Island nation far behind region in containing pension costs

The Inter-American Development Bank (IDB) has called out Barbados, citing its rising pension expenses which it says are the highest in the region.

As such, the multilateral lending agency is urging the Bajan government to undertake a reform of the island’s pension system to ensure the sustainability of state-operated pension schemes. In highlighting the state of Barbados’ pension system in its recently released Quarterly Bulletin for December, the IDB declared that the situation is a cause for concern.

Barbados has a broad social security system that includes both contributory and non-contributory pensions in addition to a public service pension scheme. The 58-page quarterly bulletin, titled ‘Economic Institutions to Advance Beyond 2020’, gave data detailing how far behind Barbados was in terms of pension expenses across the region.

The data showed that last year Barbados had the highest level of public pension spending among Caribbean countries, reaching as high as 7.7 per cent of gross domestic product (GDP). The next worst country in the region, in terms of high pension expenses, was Trinidad and Tobago at 5.59 per cent of GDP.

Guyana and Suriname are also on the list of countries with high pension costs. In the case of Guyana, their pension cost amounted to 5.28 per cent of GDP while Suriname was at 4.05 per cent of GDP.

Barbados’ pension expenses highest in the region

The IDB bulletin highlighted that pension expenses in Barbados are the highest in the Caribbean region. In its quarterly bulletin, the IDB identified the clear and present danger with Barbados as rising pension costs going forward pose a serious a challenge.

The situation is further compounded by the impact of the island’s current debt restructuring programme with the International Monetary Fund exacerbated by the pressures brought on by COVID-19 on the island’s National Insurance Scheme.

The IDB encouraged policymakers to periodically review the design of multi-pillar systems and assess what parametric and non-parametric changes in the pension schemes are required. This is in order to achieve adequate benefits, expanded coverage, and financial sustainability of the systems.

Barbados’ rapidly aging population

The bulletin pointed to a rapidly aging Barbados population, which is responsible for helping to drive up pension costs given the country high dependency ratio of about 24.3 per cent. This is in comparison to 28.9 per cent in member countries of the Organization of Eastern Caribbean States, of which Barbados is a member.

Barbados has the highest ratio of contributors among Caribbean countries, as a share of its workforce, amounting to 78.99 per cent with more women contributors than men. Barbados is credited with the highest pension expenses among Caribbean countries, with a point estimate of 8.9 per cent of GDP and a range from 7.5 to 13.2 per cent of GDP.