#BTColumn – Securing the future

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

by Dennis DePeiza

The term pensioner applies to persons who on retirement from the workforce receive a pension. A pension is known as set monthly payment payable to a retiree for life and, in some cases, for the life of a surviving spouse.

On reaching the age of retirement, the individual has the expectation of maintaining the standard of living which has been experienced.

It is for this reason that pensions are paid. The payment of contributions into the National Insurance Scheme, is one secure way of ensuring that there is a monthly payment that provides for a source of income. This is intended to supplement any savings the individual has in a financial or banking institution.

It has been customary for employees within the private sector to be engaged in registered group pension schemes. The involvement in this contributory plan, where the employer and the employee contribute an agreed percentage payment, is a means of providing some financial security after retirement from work.

It is for active employees to recognise the importance of being registered in a group pension plan. There ought to be the understanding that a pension plan is an employee benefit that commits the employer to making monthly contributions to the pool of funds to be set aside in order to fund the payments to be made.

It is highly recommended that employees ensure that such a benefit scheme forms part of the collective agreement made by their trade union representative body and the employer.

On retirement, every employee looks forward to receiving a pension. As it applies to the payment of a State Pension, this is usually paid to all citizens on reaching 65 years of age.

In some countries, the age could be as low as 60. The understanding is that in order to receive a basic state pension, individuals are required to have paid enough National Insurance contributions.

Persons who receive the payment of a pension, will find that they are subject to pay taxes on the pension paid. This occurs because the monies received from pensions are classified as income and therefore are subject to be taxed.

The charge may be made that this application is unreasonable, inasmuch that during the working life of the individual, wages and salaries earned, are subject to tax.

It is understandable that a layman would tend to share the view that taxes are being imposed twice. The fact however remains that state pensions are taxable.

However, whether one has to pay or not pay taxes, is dependent on the total annual income of the individual. It is for this reason that some employees who fall below an annual income range are excluded from the payment of income taxes.

What applies to all employees, including those who are below the taxation threshold and not required to pay income tax, is the payment of the National Insurance contributions. Those employees who fall outside of the net of paying income taxes, are nonetheless beneficiaries of a state or old age pension which is paid from the National Insurance Department.

It is therefore not a handout or a gift from the Government, but instead, an entitlement which has
been earned.

With the shift to the development of the third sector which features persons in the categories of self-employed, contract workers and entrepreneurs, these workers need to be educated and become conscious of the importance behind paying their National Insurance contributions.

It makes sense for workers to be wise when it comes to securing their future, rather than to live in ignorance and wait to complain after the fact.

Employees within the third sector should be aware that while the payment of National Insurance contributions are voluntary, the benefits of the payment of these contributions are to be found in the eligibility for benefits which include a state pension, maternity leave benefits, unemployment and sick benefits.

Generally, employees must understand that the payment of voluntary National Insurance contributions can help
make sure employees have enough qualifying years to get the full state pension.

As it applies in the jurisdiction of Barbados, the payment of National Insurance as provided for under the National Insurance Act, there is some financial protection to employees and their family against loss of income arising from injury on the job, sickness, retirement and/or death of the bread winner.

Dennis DePeiza is a labour & employee relations consultant, Regional Management Services Inc. www.regionalmanagementservices.com