“It’s almost the end of the year and that means you have less than two weeks left to claim up to $10,000 in Registered Retirement Saving Plan (RRSP) savings on your income tax return!
If you have yet to begin your registered retirement planning, come in or speak to one of our helpful agents.”
This was the content of a 2014 Facebook post by the Insurance Corporation of Barbados (ICBL), encouraging Barbadians who were wise enough to begin early planning for their retirement, to also take advantage of tax credits they could claim on their annual personal income tax filing.
It was the kind of incentive of which many people took advantage, and this was long before our minds ever contemplated a global pandemic that would turn our lives and economic well-being into total disruption and chaos.
Faced then with the trauma of a global financial crisis, the administration dismantled this important boost to the total savings of Barbadians who were making the sacrifice now to arrange for financial security after they ended formal work at age 67, 65 or before.
We hold the position that Government’s decision to remove the tax incentive was a big cut to the nose in an attempt to spite one’s face.
Government may have viewed the move as an expenditure reducing tool or a revenue saving action, but it was a short-sighted step that will hurt Barbadians in the long run.
For when there are individuals who cannot support themselves in retirement, the burden often shifts to the state to fill the breach. We have had a long history of taking care of our elderly and we do not expect that will change. The burden, however, has the propensity to become overwhelming.
In his 2016 Budget presentation in Parliament, former Minister of Finance Chris Sinckler stated: “Over the years, a number of approved institutions, namely insurance companies, have been offering such plans and have been encouraging individuals to plan for their future. Persons have deemed such an offer to be a worthwhile investment and have seen it fit to save by way of the Annuity Contract for their retirement.
“Up until last year the Government of Barbados had also endorsed this initiative and sought to encourage this type of investment by permitting an annual tax deduction of a maximum of $10,000.00 to individuals who contribute to a Registered Retirement Plan: Annuity Contract.”
Since the decision by the former administration in 2015, to remove the tax deductible incentive, insurance companies and pension fund operators have disclosed that Barbadians are saving at a much slower rate.
This is a dangerous scenario at the macro level and at the individual level. It is always desirable, and it speaks volumes about the financial state of citizens of a country when there is a high rate of savings.
Life insurers, mutual fund and pension fund operators have been lobbying government for a reinstatement of the provision in relation to RRSPs. To date, there has been no movement on the matter.
The COVID-19 pandemic continues to take a heavy toll on our social security system. Government also turned to the National Insurance Scheme (NIS) to finance some social initiatives, while the NIS paid out more than half-billion dollars in benefits in just a few months.
Despite the assurances that the NIS’ various funds are “safe”, we know there is an urgency to ramp up contributions. This can be achieved by having a greater number of younger people employed and contributing in order to sustain the social security scheme.
At the same time, there is increasing pressure to pare back some of the benefits, often viewed as extremely generous.
Given the critical importance of saving for retirement, the fact that even Government is reforming its pension programmes to reduce the burgeoning pension costs, the fact that most employees in the private sector – particularly in small and medium-sized enterprises do not have employer-funded pensions, Government is obligated to reintroduce tax incentives and other initiatives to encouraging much higher rates of retirement saving.
The fact remains that we cannot put all our eggs in the NIS basket. The social security scheme has been a good backstop, but it cannot be the only anchor for the majority of Barbadians in their post retirement years.
People must be incentivized from young to save towards their golden years, so that those days are indeed golden and not beset with burden and regret.