Actuarial report calls for urgent reforms to keep scheme going

Urgent reforms are needed to ensure the sustainability of Barbados’ pension scheme, according to the latest actuarial review which has made several recommendations, including paying pensions at a later age and increasing the number of contributions required to qualify for pension.

The 16th Actuarial Review, which was laid in Parliament last year, stated that while no contribution rate increase was recommended at this time, a comprehensive review of all benefits provisions, especially for old age contributory pension, should be done.

“Barbados already has the highest social security contribution rates in the Caribbean; Guyana is next at 14 per cent. Determining how much more workers and employers are willing to contribute will be critical to the reform of NIS benefits,” stated the report.

The document, which examines the period from January 1, 2015 to December 31, 2017, also includes recommendations and analysis based on “experiences” in 2018.

It noted that the National Insurance Scheme (NIS) was not financially sustainable over the long-term at the current contribution rates and pension provisions, as future generations will be required to contribute substantially more than previous and current generations.

It added that policymakers should be “outcome focused” in their decision making.

“An outcome-focused approach implies that the NIS is designed and managed around objectives, preferences and ‘what ifs’. Leaders should not depend on ‘hoped-for’ results but instead prepare for rational responses to specific potential,” it said.

“Pension reform aimed at enhancing long-term sustainability while maintaining benefit adequacy should occur immediately. Specific reforms should be driven by the Funding and Benefits policies that would be created as part of pension reform discussions with all stakeholders.

“Given the significant socio-economic and labour market changes since 1967, along with the expansion of private sector pensions and advanced technology, pension reform should focus on what NIS would look like if it was being created for the first time in 2019,” it added.

The document put forward several recommendations for reducing long-term pension costs, including awarding pensions at a later age, moving it from the current 67 years for unreduced pension and 60 for reduced pension to 70 years and 62 years, respectively.

Another suggestion was changing the current provision of age 67 to age 70 or 72 to award pension only if retired. Currently, pensions payable at normal pension age are not dependent on retirement from the workforce.

Additionally, the report recommended that the number of contributions required to qualify for pension be increased from 500 contribution weeks (about 10 years) to 750 weeks. Those who failed to meet this requirement “could get a minimum benefit if poor”.

It also called for the revision of the calculation to reduce the average new pension amount.

“Other reform options that may have a smaller impact on future costs should also be considered,” it added.

“Recommendations made above call for individual Benefits and Funding Policies. However, these two policies are interconnected as conflicts will arise when a desired level of benefits results in required contributions that exceed those permitted or desirable by the Funding policy. Two ways of dealing with such conflicting objectives are contingent benefits and automatic adjustment stabilizers.”

In relation to contingent benefits, the report said pension increases would be deferred for several years if certain conditions/targets are not met and while 90 per cent of the regular new pension amount would be guaranteed, the remaining 10 per cent would be paid only if projections meet certain targets.

Meanwhile, it explained that an automatic stabilizer could be that if projections fall short of minimum funding levels or if required contribution rates exceed set rates, benefits have to be reduced so that objectives are met.

This reduction in benefit could be an increase in the pensionable age or negative adjustment for pension amounts for new awards, it said.

“While these examples may seem extreme as they hurt existing pensioners, they provide protection to current contributors who could be forced to pay much higher contribution rates or receive substantially lower benefits,” it said.

Pointing out that “the future is uncertain” and experiences have shown that changes could be sudden and significant, the report said the NIS Board and all stakeholders should plan for and manage risk proactively.

“Another round of comprehensive pension reform discussions, in which all stakeholders are actively engaged, is an ideal opportunity to begin this process,” it said.

In 2017, the last year in the period that the report covered, just over 40,000 people received pensions.
marlonmadden@barbadostoday.bb