Understanding the NIS of Barbados (1) – Social Characteristics and Basic Structure
Modern Barbados is a society which has evolved from a foundation of slavery. Since 1834, up to the present day, the institution of slavery on the island has been replaced by an overt but complex system of prejudice and discrimination based on colour and perceived class.
Putting the “red legs” aside, the perceived lowest class of citizen in Barbados is black in colour. This black colour-lowest class combination is viewed as the sociological pool from which our nation has historically produced its labourers, murderers, thieves, rogues, vagabonds, local prostitutes, and petty criminals, to mention a few categories. With the passage of time, this group has produced almost every type of citizen except the owners of large successful businesses or corporations with the capacity to survive through the ages.
At this end of our social continuum, there are some people who have worked hard to help raise their children and maintain their households and who have assisted significantly in the development of Barbados (e.g. housewives, small vendors, handymen) without ever being officially employed. We can therefore understand and appreciate the need for government to offer this group a helping hand whenever the need arises.
However, there are other persons in this perceived group of the lowest class who believe that all of their needs must be satisfied by government. This group welcomes the intrusion of government and politicians in their lives with open arms, and they rejoice whenever welfare benefits and handouts are increased, or whenever new avenues of receiving “free” taxpayers’ money are opened up. Most sickeningly, they become willing ecstatic pawns in a pervasive illegal game of vote-buying orchestrated, encouraged, and practiced by every politician in Barbados every five years.
At the opposite end of the social continuum, the perceived highest class of citizen in Barbados is someone white in colour, or anyone with wealth, whether hard-earned or ill-begotten. Given the damaging evidence of financial impropriety persistently highlighted by years of unheeded Auditor-General’s reports, we are forced to include some civil servants and politicians in this group. Apparently, our prisons were never designed nor constructed to house members of this group.
The upper class group in Barbados is viewed as the sociological pool from which our successful businessmen have sprung. Our traditional business owners, investors, big land owners, and rich professionals are all portrayed as the “captains of industry”, and the “movers and shakers” in our society who control the “commanding heights” of our economy.
Some members of the upper class group believe that every individual should be left to their own devices to tackle their problems as they see fit. To their minds, those persons who fail to develop marketable skills, or those who make stupid decisions in life, deserve whatever misery befalls them and others should not be called upon to assist them in any way. Not surprisingly, they are strongly opposed to the idea of any governmental intrusion which forces them to pay taxes to provide benefits for those persons in the lower classes who refuse to manage their lives and reproductive ability in a sensible manner.
By the way, these upper class members, similar to some members of the lowest class, welcome a special type of “intrusion” of government and politicians in their lives. The accepted form of intrusion in their case, however, comes in the form of lucrative multi-million dollar government contracts, bribes, and kickbacks. All at the expense of Barbadian taxpayers.
Every working Barbadian is exposed to the risks associated with premature death, inadequate retirement income, birth, sickness, retrenchment, job-related injury, and disability. The specific risks associated with pregnancy and birth naturally take a higher physical and economic toll on our women who are forced to temporarily leave the workforce to deliver and nurse their children.
Given that these social risks are always confronting the workers of our nation, the question then becomes: What is the best mechanism that should be used, when operating in an environment riddled with parasitism, selfishness, greed, and polarized social attitudes, to manage these national risks?
This question was answered in 1966 when the NIS of Barbados was established by law and in 1967 when the Scheme became operative. The NIS protects Barbadian workers against these risks by operating three funds: The National Insurance Fund (handles old age, invalidity, survivors’ benefits; sickness & maternity benefits; employment injury and disability benefits; medical expenses and funeral grants), The Unemployment Fund (handles unemployment benefits), and the Severance Payment Fund (handles Severance payments).
The philosophy underpinning our NIS embraces the view that, because of different individual levels of economic security, our social risks cannot be effectively tackled by allowing each worker to confront these problems on his or her own. If we did, “the rich would live, and the poor would die”.
In essence, the message that the NIS sends to the wealthy upper class is that despite their riches, they must always see themselves as part of a scheme which views every worker as their brother’s keeper.
The message it sends to the poor and parasitic is that no free benefits are available. To receive a particular type of benefit under the Scheme, every worker must be covered for a minimum amount of time and must pay the minimum number of contributions related to that benefit. For example, in order to receive an old-age pension under the NIS, a worker must be covered for at least 500 weeks, and must have paid contributions for at least 150 weeks.
In order to provide “some level” of protection for all workers against these social risks, policymakers had to make coverage under the NIS mandatory. This means that all workers in Barbados must be registered with the NIS. Some people (most notably, the wealthy) object to the compulsory nature of the NIS program, but if some workers were allowed to opt out, only the poor, unhealthy and high-risk lives would remain in the scheme. That would make a voluntary NIS extremely difficult to implement and costly to maintain.
Additionally, universal coverage of workers under the NIS allows actuaries to use the Law of Large Numbers to predict the frequency and duration of benefit claims with some degree of certainty and to plan accordingly. Given the desire of the NIS to provide “some level” of protection for all workers, what should that level be?
The NIS of Barbados seeks to provide only a minimum floor of protection against the social risks outlined above. The scheme recognizes that each worker is ultimately responsible for his economic security and in cases where governmental intervention is needed, only a minimum benefit should be paid. Barbadians, theoretically, are expected to supplement any benefits they receive from the NIS with their own savings, investments, private insurance, and private pensions. In practice, though, most Barbadian workers have to battle against little or no wage increases, continuously rising consumer prices, burdensome taxation bordering on extortion, and the ever-present threat and incidence of layoffs. Consequently, few of them are able to save adequately to cope with current or future financial emergencies.
In the area of private life insurance, all policyholders are treated fairly. The cash values of their policies are determined mathematically by an actuary who understands the relationship between premiums paid and benefits accrued by policyholders at every age. The NIS, in contrast to private insurance, utilizes principles of social insurance. So instead of focusing on individual fairness, the scheme stresses social adequacy.
The social adequacy principle, as practiced by the NIS, results in a minimum level of benefit that favours certain groups such as lower-income workers, participants with large families, and those workers who were near retirement when the system started in 1967. The actuarial value of the NIS benefits received by these groups, and their dependents, surpasses the actuarial value of their contributions and this implies that the NIS redistributes income from higher income groups to lower income groups. Rich man Peter contributes to the enhanced social and economic protection of poor man Paul. If we were to rid the NIS of its social adequacy principle, these groups would be forced to receive a benefit based on the actuarial value of their contributions. For low-income workers, the benefit would be so low, that the goal of achieving a minimum level of protection for all participants under the scheme would remain, Bob Marley style, “a fleeting illusion, to be pursued, but never attained”. In 2009, the minimum old age normal retirement pension under the NIS was $148 per week. This amount changes each year based on a 3-year average price or wage increase.
For the most part, benefits under the NIS are loosely related to earnings. In 2009, the insurable earnings under the NIS ranged from a minimum of $91 per month to a maximum of $3,720 per month. Since the maximum NIS pension benefit is 60% of insurable earnings, the theoretical maximum NIS benefit that a worker can receive in Barbados is $2,232 per month.
This situation creates a serious point of contention for the enlightened high-income worker and has led to the emergence of calls worldwide for the privatization of NIS benefits.
To understand the nature of the problem, imagine a worker born in 1948, who worked for $3,720 per month from age 16 to age 66 and retired today. That worker could receive a theoretical maximum NIS pension of only $2,232 per month.
If we had taken 13% of combined employer(6.5%) and employee (6.5%) contributions for that worker and invested those payments at 5% interest for the past 50 years, then that worker would now be able to purchase a private annuity from an insurance company paying a retirement benefit of just under $9,000 per month. In short, using private investment accounts and private annuities, this worker would have earned a benefit four times higher that the NIS provided benefit.