THE SOCIAL SECURITY TIME BOMB

Passed into law by the PUP administration in 1979, Social Security is a compulsory national workers insurance program that began collecting premiums and awarding benefits in 1981. As of the end of last year, there were 85,123 actively insured subscribers, about 74 of every 100 workers in the country.

Based on the scale of salaries, both employers and employees are required to contribute a total of eight cents of every dollar to a Social Security Fund. In turn, the Fund compensates workers for sick days, for maternity leaves, for disablement and death, and for retirement. Social Security is an umbrella that keeps workers dry when the inevitable rainy days arrive.

Since its inception and as its contributors have swelled, Social Security has ballooned to an asset base of some $359 million. By the very nature of the insurance business, much of Social Security’s assets are carried in cash. The Fund’s bulging accounts, piloted by politicians and their sometimes greedy gofers, have invariably been gnawed and bitten, even as contributors complain about the pittances that pass as benefits. Notwithstanding these blemishes, Social Security’s safety net has insured tens of thousands of Belizeans against the vicissitudes of the capitalist socio-economic system. The Social Security umbrella, for example, covered 5,200 workers who collect retirement, invalidity and survivor’s pension; more than 2,800 workers injured on the job received $3.8 million in benefits last year; almost 4,000 new mothers will be sheltered with maternity allowances and grants this year. By any measure, the Fund offers enviable protection.

Unfortunately, the latest financial statements from Social Security reveal that the Fund now teeters on the edge of insolvency. Unless sweeping adjustments are immediately enacted, workers will soon draw a bounced check from this account.

The contours of insolvency are conspicuous. Last year, contributors paid in some $57 million to the Fund. Workers in turn received $49 million from the various benefit branches. That left a surplus of around $8 million. So far – so solvent. But then, there remains the cost of administering Social Security, a factor that snatches a scandalous $21 million per year. The resulting $13 million deficit is only bridged because of Social Security’s $25 million from investment income, leaving a measly $12 million in overall net income for 2008.

The 2008 net income was 36 percent below the $19 million achieved in 2007. If contributions and benefits rise at the 2008 levels, by nine and 23 percent respectively, and if investment income stalls – an optimistic forecast given its 19 percent nosedive in 2008 – then Social Security will suffer its first net loss in 2009. And in each ensuing year, this loss will mushroom, wiping out the entire fund by 2015. Along this terminal trajectory, one fifth of Social Security’s reserves, some $55 million will be devoured by recurrent deficits even before the next general elections are due.

Unless, then, it is the UDP’s aspiration to be indicted by history as an abettor to the collapse of Social Security, their administration is obligated to smother the fast-burning fuse on the Social Security time bomb.

The recipes on the rescue menu are not many. Contributions will need to be increased from their current level of eight percent of insurable earnings. The ceiling on insurable earnings – that portion of a worker’s salary that is eligible for Social Security deduction – will also have to be raised from its current level of $320 per week. While the last increase in contributions was shared equally between employer and employee, any new increase will have to be borne exclusively by employers, given the battered state of the Belizean workers. Paring benefits is an option that will be violently resisted.

In addition, Social Security must slash the loathsome level of its operating costs. Forty three cents of every dollar contributed by workers to the Fund in 2007 was spent on operating costs, including salaries and benefits. In 2008, the figure was $21 million or 36 cents of each dollar in contributions chugged by operating costs. Such costs seethe with negligence. They ought to be capped by regulations and violators penalized.

Social Security, as the country largest institutional investor, must also secure a higher real rate of return on its portfolio of investments. The absolute minimum should be the equivalent of the benchmark of interest rates paid by the commercial banks on deposits, which has hovered around a seven percent annual rate. For 2008, Social Security actually lost one cent, in real terms, for every dollar in its $329 million basket of reserves. Had such a loss occurred at so prominent an institution in the private sector, a shareholder revolt would surely have swept away forever those responsible for the mismanagement.

The UDP will contend that the present fortunes of Social Security are not their doing. But such schoolboy excuses are irrelevant to the welfare of the workers’ insurance program. Disclaimers are not allowed in this cyclical game of governance. The future of the Fund surely belongs to this UDP administration. There is not a moment to waste in the mission to rescue Social Security. Mr. Barrow and his administration must act resolutely and act now.

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