ON THE RIGHT: New social security thinking needed
In Barbados we have probably about 90 000 contributors to National Insurance. Roughly a third of them, or 30 000, are public sector workers, about 30 000 are private sector workers who are covered under private sector pension plans and 30 000 are people who fell through the cracks.
For the public sector workers, the National Insurance benefit is no better than what they were getting before. So they have gotten no more pension and no more security in retirement than they were already provided under the public sector scheme.
The people in the private sector who are already on pension plans, these people also had benefits that were larger than National Insurance so National Insurance didn’t give them anything.
These people already had pensions, they were already provided for. The private sector couldn’t afford to give two benefits and the immediate effect that it had for this group is a huge tranche of money that the private sector would have saved under their own control in private sector pension plans.
We have a National Insurance Fund that is close to $5 billion, we have private sector funds that are probably worth $1.5 billion. So are we growing our economy because of National Insurance? No. So then there is the third group [women] – National Insurance has done a fine job.
In Barbados what have we done with our money? What we have done is lent it back to the Government. So we think of Government contributing for public sector employees, but really they take out more than they put in so sure they put in but then they take it back out.
Has this done infrastructural jobs?
National Insurance has gone out there and built buildings, but these are not part of the National Insurance debt, this is part of the 20 per cent that they hold as assets. In fact a large part of that money has created an appetite of our Governments for easy borrowing.
The number of people contributing to the number of people drawing is going to fall steadily in the future. Really what we need in life is a new paradigm. People are not retiring at 60 and going home and going nothing, people are not any longer reaching the peak of their career and suddenly stopping.
What we need to do is to encourage a society which keeps working for longer but realise that they reached their peak before they reached their retirement; people like me.
So how do you keep people in the workforce at a lower salary when you give them a final salary scheme? What happens is if I actually stick around and don’t draw my National Insurance pension, but work three days a week on a lower wage I stand the risk of having my National Insurance pension based on a lower earning.
So we need to change our benefits, we need to understand that the paradigm must change, we need more equitable ways, we need to get people to stay in the workforce longer and keep our dependency ratios at a higher level and keep our cost of National Insurance down.
Are we doing that? I don’t know, I don’t see that vision.
Charles Herbert is the principal at Eckler Partners Limited Barbados. He was speaking at the Caribbean Acturarial Association’s 24th annual conference at Hilton Barbados.