Already heavily in debt, the National Insurance Scheme (NIS) finds itself in a position where contributions alone can no longer cover benefits, with the Government’s debt crisis expected to eat into its investment returns and cash reserves even further, a financial service expert has warned.
Actuarial consultant Lisa Wade has called for the NIS to issue its 2017 official report, suggesting that it would spur discussion on reforming the social security system.
She said that up to 2012, contributions were ahead of benefits. But although this ended in 2014, the scheme was earning enough from its investments to cover the shortfall.
She explained: “Up to 2012, we had $570 million in contributions, and $515 million in benefits. In 2014, we hit a
tipping point with $530 million in contribution and $560 million in benefits. However, there was significant investment income earned every year, which is what NIS is using now to pay its benefits. Once again, in 2014 in terms of investment income and contributions we had $772 million, and all payments amounted to $584 million, so there was a surplus of $188 million.
“Investigations carried out in 2014 showed that 2034 was a key year in which contributions plus investment would be less than benefits plus expenditure, so there has been some need to examine the system to see what we should do, because by 2034 it was projected this reserve fund would be drawn down on to meet benefit payments, and it was projected it would cover six years of expenditure and would be fully depleted by 2054.
“But what has happened then is that prior to debt restructuring, it looked like we would have eight-and-a-half years of expenditure in the fund, but post restructuring it’s looking more like six years.”
The consultant said Barbados’ ageing population held serious implications for the future of the 51-year-old scheme, now mired in $430 million in debt.
“A significant number of Barbadians are now over 55 years old, so the proportion of the population not working and contributing to the NIS is growing. So, you have a situation where more people are drawing benefits, but fewer people are keeping it going with their contributions. Now what does this mean for society in terms of resource allocation? Do we focus on the younger people or the retirees?” she queried.
The actuary, from the Canadian actuarial consulting firm of Eckler, was addressing participants at the firm’s investment policy review at the Lloyd Erskine Sandiford Centre. She spoke on the subject of the debt restructuring plans’ impact on pension funds.
Wade called on the NIS to complete its report for the period ending last December 31 as quickly as possible to give a better picture of its present state.
“Given the multidimensional nature of pension schemes, we must have consultations on its future with all parties involved and reach a broad-based consensus on any proposed pension reform.”
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