estimated to devour some-more than 55% of sum expenditures of the grant scheme. For example, payroll costs increasing from 5.1 billion Leones to 8.2 billion Leones from 2005 to 2006. As during the duration finale Dec 2006, the intrigue in use 227 employees representing the net worker enlarge of 6 from the before year. In 2005 the intrigue reported the sum of 221 employees upon the payroll. The 6 brand new employees the intrigue in use in 2006 in further to whatever price of vital increases in income paid the existent employees could many definitely not insist the unreasonable enlarge in the salary check of the scheme.

As of the second entertain of 2008, the Trust reportedly has the sum of 275 employees, an enlarge in the worker rolls from 227 in 2006.

Moreover, in further to staff costs, the arrangement of pass supervision crew salaries as good as allowances almost increasing from 1.6 billion to 2.2 billion Leones from 2005 to 2006.

According to the NASSIT staff matrix, the intrigue has 8 supervision team as good as thirteen comparison supervision positions. If “key management” refers to usually these positions, it to illustrate represents twenty-one crew who over the the single year duration perceived as salaries as good as arrangement an the single more humongous sum of 2.2 billion Leones from the Sierra Leone workers grant fund.

GENERAL COST

Aside from staff costs as reviewed above, the distorted difficulty of “General Costs” represents about thirty percent of the scheme’s expenditures. Whilst primarily during 543 million Leones in 2002, ubiquitous costs output had ballooned to 963 million Leones in 2003 as good as to an unreasonable 2.1 billion Leones in 2004.

It should be remarkable which whilst executive costs by the year 2004 represented 95.4 percent of sum good expenditures as good as 24.0 percent of grant income of the finish grant scheme, the the single after another mercantile viability of the grant intrigue is severely during interest as an lavish volume of contributions of workers tough warranted salary appear to be outlayed upon the scheme’s supervision as good as staff expenses.

ANALYSIS OF INVESTMENT PORTFOLIO


Since the vital source of financing for the Trust is investment income, which subsequent from the right investment brew as good as earnings determines as good as ensures the intrigue participants turn of grant benefits, this essay will not be finish though an research of the NASSIT’s stream investment strategy.

The scheme’s investment plan process has been adjudged in the actuarial inform as economically as good as actuarially good designed. The demon however is in the doing of this good written policy. Especially as relates to holds in companies, the deficiency of an competent monetary infrastructure where shares as good as holds can simply be traded to giveaway up money upsurge exposes the Trust to the single more investment risks.

Despite this accountability in the country‘s monetary environment, the Scheme has poured over 39 billion Leones in to equity investments, even yet the nation does not have the organic batch exchange.

A examination as good as research of the sorts of businesses as good as ventures the Scheme’s equity investment has been destined in to causes risk concerns for feat of the voiced vital objectives of the investments portfolio as good as for the the single after another viability of the scheme.

The Scheme in 2006 increasing the equity item brew from 11.4% in 2005 to 20% in 2006. This difficulty represented, in reserve from Treasury Bills, the largest commission investment by the Scheme.

LONG TERM INVESTMENTS

As of 2006, the Scheme’s prolonged tenure investment portfolio totaled 39.6 billion Leones, comprised of equity investments in the following:

1) Debentures in SierraBlocks of 8.2 billion Leons.

2) Equity investment in SierraBlocks of 7.1 billion Leones.

3) Equity investment in Barock Investment of 7,268,000

4) Equity in Regimanual Gray SL Limited of 6,000,000.

5) Equity in Gouji Property Investment of 9,129,992.

6) Equity investment in Eco Bank of 3,033,917 Leones.

7) Equity investment in Kimbima Hotel of 5,296,414.

Equity investment in Sierra Leone Brewery of 7,005.

The scheme’s investment guilt bearing in the concrete retard creation company, SierraBlocks represents the 60% tenure shares with the consequent 60% of liability. Such bearing of the scheme’s collateral as good as deliberation the tall costs of the homes Regimanuel Gray is offered in Goodrich contingency offer as the notice vigilance which earnings from this try have been expected to destroy to heed to minimization of costs as good as risks compared with investments-a core design of the scheme‘s investment policy.

The scheme’s knowledge with the Gouji Property Investment when it betimes removed the equity investment as good as reportedly usually perceived the apportionment of the Trust’s primary collateral investment is rarely instructive.

Currently, grant accumulation represents the categorical source of item enlarge in the scheme’s portfolio. Since the intrigue is immature as good as flourishing this direction will continue. However, the laws of abating earnings will really shortly set in as good as contributions not usually will sojourn low though will fundamentally regression ensuing in an inauspicious stroke upon the scheme’s investment mix.

CONTRIBUTION DELIQUENCIES

As the imperative grant intrigue all employers as good as employees have been compulsory to minister in to the Trust. However, an shocking direction witnessed over the past 5 years of the Trust’s life shows which supervision departments as good as parastatals have been the biggest delinquents with ascent balance of contributions due to the Trust upon interest of their workers. For example, as available in the Trust’s 2006 annual report, sum grant evasion increasing from 9.1 billion Leones in 2004 to 12.9 billion Leones in 2006. This volume subsequently increasing to 16.2 billion Leones in 2007 as good as as of the second entertain of 2008, the grant balance stood during 19.4 billion Leones.

The categorical reason adduced for this evasion is the non-compliance by supervision ministries, departments as good as parastatals whose grant balance rose from 2.1 billion Leones in 2004 to 5.5 billion Leones in 2006. The direction of non-compliance by parastatals generally continues unabated as new census data for the second entertain shows which their non-compliance is now during 10 billion Leones.

With all the orthodox instruments during the disposal, the Trust contingency be assertive in ensuring superb contributions have been rught divided recouped. A rebate as good as rejecting of the balance contingency be the benchmark in assessing management’s capability as good as efficiency. The Sierra Leone landscape is dotted with supervision services institutions as good as companies which have unsuccessful by their incapacity to safeguard user-service payments have been timely picked up for services, be it insurance, electricity, H2O supply as good as alternative open services. At this rate as good as trending, NASSIT is sourroundings itself up for the same demise.

PROPOSAL FOR EXPANSION OF THE INSURED POPULATION

The appearance of Sierra Leone’s diasporas in the country’s grant scheme, the NASSIT, represents the single such beautiful as good as out of the box meditative which supervision as good as the supervision contingency urgently explore.

Diaspora appearance in NASSIT could be completed by the complement of squeeze of credits in unfamiliar currencies, in to the grant scheme, modeled upon the judgment of “Diaspora Bonds”; where countries lift financing from their abroad diasporas by the debt instrument .

However, distinct the debt instrument, the sale of credits in to the NASSIT grant intrigue allows diasporas to experience in the nation’s amicable confidence complement with benefits inuring to both the diaspora member as good as the NASSIT. In the box of the diasporas it ensures:

Patriotism, as appearance affords the single after another tie to the home country.

Satisfaction of contributing to as good as participating in the home country’s inhabitant mercantile growth.

Protection as the risk supervision tool, as the survivor’s good member of the grant intrigue will means benefits to beneficiaries in the home country, in the eventuality of the genocide or incapacity of the diaspora participant.

In the box of the nation as good as NASSIT, it provides:

Extension of the lonesome population, on condition which the single more in isolation zone capacity, which the intrigue desperately needs to encounter actuarial projections.

Access to unfamiliar collateral remittances, as contributions would be done in unfamiliar currencies.

Risk diversification, as the unfamiliar collateral infused in to the intrigue could be invested in unfamiliar investments as good as general bonds, holds as good as indexes.

Needed collateral for developmental programs such as the stream NASSIT low price housing project.

 

CONCLUSION:

The investiture of the grant intrigue in Sierra Leone represents the unaccompanied feat in open process doing over the past thirty years as good as if scrupulously executed as good as managed long-term will offer generations of workers as good as minister definitely to mercantile as good as amicable growth of the country. It is to illustrate in settle with the extensive expectations for success of the intrigue which the upon top of critique as good as suggestions for curtailing the run divided executive costs of the Trust have been been proffered not usually to supervision though generally the Board of Directors.