Contributions to the National Insurance Scheme (NIS) continue to decline, while payouts increase, according to the outcome of the 14th Actuarial Review.
The report warns that the National Insurance Fund (NIF), which covers short-term as well as long-term benefits and pensions, could be depleted within the next 30 and 40 years, It further cautions that the total expenditure of the NIF, which held reserves of $3.8 billion or 7.8 times its expenditure as at December 2011, could exceed total contribution between the next 14 to 21 years.
“Total expenditure will first exceed total income between 2028 and 2035 in the pessimistic and best estimate scenarios. The Fund will be depleted between 2045 and 2056 in the pessimistic and best estimate scenarios, but not within the next 60 years under the optimistic scenario,” the report states.
It notes that “a sustainable national pension is one that over the long term, delivers on its financial promises in such a way that the financial burden is borne equitably by participants. However, “these results indicate that the National Insurance Fund may not be financially sustainable over the long-term under two of the three scenarios, but will be very well funded if there is sustained economic growth.
“There is, however, no need for panic or immediate action as the projections above are consistent with the partially funded nature of a national pension system,” the report states in its executive summary.
It also notes that the heavy concentration of investments in Barbados Government and other public sector securities presented “growing concerns” for the Fund’s long-term sustainability, adding that the key risk factor was whether the Fund would receive cash when debentures and treasury notes will have to be liquidated to meet current expenditure.
Describing the current economic climate as being in the midst of a sluggish recovery with weakening public finances, relatively high interest rates and moderate inflation, the report says while total expenditure now exceeded contributions and no contribution rate increase was anticipated, deficits are not expected before the next 25 years with significant reserves to sustain payments for the medium term.
Based on actual experience in 2012 and most of 2013, the report put forward a number of recommendations to enhance and protect the Funds. It suggests that in order to enhance coverage, a simple and attractive means by which self-employed persons can contribute and benefit from the NIF should be implemented.
The report also recommends that a number of steps be taken to enhance sustainability of the Fund. This include an improvement in contribution compliance, as well as an increase in investment diversification with goals of reducing the portion of the Fund held in Government investment to 50 per cent over five years and increasing the portion held in overseas investments.