#BTEditorial – Avoiding retirement poverty

Seldom do people in their 20s or 30s consider anything related to retirement, and certainly their savings plans trend towards the purchase of a house or car and not how they live in their retirement years.

It is a totally different state of affairs for people in their 50s and 60s who are being confronted with the possibility that they may not have enough pension income to support themselves in retirement.

The outlook is worrying for those who have never enjoyed steady employment for most of their lives or who carelessly spend or are forced to spend most of their income and have nothing left on which they can survive in their old age.

It is a real and daunting prospect for many Barbadians. The 17th Actuarial Review of the National Insurance Scheme (NIS), which is now the source of deep anxiety and dismay, point to a bankrupt social security scheme in 12 years unless urgent steps are taken to reverse the situation.

As it stands, the NIS has a $700 million hole that needs to be plugged and given the uncertainties that the global economy has been confronted with including a pandemic, a war in Europe, and climate change, there is no guarantee that even if that $700 million deficit was met, that the NIS could fully meet its current and future obligations to contributors.

As a result, there are strong suggestions that more emphasis be placed on personal pension planning, moving away from a national collective arrangement as currently exists.

One of the problems with such an approach is that those with money and means will be further consolidated and insulated, while those who are struggling are likely to be doomed to a lifetime of economic and financial displacement.

The way most existing pension plans are set up locally, members anticipate and plan around the belief that the bulk of their pension income will come from the NIS, simply because the bulk of their contributions are made to the NIS.

This is especially so for people in the middle-income group.

If Barbadians are going to be required to finance most of their retirement income themselves, as is the case in many developed countries, then Government must provide a similar investment climate to facilitate such arrangements.

These include the return of more generous tax incentives on registered retirement savings plans and annuities and reduced taxes on retirement income.

Barbadians are living longer, and they do not want to be plunged into poverty at the end of their working lives or to live at the mercy of relatives.

Most seniors will tell of their desire to enjoy life, travel the world, and spend time in activities that bring them pleasure. The majority will certainly not advance the notion of working well into their late 60s or 70s because they have no choice.

Given the relatively low level of salaries in Barbados but the high cost of living, it will be a hard task to ask workers to put more money aside in private pension funds, while at the same time paying increasing rates of NIS contributions.

Out of the most recent discussion on the NIS Actuarial Review has been the undesirable fate of self-employed Barbadians, who are not adequately preparing for their retirement years.

NIS consultant actuary Derek Osborne put it this way: “We have a challenge with a lot of self-employed people and informal sector workers who are a growing group in society who are not contributing and will not qualify for pension when they get older. [They] will become a burden for neighbours, the community and government.”

After working so hard and spending so much of what we earn paying bills and meeting the expenses of life, it will be important to do some self-sacrificing and some delayed gratification.

It is advice that all of us should follow, whether we have large or small incomes. Managing our finances can be simple, commonsense actions. It is about how to make do with and maximize what we already have.

The key is to start preparing as early as possible and this can be achieved by parents reinforcing to children the value of money and the importance of saving. That a car, while useful, is a depreciating asset; that they should shift their focus to assets that appreciate in value, such as real estate, bonds, or possibly securities.