ESTWICK OFFERS RECOMMENDATIONS TO SAVE NIS FROM COLLAPSE
By Emmanuel Joseph
A former Minister of Economic Affairs is recommending the elimination of double
taxation on pensions and the scrapping of any direct tax on people who take up jobs post-retirement as strategies to help save the National Insurance Scheme (NIS) from potential collapse.
Addressing the Democratic Labour Party’s St Peter branch meeting at Mile-And-A-Quarter on Sunday, on the topic, A Crisis Within A Crisis – The Risk of Pensions in Barbados, Dr David Estwick further suggested that Barbados introduce a tax write-off of 150 per cent of business investment for people over the age of 60.
He stressed that he was not setting policy for his party but using his experience in economics, finance and investment to define “the appropriate fiscal and social policies, given the present demographic reality of Barbados and the future impact on the pension system…and economic development”.
Describing the solvency of the NIS as a national emergency, the former Minister of Economic Affairs during the DLP Government referenced World Bank data showing that the productive age group, between 16 and 60 years, is declining moderately while the dependent age group is increasing.
“This strongly suggests that Barbados is heading to a retirement crisis as the dependency ratio worsens year after year. The Government of Barbados is unprepared for these future pension liabilities and the over-65 age group in Barbados is woefully unprepared for retirement,” cautioned former head of the Infrastructure Committee of Cabinet under Prime Minister Freundel Stuart.
“It is now an emergency because there was significant damage done to the NIS balance sheet because of the domestic debt restructuring exercise of 2018 that resulted in the NIS losing over $1.6 billion in debt-based assets, in addition to the negative impact the COVID-19 pandemic had on contributions and benefit payout. In fact, the operating balance at the NIS becomes negative by 2028, six years from now…and the NIS funds would be depleted in 12 years. Compounding the problem is a matter of poor compliance. In fact, about 1 in every 8 self-employed persons pay NIS,” he pointed out.
In outlining the other fiscal measures he believes Barbados needs to implement to help rescue the NIS and “unleash” the consumption and spending power of the older population, Dr Estwick also recommended the promotion of private retirement savings plans via tax incentives.
The former chairman of the Council of Economic Advisors to the government of late Prime Minister David Thompson also suggested that the country scrap land tax for those over 60 with an income threshold under $75 000, and reintroduce the income tax deduction on each child in a household.
Dr Estwick is also calling for the land tax rebate provision to be applied exclusively to income derived from real estate investments as an incentive to drive economic activity in the real estate sector.
Citing what he said were recommendations from the International Monetary Fund (IMF) and the 2020 Actuarial Report on pension reform, he predicted that Barbadians’ incomes would be further slashed.
“It is my contention that Barbadians should brace themselves for increases to the
present NIS contribution rates that apply to employees and employers of 11.1 per cent and 12.75 per cent, respectively; working for longer periods (70-75); and a reduced pension benefit,” he said.
Dr Estwick contended that Barbados’ aging population poses a serious risk to future economic growth, savings, consumption, taxation, and pensions.