Pension planning more critical today given NIS challenges

Barbadians are being encouraged to take action today to prepare adequately for their retirement years.

This was the advice shared earlier this week, when Sagicor hosted a webinar entitled “Your Pension Plan: Everything you need to know in this new environment”, where local companies who currently have group pension plans managed by the regional financial institution, were given a chance to learn more about the current state of the NIS and the options available to them as plan administrators, and the guardians of their employees’ pensions.

In delivering a presentation on the NIS and how changes to it would affect existing pension plans, Stephen Robinson, Sagicor’s Vice President for Strategic Projects, pointed to the fact that uncertainties surrounding the NIS and its ability to pay benefits in the next two decades, have made adjustments to the scheme a necessity, but more importantly, emphasize the importance of putting one’s own plans in place to save towards retirement.

“According to the 2020 Actuarial Report on the NIS, The NIS’ fund reserves are projected to be depleted between 2034 and 2041, whereas the 2017 report projected the depletion of reserves between 2041 and 2077. In the 2017 report, the fund was projected to remain quite healthy through 2035, whereas the 2020 report projected a steep decline from about 2026,” he said.

Robinson stated that this significant change is due to lower projected cash inflows and higher project cash outflows, caused by a shift in NIS demographics. “If we were to go back to 2006, the number of pensioners per 100 contributors has grown from less than 30 in that year, to about 45 at the end of 2020. This is projected to increase to about 50 by the end of 2030, and to 55 or 56 by the end of 2040,” he stated.

“This continues the trend where the number of employed persons in Barbados peaked in 2011 and has been declining since then, in addition to significant economic contraction. Gross Domestic Product (GDP) has fallen in 9 of the last 13 years, with 2020 marked by the COVID-19 pandemic being particularly severe, with GDP contracting by almost 14 per cent. This led to high job losses and several persons exiting the formal job market and transitioning to the informal sector where they started small businesses. Several individuals also took advantage of the early retirement options offered by the NIS,” he said.

Robinson therefore made the point, that when one looks at the past challenges, and the current and projected state of the NIS, Barbados’ aging demographic profile, the latest statistical data showing that there are more deaths than births, as well as continued outward migration, there can be no denying that action needs to be taken.

“It is important for us to remember that NIS benefits are capped, meaning there is a maximum monthly retirement benefit that can be obtained by any individual. This cap is currently based on a monthly salary of Bds$4,880, with the NIS paying a monthly pension of between 50 – 60 per cent of salaries of this amount or lower. For individuals earning within that salary range, receiving 50-60 per cent of this during retirement is a decent benefit, however, the challenge comes with those individuals earning above that. The higher the salary earned, the higher the amount the individual would need to supplement to maintain the minimum recommended level of income during retirement, which is 65-80 per cent of their pre-retirement income.”

The vice-president argued that companies and individuals should take this opportunity to explore options to help build up their pension fund reserves, particularly as it relates to investments in a range of instruments with varying rates of return. “The fact remains that in recent history, there have been several changes made to the scheme, whether you are speaking of changes in retirement age, level of contributions, among others. It is not unreasonable to assume that over the next two decades there will be more changes, as the NIS seeks to delay the projected timeline for the depletion of reserves. Therefore, with this uncertainty looming, planning is essential.”

(PR)