Endangered pension plans bad news for middle-class

Barbadians in their 50s and older now represent the biggest age grouping in our estimated population of 281 000, and therefore, social planning around this demographic cannot be avoided.

Evidence so far suggests that many Barbadians in this age group have made efforts to secure their financial future through personal savings, business investments, and private pension plans.

This is not to argue that a majority of them have been so attuned to this area of financial planning that they do not or will not have to rely on the state for some form of support when they retire.

In fact, the latest Financial Stability Report produced by the Financial Services Commission and the Central Bank of Barbados painted a grim picture of the state of occupational pension funds in the island.

It was revealed that since 2019, some 39 pension plans were wound-up, and the action has affected mainly workers in the financial services, tourism, and sales/distribution sectors.

It was pointed out that almost 10 of the pension plans were shut down in the last year.

During a discussion mounted by the Central Bank to highlight some of the outcomes from the Financial Stability Report which reviewed the performance of commercial banks, credit unions, other deposit-taking financial institutions, insurance companies, mutual funds, pension funds and securities, it was revealed that most of the plans were closed because they were too onerous to maintain.

While average citizens may not have made the connection, this state of affairs has serious implications for the quality of life many people will have in their senior years.

Why are private pension plans important? They are a valuable source of financial support for seniors, they are a source of capital for investment by insurance companies, and they shift a lot of the reliance from the National Insurance and Social Security Service (NISSS) to the individual.

Unfortunately, many middle-class Barbadians are feeling the pinch of a high cost of living environment. This island’s middle-class are not wealthy people; they are our teachers, police officers, clerks in government, supervisors in the private sector and others who, by dint of hard work, have sacrificed short-term discomforts for long-term gains.

It is therefore unsettling that in an environment where secure, reasonably earning forms of investments are limited, private pension plans have become an endangered species.

Relying only on savings in the bank or credit union to support a post-retirement lifestyle for the average middle or low-income earner is a non-starter.

It is disappointing that the government, which is well aware of the constraints facing the NISSS, has still not made the necessary policy and legal changes that would encourage a greater level of participation in private pension funds.

One of the biggest headaches for those considering a private pension fund is the double taxation that is imposed on participants.

Government should have no right to impose on pension fund participants what they should do with their own savings.

Since eliminating the ability of Barbadians to claim contributions to pension plans in their annual tax filings since 2015, why is the government still imposing a 25 per cent tax when a person liquidates their fund or withdraws money from a registered retirement fund before age 65?

Much to the chagrin of retirees whose pensions exceed $24 000 annually, they must pay taxes on money they likely paid income taxes on when they were working.

If there is a recognition that Barbados’ population is growing too old too quickly for there to be sustained and long-term economic growth, then policy changes that encourage early retirement planning and create a space for those offering such financial services to thrive, ought to be pursued.

To quote Principal and Consulting Actuary with Eckler, Lisa Wade at an Institute of Chartered Accountants (ICAB) forum in 2022: “When the tax incentives were there, most people topped up those even more with voluntary contributions. That helped to ensure that when persons reached retirement, they would have a higher pension . . . to ride out any storm that would take place such as inflation.

“We have been lobbying the government on this for a number of years within the pensions industry because we do believe that it is extremely important that people now try to save, and one great incentive for saving is that tax incentive.”