Despite a sharp decrease in the number of contributors to the National Insurance Fund (NIF), Minister of Labour Dr Esther Byer-Suckoo is confident of its viability.
According the 15th actuarial review made public on Friday, in 2014 the fund’s expenditure surpassed contribution income for the first time since 1997.
In releasing the report today, Byer-Suckoo said a part of the long-term viability of the NIF would depend on the growth rate of the struggling Barbados economy.
However, the Minister of Labour said there was no need to panic as the fund remained adequately financed and was able to meet its current obligations.
The actuarial review found that the fund’s reserves could be depleted “as early as 2045 under the pessimistic scenario, or as late as 2074 under the optimistic scenario”.
Adding that expenditure would exceed contributions each year starting between 2028 and 2045, and the pay-as-you-go rate would be between 27 per cent and 37 per cent, the report said those assessments were based on Government debt being redeemed as scheduled at full face value.
However, the 68-page document, which gave the review and recommendations based on the period 2012 to 2014, with some considerations between January 2015 and September 2016, said should Government restructure any debt held by the NIS through reducing the face amount and/or yield on Government papers the outlook of the fund would be worse.
“If holdings of Government of Barbados debt are excluded from the NIF, depletion of reserves is projected to occur in 2033,” the report said.
The fund’s reserves grew from a revised $3.9 billion at the end of 2011 to reach $4.7 billion at the end of 2014.
Byer-Suckoo gave the assurance that there would be no change in the face value of Government debt or yield on Government papers being held by the scheme.
During a news conference on Friday at the ministry’s Warrens, St Michael office, Byer-Suckoo, in an effort to put any concerns to rest regarding the funds cash flow and viability, said the situation facing the fund was not one for alarm.
However, she admitted that some conditions had to be met in order to ensure the future viability of the fund.
“Overall the National Insurance continues to be sound and continues to be viable, and there is no immediate threat to the National Insurance Fund,” said Byer-Sukoo.
“The main concern, and this comes as no surprise, is that the actuary has concluded that our national insurance fund will be very well funded and sustainable if Barbados can achieve an average sustained economic growth in the region of about 1 to 1.5 per cent. That is the biggest concern.”
The Central Bank of Barbados in its latest economic review predicted growth of between 1.3 and 1.8 per cent for this year, following last year’s rate of 1.6 per cent, and a disappointing 0.6 per cent in 2015.
Byer-Suckoo said economic growth, among the other indicators, would ensure the fund “continue to be on a good path.
“The idea behind economic growth not only speaks to Government’s ability to pay off what it has for the National insurance, but it speaks to an increase in employment, it can speak to an increase in wages and contribution levels . . . With economic growth as well it would expand the opportunities for investment, which is a concern we have seen expressed
. . . that economic growth would also mean the limitation on foreign exchange would be less severe so we would be free to go overseas and invest,” she explained, adding that the options for investment here were limited.
The actuarial review showed that at the end of 2014 the NIF had $565.7 million in un-invested assets, comprising of $121.7 million in cash and bank balances, $223.7 million from contributions receivable and $220.3 million accounts receivable.
However, as a result of Government retrenchment in 2013/2014, there was a significant drop in overall contribution to the fund to $532.1 million, compared to the $598 million in 2013.
What is more, the Unemployment Fund fell to $41 million at the end of the reporting period or “eight months’ worth of benefit payments, also due mainly to Government’s controversial retrenchment programme.
However, Byer-Suckoo said while that was a concern at the time, the Unemployment Fund had since been “stabilized” and there were “no more rush on the fund”.
Investment income for the NIF fell from $276.6 million in 2013 to reach $266.2 million in 2014.
During the period under review, NIS investment in various Government securities rose from 68 per cent to 75 per cent.
“This increase is contrary to both the investment policy and previous actuarial advice, said the document, which was prepared by Morneau Sphell Limited and dated May 30, 2017.
Although pensions were responsible for the larger portion of the benefits paid out by the fund, Byer-Suckoo said given the fund’s strong cash flow position no pension reform or contribution rate adjustments were being considered at this time.