The Pension Changes
|THE NEED FOR NIS PENSION REFORM
Our National Insurance Pension Fund is secure. But Barbadians are having fewer children and living longer. So in years to come there will be an imbalance between pensioners who draw on the fund and workers who support it.
To provide a reasonable retirement income for future generations we need pension reform
THE PROPOSED CHANGES TO THE NIS PENSION SCHEME
After reviewing the results of the consultative process on NIS Pension Reform, along with the results of the National Consultation held earlier this year, the following solutions have evolved which the Prime Minister, Rt. Hon. Owen Arthur commended to the House to take effect, except where otherwise noted, from 1st January 2003 :
1) Increases in the NIS contribution rates by 1% of insurable earnings each year for four years shared equally by employees and employers
2) Raising the NIS retirement age for un-reduced pension by six months every four years starting in 2006 until age 67 is reached in the year 2018
3) The introduction of flexible NIS retirement ages so that in due course persons may retire on an NIS pension at any age from 60 to 70.
To ensure that that there is no financial advantage as a result of choice of retirement age, persons opting for early retirement will receive a reduced pension, and conversely increases will apply to the pensions of those retiring later than the new standard NIS retirement age of 67.
The person requesting early retirement must have actually retired from regular employment to qualify. From this year, early retirement will only be allowed from age 64, with the intention of gradually reducing that age until we reach a lower limit of 60. This phased introduction will allow monitoring of the early retirement experience and appropriate management to protect the Fund’s finances.
Late retirement up to the limit of age 70 will be allowed immediately.
4) The introduction of annual increases, known as ‘indexing’, to the NIS insurable earnings’ limit (currently at $3100 per month) as well as pension and Maternity and Funeral benefits.
The insurable earnings limit, which is presently at $3100 per month, will be increased in line with National Average wage increases. Pensions and Maternity and Funeral benefits will be increased by a formula which may be summarized as follows: the lesser of the 3-year average of wage or price increases subject to actuarial advice on the maximum which may be granted to maintain the target Reserve Ratio of 5 times through to the year 2030. The latter increases will commence with effect from January 1, 2004.
Following are two other more technical changes:
5) The rate of accrual of pension entitlement will be 2% per year of “final insurable earnings” for the first 20 years, thus 40% of “final insurable earnings” will be earned for the first 20 years of contributions. Thereafter the rate of accrual will be 1.25% per year of “ final insurable earnings” with the maximum remaining at 60%. This new basis will be phased in very gradually. Thus insured persons within 10 years of the then NIS standard retirement age will see no change. For those who are between 10 and 20 years to retirement age, 50% of pension benefit will be based on the new basis and 50% on the old. Only those with more than 20 years to go to the new NIS retirement age will now earn pension on the new basis entirely.
6) The definition of final insurable earnings will be amended to the average of the best 5 years’ insurable earnings instead of the best three as at present.
2001 - 2002 Copyright National Insurance Scheme, Barbados, West Indies