One economist is blaming the former Freundel Stuart and current Mia Mottley administrations for the crisis facing the island’s pension scheme, chiding them for not carrying out needed reforms and hence contributing to the impairment of the fund.
Barbados-born economist Carlos Forte, who is based in Canada, said the NIS board did not set social security policy and therefore any attempt by anyone to blame the former or current NIS boards for the “pending pension crisis” was nothing but “a smoke screen and a diversion”.
“The Stuart administration and the Mottley administration are responsible for the pending NIS crisis. Of course, the economic stagnation over the past 13 years, the population and age-demographic issues are also major contributing factors,” said Forte.
The economist, who also offered suggestions for better management of the scheme, argued that there was a need since 2016, to undertake some reforms of the NIS, an issue which was previously pointed out in actuarial reviews.
“Regrettably, apart from the government of the day opting not to tweak the fund at that time to extend its projected sustainability, it impaired the fund by deliberately accumulating arrears of employer contributions that it was legally obligated to pay,” he said.
According to actuaries, the National Insurance Scheme (NIS) is facing the possibility of being depleted over the next five decades if urgent reforms are not undertaken.
Forte said the social security funds should be undergoing periodic actuarial review and reforms in order to ensure they remain viable and continuously fulfil their mandate as demographic and economic conditions change.
“Those reviews and reforms should be undertaken in a timely manner at predetermined intervals as a matter of course and law,” he recommended.
“The decision by the current government to write-off about 20 per cent of the monetary value of the fund, further impaired the NIS’ sustainability, and undermined its ability to generate investment income.
“The notion that the $1.3 billion write-off of money government owed to the NIS is of little consequence because the people that pay NIS contributions are the same people that pay taxes to service government’s debt, is political poppycock,” said Forte.
Noting that the tax base is far broader than the NIS contributors’ base since a number of segments of society did not pay NIS but would still be required to pay some taxes, Forte explained that it was easier for taxpayers to repay the NIS, than for NIS contributors to bear the burden of replenishing the $1.3 billion lost in the 2018 debt restructuring.
Agreeing that the island had a demographic challenge, Forte said any proposed reforms to the NIS cannot just be a numbers game. He said reforms must not lose sight of the human touch.
“A line should be drawn in the sand. Barbados should not increase the pensionable retirement age beyond 67. The upper limit of mandatory pensionable retirement age should be fixed at 67. Any increase to an older retirement age should be optional. In essence, people should be allowed to work beyond 67 if they wish to do so, but there should be no reduction in benefits for those that retire at 67,” he recommended.
The economist put forward several recommendations including increasing the maximum insurable earnings and the employee and employer contribution rates “in accordance with actuarial recommendations, and index them to inflation every year or every five years”.
“Mandate by statute, that the board and management of the NIS vigorously pursue those that fail to pay NIS contributions that they are legally obligated to pay. Amend the legislation governing the NIS to include significant fines and custodial sentences for those employers that deduct national insurance contributions from employees’ income and fail to pay those contributions to the NIS,” he added.
In his recommendations, Forte further suggested that authorities broaden the base of NIS contributors to include more self-employed individuals, while giving NIS the legal flexibility to tailor contribution schedules and benefits “such as unemployment or disability benefits to the vagaries of the occupations and needs of self-employed contributors”.
“Make the NIS and its operations as insulated from political interference as the Central Bank. Allow the NIS to diversify its investment portfolio according to the highest standards of portfolio management, while permitting up to 40 per cent of the investment portfolio to be invested regionally and internationally,” said Forte.
“Make the NIS as sacrosanct as a sovereign wealth fund, that is mandated to maximise returns on investment. Require the NIS to hire a fulltime fund manager and a fulltime risk manager that are experienced and have a track record of success in the private sector.
“Commit the state to injecting up to $1.3 billion into the NIS over the next 30 years; and of course, implement a credible growth strategy to sustainably grow and diversify the economy, and increase employment opportunities,” he offered.
