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GUEST COLUMN – Column misleading

Derek Lowe

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THE NATIONAL Insurance Office is concerned with some misleading and inaccurate comments published in the Nation newspaper column Notes From A Native Son by Hal Austin, entitled A Hard Look At NIS on July 7.Mr Austin started by saying that “the nation is running the risk of paying a heavy price as the post-war baby boomers come up to retirement”.It should be noted that countries all over the world are faced with ageing populations and whether the price is “heavy” or “light”, depends on the particular route those nations take to solve their problems. In Barbados’ case, actuarial reviews over time have indicated that the problem was not only due to post-war baby boomers but was a combination of fertility, migration and mortality changes.Mr Austin was quoted as saying that “ours is a pay-as-you-go pension scheme” and “with historic global demographic changes, with older people increasingly outnumbering younger ones in many jurisdictions, the system is not sustainable”. In response to the foregoing comment, we wish to clarify that ours in not a pay-as-you-go pension scheme as indicated but is rather a partially funded scheme. This means that in addition to financing current expenditures from current revenues, the scheme has been generating surpluses continuously, which have resulted in the building of significant reserves. This was a deliberate strategy to avoid total reliance on current workers to bear the cost of supporting our pensioners on the roll. In a pay-as-you-go scenario, you merely carry a contingency reserve.   While there are challenges with the general ageing of populations, Barbados has been forward thinking and has tackled the problem through pension reform. The National Insurance Board conducted a comprehensive reform exercise which saw the implementation of measures since 2002 that included increasing the pension age, increasing the contribution rate and indexing the NIS pensions. Most countries, including the developed ones, are approaching the problem in a piecemeal fashion and still have a long way to go. Barbados was fortunate to undertake such reform with the assistance of the unions, private sector and the public at large.Mr Austin referred to two broad elements of the National Insurance strategic investment principles: “On the upside, the assets and returns on investments; and on the downside, the liabilities – the greatest of which is longevity risks”. He further added that “on neither of these broad macro issues is the National Insurance Board showing that it has a handle on what is going on”.  The National Insurance Board is of the view that risks can arise in many different ways. In essence the primary risk is not preparing for the future financially. He further stated that “on the liability side, there is very little evidence that the National Insurance Scheme has undertaken appropriate longevity assumptions; that is, a serious actuarial study of risks associated with living longer”. He went on to state that “the other key risk on the liability side of course is inflation, both wage and general, which is the dark cloud behind every long-term pension fund, especially those who increase benefits in line with inflation”.  It should be pointed out that the National Insurance and Social Security legislation requires that an actuarial review be conducted every three years and successive boards have ensured that this was done. It was therefore inaccurate for him to state that there was very little evidence that the National Insurance Scheme had undertaken appropriate longevity research, especially since the actuarial reports are laid in Parliament. The actuarial assumptions underlying actuarial reviews involve the assessment of all conceivable risks, including mortality improvements and general, as well as, wage inflation.Despite Mr Austin’s views, the National Insurance Board takes the investment of surplus funds seriously. Investments within the National Insurance Office are managed by a cadre of well-qualified and trained investment analysts/managers in collaboration with a standing investment committee of the board. Investments are managed in accordance with the approved investment policy and guidelines which are aimed at achieving real returns in excess of the actuarial required rate of return.  Mr Austin in his final paragraph alluded to his preference for “a state-organised defined contribution fund”. The matter of defined benefit plans versus defined contribution plans was long settled in the pension reform exercise conducted in Barbados some years ago. There is therefore no reason at this time to create alarm by introducing the topic to the public of Barbados having settled on certain parametric changes over the long term. term.
Derek Lowe is marketing/research officer of the National Insurance Office