Off balance

Barbados’ National Insurance Scheme (NIS) is under severe stress and there are limited options to fix it.

Ways must be found to increase the amount of contributions paid by workers and employers or there must be a slash in the amount of money the social security scheme pays out.

That was the blunt assessment of NIS consultant actuary Derek Osborne, as he joined Prime Minister Mia Mottley and other top government and private sector officials, as well as non-governmental organisation (NGO) leaders, in a national broadcast this evening which focused on the grim state of the NIS.

Osborne, who completed the 17th Actuarial Review of the NIS, which was tabled in Parliament on Tuesday night, said an intense assessment was done of the NIS including the Severance Fund and the Unemployment Fund.

Warning that Government could not afford to kick the can down the road and hope for a better outcome, Osborne described a worrisome situation in which the NIS was collecting 18.25 per cent in contributions and paying out 24 per cent in benefits and pensions.

Offering possible solutions that would impact many retirees, Osborne floated the idea of smaller cost of living adjustments on NIS pensions. These are adjustments to help pensioners maintain their standard of living by taking into consideration increases in inflation.

He said government could also consider eliminating the option for workers to choose early retirement at age 60, moving that first option up to age 65.

“The one where we have the most room is to make the average new pension smaller. If the objective is to reduce costs in the future, the one way is to reduce the average pension that the cohort of people retiring at a certain year receive. It does not mean that every person will get less. There are ways of reducing the overall average by not having everybody getting less,” he stated.

He said pensions and benefits could be made more progressive so that “we have higher replacement rates for lower-income people, but smaller replacement rates for higher-income persons who may not need NIS as much as lower-income people”.

Osborne also suggested more targeted benefits.

On the contributions side, the expert said though the social security scheme could seek to increase its investment income, that option had its limitations.

“The challenge is that most of the funds are invested in Government of Barbados debt that are yielding eight per cent. So, while we have the challenge of [having] all our eggs in one small basket, one country, one currency, and one investment type; it is a good return,” he explained.

With a $700 million gap between contributions coming into the NIS to run its operations and the amount it is paying out, the actuary said Government could make an injection of money to boost the scheme.

However, he cautioned that even this would require funding from the same shrinking base of taxpayers from whom NIS contributions are already coming.