Revise pension policy on private plans!

By Marlon Madden

Investment officials at one of the island’s leading providers of pension services are calling on Government to put policies in place to make it more appealing for individuals to invest in private pension plans to help ease the pressure on the National Insurance Scheme (NIS) which is under threat.

This comes in light of increasing public discussion around the need for reform of the NIS, which experts have said was in danger of being depleted within 12 years if reforms are not urgently carried out.

Chief Investment Officer of Fortress Fund Managers Peter Arender said he agreed that private pension plans could easily help to ease the pressure off the national pension scheme, pointing out that the NIS alone was simply not enough to provide retirement coverage for workers.

“The NIS alone won’t do it. It needs support and the framework is already there and the machinery is there . . . the question is how do you put more weight on the private pension system to augment whatever the NIS can provide people,” he said.

However, Arender said there were three things that could make private pension plans more attractive.

“Number one, fix the problem of double taxation. Number two, what can we all do to develop the internal capital market here in Barbados and number three would be a point that we often raise, which is that in Barbados we collectively make the decision to allocate scarce foreign exchange purely for consumption; I think as part of this whole look at pensions, we would strongly suggest that some subset of the scarce foreign exchange of this country be consistently allocated to long-term investment for things like pension,” explained Arender.

He described the issue of double taxation on pensions as “an act of disincentive”, adding that this was resulting in “a lot of inertia in pension plans”.

In 2015, the Government removed Registered Retirement Savings Plans (RRSPs) from the list of investments against which Barbadians could claim a tax credit of up to $10,000 in filing their annual income tax return. This resulted in an immediate drop in the number of individuals opting for private pension plans.

Since then, there has been an outcry for Government to revise its policy, as pundits argued that Barbadians were now being hit by two taxes – one in the form of PAYE and another at the pension payment stage for sums over a minimum amount.

However, with growing concerns over the state of the national pension scheme and the need for reform, officials have renewed their call for a revision of the tax policy on private pension plans.

Investment Director of Fortress Fund Managers Roger Cave told members of the media that since the double taxation regime the interest of companies starting new pension schemes or adding assets to existing plans had changed dramatically and never recovered.

“We have a very unfortunate structural hurdle where [with] contributions going into pension schemes there is [a] deduction going in, and coming out they are taxed.

“So it is an element of double taxation which is really restricting the interest of investors adding money to their RRSPs or for companies starting new group pension plans,” he explained.

“It is a big issue that really needs to be resolved, and it is unfortunate because a lot of infrastructure exists with RRSPs and group plans,” said Cave, as he pointed to Financial Services Commission (FSC) regulations.

He also identified costs associated with setting up a private pension plan as “an impediment”.

“There is reform needed not just in the National Insurance [Scheme] because in Barbados our pension plans are all integrated with national insurance. There are various pillars towards achieving financial security in retirement and private pensions play a big part in that. Unfortunately, because of the challenges mentioned (the pension system) is not functioning the way it should be,” said Cave.

During the Fortress Fund Managers Lunch and Learn session on Wednesday, the officials also disclosed that there has been no change in behaviour among investors since last month’s report that millions of dollars went missing from an account at the Jamaica-based brokerage and securities dealer Stocks and Securities Limited (SSL).

marlonmadden@barbadostoday.bb