COVID-19 predicted to impact pensions and NIS earnings, says actuary

Barbadians should brace for a reduction in future pension benefits due to protracted unemployment, while National Insurance Scheme (NIS) operators can expect reduced income from investments in the short to medium-term, given the impact of the COVID-19 pandemic.

Those predictions have come from independent consulting actuary Judy Veira who also warned that self-employed individuals across the Caribbean should take their payment of NIS contributions more seriously.

“Of course, you are going to have some reduction in future pension benefits because of the loss of contribution weeks whilst unemployed. I think there should be, I would expect hopefully, an increased appreciation for NIS benefits and possibly an increase in compliance,” said Veira.

“I would like to think, certainly even among the self-employed, they realise ‘I really should be contributing to the NIS and contributing on a consistent basis because you never know I may need short-term sickness benefit’. You may never know there is another pandemic, maybe this may encourage others to step up and be active contributors to their respective NIS schemes.”

Veira made the comments during a recent webinar hosted by the social security subcommittee of the Caribbean Actuarial Association (CAA), under the theme Social Security Around the Region and the Response to COVID-19: What lies Ahead?

Veira, president-elect of the CAA, explained that national security schemes should expect a reduction in contributions due to several factors, including the loss of jobs among the expat workforce and the reduction in new employment.

“Also, the temporary unemployment benefits may have reduced the sustainability of some national insurance scheme funds. Time will tell,” she said.

The actuary said she did not expect the cash flow as a result of the COVID-19 pandemic to materially impact the long-term financial stability of regional security schemes.

“Certainly in the short to medium-term, I think they can all expect lower investment income. I think they would have some concern in terms of their investment. A lot of them are heavily invested in government bonds and now these governments are under a lot of financial pressure due to the pandemic. . .so will those governments possibly default or delay in their bond payment? Because these national insurance schemes are invested in these government bonds, there are some credit risk to them too,” she explained.

Veira pointed out that in the case of Barbados, which paid out some $155 million to satisfy over 35,000 unemployment benefit claims in 2020, there will need to be a review of that fund to ensure its sustainability.

“[They] will need to take a step back and look at ‘did we prepare ourselves sufficiently and ensure our contribution rate is still at an acceptable level, is it consistent with the benefits being offered, do we need to make any changes?” she said.

Veira said if schemes were planning to reduce benefits, increase contribution rates or make any other changes to their schemes, they may have to do so sooner rather than later.

“Whatever reforms these schemes had pre-COVID-19 are still going to have to do it and they may also have to do it a little bit more aggressively and hasten it a little bit more to offset any short-term consequences of the pandemic,” she warned.

“So, it does beg the question in the end, will these national insurance schemes have to give more in-depth consideration to one-off significant events such as the pandemic, volcanic eruptions that [affected] St Vincent and Barbados, hurricanes and other natural disasters when assessing our long-term financial sustainability?”

Veira also raised the question of whether social security schemes should give greater consideration to how much they support governments.

She encouraged countries that did not have a permanent unemployment benefit fund to implement such a system.

The actuary also urged operators of the security schemes to carry out a careful assessment to determine what areas needed to be strengthened in an effort to better prepare for future events and to know how the past two years might have impacted on projected cash flows.

“Because of the protracted period of unemployment that was experienced in the past two years, there is going to be lower than expected contribution income. The pandemic has also exposed the financial vulnerability of self-employed persons, they were just darn lucky that a lot of these national insurance schemes and governments [stepped in],” Veira said. (MM)