Fresh concerns raised about the future viability of the National Insurance Scheme yesterday by pensions experts Eckler Limited are troubling.
And our new Government, as transparent and engaging as it has shown itself to be over the last four months, has a duty to put these concerns to rest.
The National Insurance Scheme is sacrosanct. Virtually every Barbadian benefits at some point in life, be it the newborn whose mother receives maternity benefits, the unemployed, the sick, the medically unfit, grieving families, and, of course pensioners.
It is a safety net and therefore it must be expected that Barbadians will not treat to NIS matters lightly.
All want to feel assured that their social security scheme remains financially sound and does not face any danger, now or in the future.
The revelations from Eckler principal and consulting actuary Lisa Wade pointed to trouble on the horizon – big trouble.
She told an Investment Policy Review Conference yesterday that Government’s ongoing debt restructuring exercise will result in massive losses to the NIS and this will in fact lead to an early depletion of the fund.
Simply put, the pensions that most of us are expecting to be there in our golden years are not likely to there.
Wade explained that while at present the contributions and investment incomes can more than cover the benefits and expenses of the scheme, the 37.5 per cent cut in the face value of debentures and Treasury notes held by the NIS will cause a drop in the reserve fund, essentially leading to reduced investment income.
She explained: “Up to 2012, we had $570 million in contributions, and $515 million in benefits. In 2014, we hit a tipping point with $530 million in contribution and $560 million in benefits. However, there was significant investment income earned every year, which is what the NIS is using now to pay its benefits. Once again, in 2014 in terms of investment income and contributions we had $772 million, and all payments amounted to $584 million, so there was a surplus of $188 million.
“Investigations carried out in 2014 showed that 2034 was a key year in which contributions plus investment would be less than benefits plus expenditure, so there has been some need to examine the system to see what we should do, because by 2034 it was projected this reserve fund would be drawn down on to meet benefit payments, and it was projected it would cover six years of expenditure and would be fully depleted by 2054.”
Sobering revelations indeed. It is a situation that we cannot afford in Barbados given our aging population.
The Government needs to tells us whether it had fully explored the impact the debt restructuring exercise would have had on the NIS, given that 70 per cent of the scheme’s investment portfolio is in government paper.
It must enlighten us of what plan there is to ensure that social security can withstand this shock and will be able to provide Barbadians with their expected benefits well beyond 2054.
Government is already under pressure from citizens who invested in Treasury bills, treasury notes, debentures and bonds, who now stand to receive a haircut on interest payments and a longer repayment period.
Pensioners have publicly complained that they will now be forced to live on reduced income through no fault on their own.
The Prime Minister cannot afford to leave either issue to chance.
Barbadians deserve answers on the future of social security.
We therefore support Wade’s call for the next actuarial review to be made public and for public consultations to begin immediately on the way forward for this critical national institution.
The Auditor General has repeatedly lamented that timely audits are often not available. But we can only tackle social security’s issues head-on if we have an accurate – and up-to-date picture of state of affairs at NIS.