The Tribune

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

THE scale of pension reform has been described as “no small feat” by Dr Stephen Brien, chairman of the UK Social Security Advisory Committee, who said policy decisions will affect current and future pensioners.

Speaking at CFAL’s Pension and Economic conference, Dr Brien said pension system reforms should take long-term impacts of the scheme into consideration and require technical innovation and political support.

He said: “Tackling pension reform is no small feat. It demands a blend of technical progress, and political standing to do so. Pension systems have a rich history, contributions are made long before the benefits are paid out, entitlements grow. Then following the next few decades, benefits pay out based often on antiquated rules that not many people understand.

“So hence, when thinking about reform, it’s crucial to keep a sharp focus both on the overall goals of the pension system, and the specific aims and long-term impacts of any planned reforms because they can affect both today’s pensioners and future pensioners.”

Dr Brien noted the NIB pension scheme relying mainly on contributions from workers could “pose challenges” to future pension policy reforms although it helps to “maintain transparency and accountability”.

He said: “Here in the Bahamas, the contributory pension funded through National Insurance Board relies on insurance contributions. The non-contributory pension is the only part that’s financed by government revenue. And this approach maintains transparency and accountability, it may pose challenges when contemplating bigger picture reforms.

“Because when confronted with complex public policy challenges, it’s often inappropriate, insufficient to examine narrow issues in isolation. Sometimes we need a much broader perspective to be able to make trade-offs that are viable, and the solutions that can deal with these intricate problems.”

He also highlighted the important of maintain a pension system that has a contribution level that is adequate and sustainable over the long-term.

He said: “Within the contributory system, I think it’s worth exploring avenues for stabilization. So for example, given the actuarial recommendations, you’ve heard about needing higher contribution rates, could one contemplate a gradual phase increase in contribution levels over time? Perhaps a percent or two every few years?

“I think we must ponder the long-term viability of maintaining a self-sustaining system with adequate contribution levels so that it can weather economic and demographic fluctuations.”

He explained that although the UK has higher contribution levels the government has to lend support every time there is a financial shock and suggested that the Bahamas increase private pension provision to reduce reliance on NIB.

He said: “So we saw in the UK even though it had higher contributions, and every time there was a serious financial shock, it needed extra state support. And I could imagine that there will come times within the Bahamas system, those pressures are going to be there as well. And if that happens, I think the state is to intervene is gonna be likely to want to scrutinize issues of equity to a far greater extent than it has to date.

“Its obviously less relevant if the pension system functions as a pure insurance scheme, as it’s done today. But I just wonder is that really going to be sustainable in the long long term. But also, I think it’s worth looking at introducing a variation …that you increase private provision throughout the economic spectrum to reduce the reliance on the non-contributory system.”

Dr Brien added that the current pension system is “regressive” as higher earners often receive bigger pensions and live longer and questioned if the upper cap on contributions should be raised or eliminated so that they can pay more.

He said: “Is it possible to increase the upper cap on contributions or even eliminate it altogether so that higher earners pay more and consider the possibility of raising the pension age with plenty of notice over the coming decades? Is it viable to implement a lower cap on pension values or prevent their escalation?

“So the current system is quite regressive in that high earners get bigger pensions but also live longer so get a much better value equation out of the system and lower earners do.”