Tax on pension slammed
Managing Director of Fortress Fund Managers, Roger Cave, has described government’s recently introduced taxation on pension plans as ‘a backward step,’ which he hopes will be withdrawn soon.
In its June budget, government removed tax allowances for retirement savings for Barbadians, and while addressing his company’s 6th Annual Investment Forum Thursday, the founder of this leading Barbados individual wealth-building organisation said, “Basically it means that it is double taxation on pension schemes.”
Among the funds managed by Fortress is a Registered Retirement Savings Plan (RRSP), that has been hit by government’s new taxation sweep.
Speaking at the Frank Collymore Hall, Cave said “We wrote to all our holders and suggested you don’t continue to save through RRSPs but maybe do it directly through one of the Funds.”
A feature of the investment forum was a question and answer and comments session when members of the audience quizzed a panel of fund advisors and other financial specialists, and voiced opinions. Some were submitted electronically through social media platform whastapp.
Cave quoted an electronically submitted comment from “an experienced person that worked with life and financial markets and funds all over the world, including the emerging markets, and has an interest in Barbados”: “Pension contributions are deferred income in that the tax on that income is not received but is put into a pension fund; and then to tax it again when the pension is drawn, is not only grossly unfair, but makes pensions an extremely unattractive form of saving.
“It is socially irresponsible of a government elected to support working people, to discourage them from saving for their old age in established and regulated long-term schemes, i.e. pension plans.”
But according to Cave, other government initiatives during the reviewing one-year period affected wealth-building, besides taxes on pensions.
“Added to that, we then had the minimum savings rate on deposits removed from commercial banks, and our government debt was downgraded again. So all around it has been not a very favourable environment for savings.”
“What people need to do is to reduce the balance that you hold in the bank, and try to invest the rest to beat inflation over the long term,” he advised.
The fund manager however sees a silver lining for the wealth growth future in Barbados, though the path towards it is chock full of obstacles.
“Looking forward to 2016 there is good news I think with the projections for a really strong tourist season, and I think that is going to help Barbados. The low oil prices is another very positive one for us. But they are going to be at the end of the day small economic improvements from a very low base. So even if companies, [and] I do believe businesses are going to do better, they [will] have tax loss carried forward,” Cave pointed out.
“So it is not going to change the fiscal stress of the government. That’s the challenge that is not going to easily be solved.
“The funding of the deficit has to continue, and most of it from what we can see is being financed by the Central Bank, and our debt sustainability for the way we invest, remains a big question for us.”