T&T CHAM­BER OF IN­DUS­TRY & COM­MERCE

The Caribbean Cen­tre for Mon­ey and Fi­nance host­ed a Caribbean busi­ness ex­ec­u­tive sem­i­nar at the Hy­att Re­gency Trinidad ho­tel on May 4, themed: The Fu­ture of the pen­sion in­dus­try in the Caribbean, at which the T&T Cham­ber of In­dus­try and Com­merce par­tic­i­pat­ed.

The main is­sues af­fect­ing the op­er­a­tions of Caribbean pri­vate and pub­lic pen­sion funds are:

• greater in­vest­ment un­cer­tain­ty and low­er in­ter­est rates in the Caribbean and for­eign fi­nan­cial mar­kets

• changes in in­ter­na­tion­al ac­count­ing stan­dards

• fixed stress among gov­ern­ments

• in­creased longevi­ty of pen­sion­ers and the prospect of un­fund­ed li­a­bil­i­ties or, put an­oth­er way, a grow­ing mis­match be­tween fi­nan­cial com­mit­ments to pen­sion­ers and an­tic­i­pat­ed fu­ture earn­ings of the pen­sion schemes

The sem­i­nar was in­tend­ed to ex­pose de­ci­sion-mak­ers in the in­dus­try in­clud­ing rep­re­sen­ta­tives of the in­ter­ests of pen­sion ben­e­fi­cia­ries and fa­cil­i­tate dis­cus­sion on some of these is­sues. The pre­sen­ters were from a di­verse group which al­lowed for in-depth dis­cus­sions on many of these is­sues which the re­gion is fac­ing. The need for reg­u­la­to­ry re­form and im­proved gov­er­nance of pen­sion funds was made very clear. The reg­u­la­to­ry frame­work through­out the re­gion is weak and with­out ad­e­quate pen­sion leg­is­la­tion. Lim­it­ed funds avail­able to the var­i­ous bod­ies reg­u­lat­ing pen­sion plans al­so do not al­low for the re­quired skilled re­sources need­ed, such as pen­sion ac­tu­ar­ies.The cur­rent state of the fi­nan­cial mar­kets with­in the re­gion and ex­ter­nal­ly al­so lim­its an ap­pro­pri­ate al­lo­ca­tion of in­vest­ed funds where­by there could be a prop­er match­ing of the li­a­bil­i­ties and in­vest­ments. In this ar­ti­cle, we high­light the con­tri­bu­tions made at the sem­i­nar and ful­ly sup­port the calls made by the speak­ers for re­form. Cen­tral Bank Gov­er­nor Ewart Williams high­light­ed re­forms are need­ed to ward off fu­ture prob­lems stem­ming from the ag­ing pop­u­la­tion, high un­em­ploy­ment and the grow­ing in­for­mal sec­tor. He not­ed, too, that earned in­ter­est rates were at record low lev­els and, there­fore, in­di­vid­u­als are look­ing to sup­ple­ment their fi­nan­cial safe­ty net and are look­ing for al­ter­na­tive in­vest­ment schemes.

The changes in the de­mo­graph­ic pop­u­la­tion and glob­al en­vi­ron­ment may lead to con­sid­er­a­tion be­ing giv­en to rais­ing con­tri­bu­tion rates, in­creas­ing the re­tire­ment age and in­creas­ing the in­sur­able age. How­ev­er, con­se­quences of these mea­sures could be in­creas­es in sub­sti­tu­tion of cap­i­tal for labour, re­sult­ing in de­creas­ing em­ploy­ment and in­creas­ing the use of ma­chin­ery and au­toma­tion to main­tain and/or in­crease pro­duc­tion. While it is not­ed that in­creas­ing the con­tri­bu­tion rates is a method of bol­ster­ing the pen­sion fund, this would be an over­all in­crease in the cost of labour and would, there­fore, re­duce the amount of labour busi­ness­es would em­ploy, which would have the op­po­site ef­fects. Care­ful con­sid­er­a­tion had to be giv­en to the op­tions not­ed. The Gov­er­nor al­so high­light­ed many is­sues that lat­er pre­sen­ters spoke about. These in­clud­ed is­sues as­so­ci­at­ed with the prop­er su­per­vi­sion of pen­sion funds, such as the need for bet­ter gov­er­nance, im­proved risk man­age­ment, avail­abil­i­ty of train­ing for su­per­vi­so­ry staff and de­vel­op­ing a su­per­vi­so­ry frame­work for which an in­ter­na­tion­al guide is avail­able. Oth­er is­sues re­gard­ing pen­sion re­form, such as the nu­mer­ous pieces of leg­is­la­tion gov­ern­ing pen­sions in T&T, were ad­dressed by the Min­is­ter of Fi­nance Win­ston Dook­er­an. He said leg­isla­tive amend­ments are nec­es­sary to give ef­fect to mea­sures made in any one bud­get read­ing, which leads to a gap be­tween the read­ing of the bud­get and the pas­sage in the Fi­nance Act.

Ad­di­tion­al­ly, he said the ben­e­fit struc­ture of the pen­sion sys­tem would need to be re­viewed with the view of widen­ing the net of the Na­tion­al In­sur­ance Scheme. The min­is­ter not­ed the ad­di­tion­al chal­lenge of in­creas­ing the na­tion­al sav­ings and that of the pen­sion in­dus­try. As many of the oth­er pre­sen­ters not­ed, the is­sues fac­ing T&T are not unique, but are be­ing ex­pe­ri­enced glob­al­ly in ad­vanced and emerg­ing economies. For in­stance, there has been a steep up­ward trend from 1970-2010 in pub­lic spend­ing on pen­sion funds as a per­cent­age of gross do­mes­tic prod­uct in ad­vanced economies. Al­so, there has been in­creas­ing ag­ing along­side a de­clin­ing re­place­ment rate and labour force par­tic­i­pa­tion. In oth­er words, over the past 20 years, there have been few­er per­sons em­ployed, few­er con­tri­bu­tions to fund, and a grow­ing num­ber of per­sons be­com­ing el­i­gi­ble to re­ceive pen­sions. Fur­ther, the chal­lenge of this mis­match is fore­cast­ed to be more pro­nounced be­tween 2030-2050. There is al­so con­sid­er­able un­cer­tain­ty and risks in these pro­jec­tions: a high old age de­pen­den­cy ra­tio, low pro­duc­tiv­i­ty and labour force par­tic­i­pa­tion rate and re­form re­ver­sal. The much-need­ed po­lit­i­cal will to deal with these is­sues can­not be fore­seen so far in­to the fu­ture.

In terms of pen­sion re­form, grad­u­al­ly in­creas­ing re­tire­ment ages is an at­trac­tive op­tion rather than a sub­stan­tial in­crease over one term, sim­i­lar­ly so is in­creas­ing pay­roll con­tri­bu­tions to help off­set in­creas­ing pen­sion spend­ing. In gen­er­al, the re­tire­ment age in T&T is in line with that of the av­er­age for emerg­ing economies: age 60, while ad­vanced economies have an av­er­age clos­er to 65. In­creas­ing re­tire­ment ages and oth­er struc­tur­al re­forms should im­prove the fis­cal sus­tain­abil­i­ty of pub­lic pen­sions and gen­er­ate fis­cal space for ex­pand­ing cov­er­age. An­oth­er part of the so­lu­tion is to re­duce the high ad­min­is­tra­tive costs, there­by al­low­ing for im­prove­ment in the ben­e­fit pay­out. The cham­ber be­lieves many of the chal­lenges and is­sues not­ed by the pre­sen­ters have been long de­bat­ed and placed on the ta­ble at var­i­ous fo­ra. With­in T&T we have re­tire­ment schemes via the se­nior cit­i­zens grant, pub­lic ser­vants pen­sion, na­tion­al in­sur­ance and pri­vate oc­cu­pa­tion­al pen­sion schemes. It is now time for the Gov­ern­ment to act on the ra­tio­nal­i­sa­tion of the schemes and put prop­er leg­is­la­tion to gov­ern the pen­sion and re­tire­ment funds. Let us not wait un­til it is too late.