Part 1 of 3: An overview of the Barbados National Insurance Pension Scheme
Are you financially ready for retirement?
From the time I joined the workforce in 1996, I have been contributing towards the National Insurance and Social Security Service (NISSS). The overriding benefits of contributing to a national social security scheme is clear: unemployment, sick leave, maternity leave, and pension.
In July 2023 the Barbados government announced planned changes to the state pension scheme and how it will work in the future. This has resulted in various debates and for me, a recognition that we, contributors to the NISS, need to understand what the impact will be for our future.
Retirement vs Pensionable age: dilemma facing Barbadians.
About two years ago, I recall listening to an online seminar by the Ministry of Labour, and the Labour Officer made an acute statement, Barbados does not have a national retirement age, it has a state pensionable age, which is 67 years old. That said, there are plans to increase the pensionable age to 67.5 years in 2028 and to 68 in 2034 (https://nationnews.com/2023/07/28/changes-pension-nis/#).
Private sector
Many private sector employment contracts, end at the age 65 and will have to figure out how to bridge the gap between the end of their employment contract and the time that they can claim state pension.
Public sector
From the 1st of January 2018, public sector employment contracts have a compulsory age of retirement of age 67, which gives an additional two years vs the Private sector.
For many Barbadians, the NISSS Old Age Contributary Pension or Non-Contributory Pension is their only source of retirement income.
How does the Barbados NISSS Pension Scheme work?
The NISSS pension is national pension scheme, financed through contributions from persons working in Barbados, and from contributions from private and public sector employers. The pension scheme invests any excess cash flows (contributions less pension payouts) to generate income for the scheme’s future obligations.
Within this pension scheme are two types of state pensions, a contributory pension, and a non-contributory pension. Non-contributory as the name indicates, is for individuals who do not contribute sufficiently to meet the minimum requirements of the Old Age Contributory pension.
Non-contributory old age pension
This state pension is designed for Barbadian citizens and permanent residents who do not meet the minimum eligibility requirements of the Old-Age Contributory Pension, and have reached the age of 67 years. The Non-Contributory Old Age Pension is currently BBD$230 per week (approximately US$115). You can call the NISSS directly, to discuss your personal situation and get clear guidance.
Old-Age Contributory Pension
Is a contribution-based state pension. There are three bases of calculating the contributory pension, based on the date that you were born. Please see table below, that outlines the differences, based on the individual’s date of birth.
Points to consider pertaining to the table above:
- Minimum contribution is:
- have at least 150 contributions actually paid to one’s account.
- have at least a total of 500 contributions paid or credited to one’s account.
- The current pensionable age is 67.
- You can opt for early retirement as early as age 60, however, there is a significant penalty in terms of reduction of your weekly pension, should you choose this option: [Weekly pension – (0.5% x every month taken early x weekly pension)]
- The maximum age you can contribute to the state pension is age 70.
- There is a benefit to taking late retirement, which equates to [Weekly pension + (0.5% x every month taken early x weekly pension)]
- Maximum weekly pension is 60% of the average annual insurable earnings (average annual insurable earnings, “the sum of the insurable earnings on which contributions were based during the best five contribution years of the insured person’s contribution life, divided by 5” (https://www.nis.gov.bb/old-age-contributory-pension/, September 21, 2023)
A significant miss from NISSS’s website is there is no option to check your current status, how many contributions you have made, and your average annual insurable earnings. This is information that one needs to be able to make informed decisions about planned retirement, and you will have to directly contact the NISSS’s office to get that information.
Contribution Rates, Levies Payable & Insurable Earnings Ceilings
Contribution Rates & Levies Payable
Insurable Earnings Ceiling
Contributions and Levies are compulsory for payments to cover several NISSS services, including the state pension. In this article, I have pulled out some of the categories of employee that I feel represent much of the workforce in Barbados: Government Permanent Employees – “P”, Private Sector Employees – “R” and Self-employed – “S”. As you can see from the summary table above, Government Permanent Employees – “P” contributes 9.8%, Private Sector Employees – “R” 11.1% and Self-employed – “S” 17.1%. The current ceiling at the time of writing this article is $1,201 for weekly and $5,200 for monthly.
Over a 10-year period between 2014 and 2024, the NISSS insurable earnings ceiling has increased by 13.3% for weekly workers and 19.3% for monthly.
Conclusion
The most significant change to the national pension scheme has been the increase in retirement age from 65 to 67, with a planned future increase to 68 by 2034. There seams to be a disconnect between government policy pertaining to pensionable age and employment contracts. In the near future, we could see increasing number of workers who will face the dilemma of between one and three years, with no employment income and no state pension because their employment contract has ended and have to wait until age 68 to receive their state pension.
