Pension Director at Fortress Fund Managers Ltd. René Delmas is disappointed that the Government has not reinstated income tax allowances for registered retirement savings plans (RRSPs).
And both he and the company’s Chief Executive Officer Peter Arender have warned that regardless of what changes are made to the National Insurance Scheme (NIS) to prevent depletion of the NIS Fund, Barbadians must consider other investments for retirement if they are serious about securing a pension.
Delmas said on Wednesday that there has been a “drying up” of new private pension plan business since 2015 when individuals were no longer able to claim a tax credit of up to $10 000 on their RRSP.
He said while there has been a drop in new pension plans since then, existing plans have continued and there has been a strong increase in investment in mutual funds.
“I am trying to rationalise why then, if you are not going to give the tax allowance on the way in, why maintain the tax on the way out? To double-tax anything is just unfair. I would have hoped for the introduction of that tax allowance,” said Delmas who described the Government’s decision not to restore allowances as unfortunate.
His comments come on the heels of announced proposed changes to the NIS that will see the age at which workers are eligible for a full pension from the state move from 67 years to 67 ½ years in 2028 and then to 68 years in 2034, and an increase in NIS contributions to get that pension from 500 to 750.
Delmas said that the moves should encourage individuals to acquire private plans.
“It should have the effect of forcing people to increase their investment in private savings because if you now have to wait until 68 for your full NIS, you now have to wait until 63 rather than 60 to get it early. All of this points [out] that you should be putting aside more money into your pension plan,” he said.
“The need for retirement regardless of what National Insurance does, is still there. That is why we continue to preach our message of spending less than you earn and invest.”
Predicting that the debate regarding NIS reform and sustainability will continue for some time to come, Delmas pointed out that Barbados continued to face challenges relating to an ageing population, declining birth rate and limited investment options with low investment return prospects.
“I don’t think these changes have fixed the problems in the NIS. It certainly helps from the point of view that it makes it more sustainable because these changes help to reduce long-term liability.
“So there are a lot of segments of the population that are not in agreement with the changes. They think they haven’t gone far enough or are not as effective as they are deemed to be to help solve the NIS problem. So I think NIS will always be there in the public domain for discussion,” he said.
Meanwhile, welcoming the move by the Central Bank to allow the NIS to invest US$40 million (BD$80 million) overseas, Delmas said he wished that decision had been taken 20 years ago and the investment was being done every year since any one-off investment was “not going to change the financial stability of NIS at all”.
Arender, agreeing with Delmas on that point, said the NIS investment move was “a no-brainer”.
However, he said pension funds should generally be able to do more investment in US currency.
“We collectively as a society have decided that the best and highest use of a dollar of foreign exchange has been for consumption, and I think the suggestion that some portion, to be determined, of our collective scarce foreign exchange should be set aside for long-term investment for the benefit of Barbadians in investment abroad,” said Arender, noting that the public pension is one aspect of the “three-legged stool scenario” which comprises a national pension scheme, an employer/employee pension plan, and a private pension plan.
Stating that investment options in Barbados are limited, he added: “Any step that can be taken in this regard, not just for the NIS but for pensions and long-term savings and investments generally, in the context of all the other things that our society has to accomplish, we will be very much in favour of.”
Recently, Minister in the Ministry of Finance Ryan Straughn indicated that given the island’s healthy international reserves, the Government was willing to consider giving pension funds greater leeway to engage in more US currency investments, in light of the Central Bank’s approval for the NIS investment.
Pension funds have been limited to only up to US$250 000 (BDS$500 000) in foreign currency every quarter under a tiered system, but that has been limited in recent years.
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