Proposed Public Pension Formula Makes Bad Situation Worse
The following important comment was posted by Actuary and Talk Show host Walter Blackman to respond to a comment raised on the blog 60 Love Can Lose – Blogmaster
Pensions have surfaced as an extremely important issue at this stage of our national development, so I want to commend you for bringing this pension-related matter to the attention of BU readers.
The challenge for me is to distil esoteric, actuarial and mathematical concepts into information that you and all BU readers can understand. Please forgive me if I fail to overcome that challenge
We grew up hearing that one of the major benefits derived from working for the government was the receipt of a pension and gratuity.
I will use a 5-year average pay of $5,000 (assumed to be under the NIS ceiling, for illustrative purposes only). I simply want to show how the changes in pension legislation have affected government workers hired before September 1, 1975, those hired on or after September 1, 1975, and those to be hired on or after January 1, 2023.
A person born on January 1, 1945, who was hired before September 1, 1975 and who retired after 33 1/3 years of service will receive the following:
- Government pension = $3,333.33
- NIS Pension = $3,000
- Total Pensions received = $6,333.33
Note that this pensioner is receiving a total monthly pension which is greater than the pay he was getting as an active worker.
This was a problem that the government decided to solve.A person born on January 1, 1945, who was hired on or after September 1, 1975 and who retired after 33 1/3 years of service will receive the following:
- Government pension = $333.33
- NIS Pension = $3,000
- Total Pensions received = $3,333.33
Note the drastic reduction in government pension. This was not the best approach to be taken by the Government of Barbados to solve the pension problem.
A person born on January 1, 2003, who will be hired on or after January 1, 2023 and who will retire after the following years or less of service will receive the following:
- Government pension (1-36 years of service) = $0
- Government pension (37 years of service) = $$83.33
- Government pension (38 years of service) = $166.67
- Government pension (39 years of service) = $250.00
- Government pension (40 years of service) = $333.33
This proposed pension formula makes a bad situation worse. The unions ought to make their voices heard.
Gratuity = 25% x monthly pension x 150
Pension to be paid = 0.75% of calculated pension
Government Pension = $3,333.33 per month
Gratuity = $125,000.00
Monthly Pension to be paid = $2,500.00