NIS headquarters on Culloden Road. (Internet image)
- ECCB to issue world’s first blockchain-based digital currency Read More
- Amazon pulls the plug on New York headquarters Read More
- Former Jamaican cricketer murdered Read More
- CWI hits back at charges Read More
- Wanted: A more efficient airport Read More
- Low-hanging fruit for all Read More
- New-look Crop Over coming Read More
THE EVENTS of the last two weeks involving the leadership of the Central Bank of Barbados have overshadowed the announcement by the National Insurance Department that the amnesty offered during the last Budget by the Minister of Finance and Economic Affairs would end on March 1.
The amnesty, which ran from last October 1, covered the waiver of interest in respect of National Insurance contribution arrears of employers and self-employed people who were indebted to the National Insurance Fund. The waiver on interest was an option to encourage defaulters to pay outstanding contributions.
In October 2013, the National Insurance Scheme (NIS) published a listing of persons/employers/organisations that were indebted to the National Insurance Fund at that time.
The NIS would have subsequently reported that some of the approximately 900 defaulters had made some attempt to settle their outstanding obligations to the fund. Listing the name of these defaulters is another option that the NIS has in seeking to recover outstanding contributions.
At no time has the level of arrears to NIS been disclosed. Employers with the ability and willingness to pay could have taken advantage of this waiver to make good on their obligations to the NIS.
During the period of the amnesty, the interest accrued on the outstanding contributions would have been waived, provided that the employers and self-employed people who owed the National Insurance Fund paid all the arrears by March 1.
As reported, one such employer apparently paid their outstanding contributions, saving on interest which had accumulated to be approximately 40 per cent of the outstanding amount.
The challenge for the NIS was and is always going to be those who are willing but unable to pay, or even those unwilling to pay, in which case a waiver of interest would make little difference.
With the economic challenges experienced over most of the last decade, businesses have increasingly found themselves being unable to meet their obligations to the National Insurance Fund, either by making their payments late or not making any payments at all. In some cases, the outstanding contributions would also have included amounts deducted from employees’ salaries and wages.
The impact of late or non-payment of contributions could result in employees at retirement receiving a smaller pension than expected or would have been possible. Short-term benefit payments could also be affected by non-receipt of contributions from employers.
Outstanding contributions can also have a consequential impact on the level of funds available for investment and the corresponding level of investment earnings.
The level of long-term benefit payments to be made in the short to medium term can be predicted with a relative degree of certainty. The number of people to reach normal retirement age in the next few years is about known and the expected level of benefits payments can be reasonably determined.
As highlighted in the last few actuarial reports of the NIS, the level of benefit payments is projected to exceed the level of contributions.
Therefore, to meet any gap in benefit payments, the shortfall will have to come from investment income. If, however, the level of actual contribution inflows is less than expected, due, for instance, to non-payments by employers, it would be necessary to use a greater level of investment income than foreseen.
The effect of this is a reduced amount of funds for investment.
We should expect an updated actuarial valuation of the National Insurance Fund shortly.
This is not a problem unique to the National Insurance Fund in Barbados, as reflected in the increasing level of contribution receivables recorded in the financial statements of social security institutions
across the Caribbean.
As a result of the amnesty, the potential loss of income in waiving any outstanding accrued interest would be relatively negligible compared to the broader objective of collecting outstanding contributions.
In the event that the NIS makes any headway in collecting on these amounts owed, it would certainly help to reduce the funding gap that will increase over the coming years between the level of benefit payments and the level
of contribution income.
When the published listing from October 2013 was reviewed, there were a number of statutory corporations and other Government institutions that were among the entities in arrears to the National Insurance Fund.
The economic climate has not improved since 2013 and it is likely that these entities may still have outstanding obligations. Therefore, the recourse of the NIS would ultimately be to Government. This will undoubtedly further
add to the direct and indirect obligation of Government to the National Insurance Fund.
The ability of the fund to remain meaningful to insured persons, yet affordable to future generations is dependent on a number of key factors that include a healthy and growing economy in which employment and wages are increasing, thereby contributing to short-term finances and long-term sustainability.
It would, however, be interesting to ascertain the results of this amnesty.
• Gregory Hinkson is managing director and principal consultant of SAMDOR Services Ltd.