False security

Retired actuary Charles Herbert has raised an alarm over the major decline in the number of people contributing to the National Insurance (NIS), as he questioned Government’s rationale for continuing to pay non-contributory pensions.

“I don’t really understand the room for non-contributory pension. That doesn’t seem to be accountable to the public,” he said on Tuesday night during an Institute of Chartered Account of Barbados (ICAB) webinar on Our NIS – The Way Forward.

The latest review of the NIS showed that the number of employees plus self-employed contributors to the scheme had fallen from 126 802 in 2007 to 105 585 last year, and could decline further this year to 104 384.

The number of employers contributing also declined from 8 272 in 2007 to 5 909 in 2021. That figure is expected to remain the same this year.

Herbert insisted that while Government could not avoid making adjustments to the structure of the NIS, he believed a “huge” part of the solution for the scheme was capturing self-employed individuals.

“A big part of the discussion has to be how do we get the self-employed people on board,” he said, as he expressed alarm at the decline in the number of self-employed contributors in the last 15 years.

“Where have these people dropped out? I don’t know what information National Insurance keeps, but where have these 20 000 people disappeared from? Is it one particular industry that has suddenly stopped employing people and instead employing some on contract where they are self-employed? We need to bring to bear on this problem more than has been brought to bear so far, and I believe that information is there,” he said.

Describing the current situation facing the pay-as-you-go scheme as “a very slow tsunami”, Herbert said “there are many of us who have been raising these concerns for multiple years.”

With Barbados’ ageing population, he said, it was critical for the number of contributors to remain high. However, he questioned if adjusting the retirement age to maintain the ratio between pensioners and contributors would be acceptable.

“The question is, are we moving into a world where less people are working and more people are retired? If so, how are we going to fund society?

“One of the key issues is that our contributors have fallen from over 130 000 to 110 000 in rough numbers. Personally, I don’t believe our workforce has dropped by that amount and what seems to have happened is that a large number of people are either transferring from the employee/employer workforce to the self-employed workforce and in the self-employed workforce they . . . are not contributing,” said Herbert.

It was against that background that he questioned the purpose of keeping non-contributory pensions in place.

“I suspect that an attractive non-contributory pension perhaps gives the false impression to many self-employed that if they don’t contribute to National Insurance they will get a non-contributory pension. [They think] ‘you know what, it is not a bad pension so let me sit on the side lines and pretend that I don’t have a job and I will still get a pension’.

“If this is not true and there are rules that stop this from happening, then now is the time for the Government to speak up very clearly and explain that the non-contributory pension will not be given, no matter how many votes it attracts, to people who could have and should have contributed. So we can’t divorce these things, it has an impact on the National Insurance,” Herbert declared.

He added that while authorities could escape having to adjust benefits and contributions, there was also a need to rebuild the population’s confidence in the NIS.

During the discussions, NIS actuary Derek Osborne highlighted the need for economic growth buttressed by growth in employment numbers and contributions, but also indicated that a change in the structure and design of the NIS was critical to its continued survival.

He also cited the need for better systems that are linked with other government departments to ensure timely and complete collections and to better meet the needs of self-employed people. Additionally, Osborne said, there was need to improve the scheme’s governance, as he also agreed that contributors’ confidence had to be improved.

Stating that the time has come for some “tough decisions”, the Bahamian actuary said Barbadians should “come together collectively and find a Barbados solution for this Barbados problem”.

He noted that the public discussions on the NIS would continue a while longer and surveys would also be conducted.

Osborne said so far, there have been several “good ideas” coming from Barbadians who have identified maintaining the current retirement age and contribution rates as important.

“We also know that Barbadians value their NIS and that the minimum pension right now seems to be adequate. So the goal now is to take that feedback, look at the priorities and then we see how we can fine-tune the system, whether it be a tweak of the current structure or whether it be a whole overhaul or half overhaul and do something different,” he said.

He reminded that among several reform options on the table was changing the formula used to calculate the benefits.

“There are other systems where some countries have a flat benefit just because you are old. So regardless of your contribution history, just because you are [at the retirement age] you get a flat benefit,” he explained, adding that this could be means-tested so that those who do not need the benefit do not receive it.

“So there are several things we can look at, and as we have heard in the last few weeks, everything is generally on the table and there have been no decisions made yet. So the consultations are still open to ideas from the public. The priority is that the way Barbadians feel about the NIS will help drive the solution,” Osborne assured.

marlonmadden@barbadostoday.bb