Understanding the National Insurance Scheme of Barbados (2) – Risks and issues

Denis Kellman M.P., Minister of Housing

Denis Kellman M.P., Minister of Housing

David September 13, 2015 at 5:07 AM #


Do you want to comment on Minister Denis Kellman’s Facebook status?

Where ever you go, in Barbados you will hear the bright classroom students saying “do not mind the MP for St Lucy, he is also talking foolishness.” […]When the BLP decided to increase the pensionable age and the rates i spoke out against them, explaining what would have happened.

I warned them that it would have caused the young people not to receive work at their most productive age and also it would increase the cost to employers decreasing employment. Also what occurred is that while the NIS was building reserves the country and the businesses were recording losses and down grades. it occurred because of bad advice from the actuary, causing the NIS Boards to rape the economy using a policy of their own Government. NIS then turned around and told the Government, we did not beg you to give us the reserves and if you want to borrow you have to pay us higher than what we can receive on open market, depriving Government of its credit rating, and having cash. They had no better opportunity to invest, but they bled the Government without caring that they are all part of the Government.


When it comes to the National Insurance Scheme (NIS) of Barbados, the actuary has to make assumptions about fertility rates, population growth rates, longevity rates, rates of return on investments, rates of inflation, and rates of increase in the NIS insurable earnings ceiling to determine the level of contributions needed to fund the benefits promised by the scheme, and to cover its administrative expenses.

Through the use of actuarial principles, and demographic and economic assumptions, the actuary is able to identify risks and issues emerging within the NIS. He communicates these risks and issues to the NIS Board, along with appropriate advice and recommended solutions.

Mr. Kellman has asserted that Barbadian businesses recorded losses, and the Barbados Government was deprived of its credit rating and cash “because of bad advice from the actuary.” Bluntly put, this assertion is a lie. A casual observer might dismiss the outpourings of Mr. Kellman as a meaningless, rambling political diatribe, but embedded in his tirade is a very poisonous kite-flying pill.

The Minister of Finance has been granted the power to decide how NIS funds are invested. The survival of the NIS therefore requires the presence of a Minister of Finance who is knowledgeable, prudent, and competent, and who appreciates the necessity to safeguard workers’ contributions from political abuse. Our Ministers of Finance have consistently raided, and still continue to raid, our NIS contributions. Right now, Government is feasting financially upon the NIS. Remember the millions of NIS money literally thrown away on restarting the Four Seasons Project? That money is gone. What do we have to show for it? Who do you think will repay it?

In about six years, the contributions to the NIS will not be enough to cover total expenditure, so investments would have to be liquidated. From that point on, the Government would have to start considering the idea of repaying the NIS fund. If, at that point, the Government has little or no money, it will angrily accuse the NIS of trying to bleed “the Government without caring that they are all part of the Government.” The wicket for this argument is now being rolled by Mr. Kellman.

To give readers an idea of the sort of discussion we should be having about the NIS, I will highlight what I believe to be three major “risks and issues” identified by the actuary over the past fifteen years.

1. At the end of the pension reform exercise, the Owen Arthur administration legislated NIS contribution rates that were higher than what was required to provide the benefits promised by the scheme, and to cover administrative expenses. By deliberately injecting some “extra reserves” into the NIS funding mechanism, the administration sent the signal that it expected the NIS to be adequately funded for a long time, and it did not want to go through another pension reform exercise again in the near future.

The actuary suggested that some of the “extra reserves” could be used to provide a survivor’s benefit in those situations where couples were each receiving an NIS benefit. This suggestion was aimed at solving an extremely difficult problem faced by many NIS pensioners when their spouse (also receiving an NIS pension) dies.

Let me explain this problem by way of example.

Beryl, age 72, receives a monthly cheque of $401 from the NIS. Her Husband, Dolphus (age 75) receives a monthly NIS cheque of $800. Their total household income is $1,201 per month.

Dolphus dies suddenly.

Half of Dolphus’ pension = $400. Beryl’s pension = $401. The NIS will now pay Beryl the higher amount of these two numbers as a monthly pension, which is $401.

As a result of Dolphus’ death, Beryl’s household income has plunged from $1,201 to $401. Two-thirds of her household income has been wiped out! This is a real and serious financial problem faced by elderly NIS pensioners.

Recognizing the importance of the suggestion made by the actuary, I booked a flight from Atlanta, Ga and traveled to Barbados in 2009. I met with Dr. David Estwick, the Minister responsible for NIS at the time, and Mr. Best, his Permanent Secretary. I also met with Dr. Justin Robinson, Deputy Chairman of the NIS. Finally, I met with Mr. Jepter Ince, the Chairman of the NIS, in 2010.

I explained the problem to each and every one of these gentlemen and recommended that the cost of an NIS 60% survivor’s benefit (similar to the 60% survivor benefit enshrined in our pension legislation) be looked at, calculated, and funded by the NIS.

Here is how the 60% survivor’s benefit would help Beryl, in our example.

Beryl’s monthly pension = $401

Survivor’s benefit (60% of $800) = $480

Beryl’s total monthly NIS pension = $401 + $480 = $881

Beryl has now lost only 26.6 % of her household income as a result of Dolphus’ death. This is a much more palatable situation, financially speaking.

Dr. Estwick showed some interest in the idea, but he was relieved of his responsibility for NIS soon after my visit. Dr. Robinson, and Mr. Ince, showed neither interest nor enthusiasm. Thus, a piece of good advice offered by the actuary, picked up by me and carried baton-like to the policymakers, remained unheeded, and untouched.

2. For the NIS to remain solvent and meet its obligations as they fall due, there must be an adequate amount of trust funds on hand at all times. To achieve this objective, contributions paid by employers and workers ought to be prudently invested. The Government of Barbados had a great opportunity to invest the NIS contributions paid by Barbadian Baby Boomers over the last 48 years in long term non-governmental investments. If these long term investments had yielded a rate of return of 4%, for example, the NIS pension trust fund would now have almost 3 times the amount of the total contributions that were put into it.

Alas, ignorance and political incompetence ensured that the NIS of Barbados suffered the worst possible fate that could befall the pension trust fund. Successive short-sighted Ministers of Finance have “borrowed” the NIS physical cash and have now left the NIS holding a “bag” of extremely risky treasury bills, notes, and Government bonds.

This reckless attitude towards the handling of NIS contributors’ money simply reflected what was taking place in the national economy where similar treatment was being meted out to taxpayers’ money. Over the past 35 years, Government spending soared, productivity plummeted as civil service offices became bloated with political cronies, government debt escalated out of control, taxation rates skyrocketed, government revenue fell, the fiscal deficit widened, the Central Bank printed money, bonds issued by the Government of Barbados became branded with “junk” status, and finally, the Government ended up unable to pay Barbadian taxpayers their refunds.

The great difficulty being experienced by the Government of Barbados, when it comes to payment of its debt, has now become painfully obvious to every citizen. The Government has now evolved into being a serious risk to the financial health of its creditors, and one of its biggest creditors is the NIS.

From as far back as the Owen Arthur administration, the actuary had identified this risk posed to the NIS fund by the high levels of contributions that were being borrowed by the Government. After the pension reform exercise, Owen Arthur raised the NIS contribution rates on one hand, and immediately started to eat into the increased cash flow on the other, by increasing government’s borrowings from the fund.

At the end of 2008, the actuary instructed the NIS Board to limit the level of government borrowing to the 57% of the total fund, which was already reached. The actuary further recommended that new avenues of investment should be pursued, in both local and foreign markets.

Rather than paying attention to the good advice offered to them by the actuary, the Owen Arthur, David Thompson, and Freundel Stuart administrations, as usual, made a worse situation worst through their relentless, ill-advised, misdirected use of NIS contributions.

3. In one of his reports, covering a period under the Owen Arthur administration, the actuary noted the unusually large sums of money that were spent on Information Technology (IT). He expressed the hope that this high level of IT expenditure would be justified in future years by creating a higher level of efficiency in the administration of the NIS.

Instead of seeing evidence of enhanced efficiency at the NIS, Barbadians are experiencing frustration and anger over the quality of service being delivered by the NIS. Every single major issue that has boiled over into the public domain, according to the management of the NIS, has been caused by “the computer.”

Has that large amount of money spent on IT, under the nose of Owen Arthur, delivered the desired results? Has the system worked? Has it been replaced? Blended with another one? Has the money been completely wasted?

Soon after assuming office, Dr. David Estwick informed Barbadians that the NIS was being used by the Arthur administration as an ATM.

Senator Andre Worrell, not having the foggiest idea as to what he was talking about, declared in the senate that the NIS “is being well-managed”.

Senator Reggie Hunte, forever looking at the world through parasitic eyes, boldly insinuated in the senate that the past administrations kicked around the NIS like a football so now it’s the current administration’s turn.

Senator Darcy Boyce evidently lacks the talent and ability needed to effectively communicate government’s energy and fiscal policy to the public. Astounded and perplexed onlookers are now shaking their heads in disbelief over the idea of Senator Boyce’s signature appearing on contractual documents related to the Cahill WTE project. In the face of a deafening cry from Barbadians for answers, Senator Boyce has chosen to remain steadfastly silent. Yet, Senator Boyce unashamedly appeared in the national media recently trying to convince Barbadians that the Government’s borrowing of NIS funds is a very good thing for the country, and ought to be encouraged. This argument by Senator Boyce directly opposes the recommendation made by the actuary.

The Minister responsible for NIS, Dr. Esther Byer-Suckoo, appeared in the press recently stressing that the NIS is being well-managed and that the NIS fund is strong. Pray tell me, how can a fund be possibly strong if the majority of its investments is made up of “weak”, “risky”, Government “junk” debt?

These utterances by politicians and political pretenders all serve to tell us one thing – the political class intends to raid the NIS until practically every cent is gone. To date, no objection over the treatment of our NIS contributions by the Government has come from the Barbados Employer’s Confederation, the NUPW, or the BWU. Mind you, all of these organizations have representatives on the NIS Board.

Mr. Joseph Goddard, a long standing representative of the NUPW on the NIS Board, ended up accepting a diplomatic posting from the government.

Mr. Tony Marshall, former Chairman of the NIS, ended up accepting a diplomatic posting from the government.

Sir Leroy Trotman, according to the poor-man’s news agency (better known as rumour), is anxiously waiting to receive his.

Minister Kellman, whose ministerial portfolio is housing by the way, seems to be hinting that the destruction of the NIS fund is now seriously underway, and the actuary, the NIS itself, and the BLP have already been identified as the scapegoats.

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78 Comments on “Understanding the National Insurance Scheme of Barbados (2) – Risks and issues”

  1. David September 20, 2015 at 3:05 PM #


    Let us say you are correct, he accepted the cushy job…

    See today’s editorial in the Nation. http://www.nationnews.com/nationnews/news/72437/editorial-retirement-plannning-vital


  2. Simple Simon September 21, 2015 at 2:17 PM #

    @Walter Blackman September 20, 2015 at 3:01 AM “Of course, that is not the law. Once her “qualified” spouse died, Priscilla is eligible to get a monthly benefit as early as age 45. Once she starts receiving a benefit between ages 45 and 50, she would get 33 1/3%, rather than 50% of her spouse’s benefit.”

    Then we should change the law.

    My argument is that we should not be paying any pension at all to widows/widowers who are younger than 60 and who have no dependent children. People in that age group should reasonably to expected to work for their own living.


  3. Bush Tea September 21, 2015 at 3:10 PM #

    @ Simple Simon
    My argument is that we should not be paying any pension at all to widows/widowers who are younger than 60
    Just because you never had a real man, …Bushie will forgive you for your ignorance… the lotta ‘EX-men’ yuh have don’t count here…

    When two people get married, and form a partnership, in what is considered to be an ideally suited arrangement to produce well rounded children for future generations – such is considered to be a SOCIAL IDEAL by an enlightened society.
    A partner who therefore performs the role of ‘home manager’ in such a relationship plays as important (if not more important) a role in its success as the one who goes out seeking FOREX.
    If the breadwinner should unfortunately die early, it is absolutely reasonable that an insurance scheme to which THAT PARTNERSHIP has been subscribing, continues to support the remaining half of the partnership in a reasonable way.

    …what ‘go out and look for what wuk’ what??!!! … lotta shiite!

    The partnership was ‘insured’ precisely to ‘look after’ a surviving member.

    …no damn wonder you have so many ‘EX-es’…..


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