Pension and retirement planning more critical today given NIS challenges

September 15, 2022

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 changes to the NIS are inevitable in order to maintain the viability of the scheme beyond the next 15 years and that it is important to put plans in place to invest for your retirement.

“According to the 2020 Actuarial Report on the NIS, the NIS’ reserves are projected to be depleted between 2034 and 2041, whereas the 2017 report projected the depletion of reserves between 2041 and 2077”, he said. “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.”

Robinson  stated  that this  significant change is  due  to  lower  projected  cash  inflows  and  higher projected 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”, he said. “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.”

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 to note that NIS benefits are capped at 60% of insured salary, currently Bds$4,880per  month,  which  is payable  from  age  67. For  individuals  earning  within  that  salary  range, receiving 50-60% of this from the NIS during retirement is a decent benefit. Persons earning more than this limit need to supplement their NIS pension to maintain the same standard of living they enjoyed while working. Persons should target to achieve a total pension of between 65and 80% 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 funds. “In 2006,changes were made to the scheme that included changes to the retirement age, level of contributions, and others. It is not unreasonable to assume that over the next two decades, further changes will be required as the NIS seeks to ensure that it will be sustainable in the long term. It is essential that companies and individuals recognise these uncertainties in their financial plans.”