In­her­ent in every pub­lic pol­i­cy de­ci­sion is the cer­tain­ty that what­ev­er the de­ci­sion, some con­stituents will be suf­fi­cient­ly up­set to vote against the po­lit­i­cal par­ty mak­ing the de­ci­sion. Low­er en­er­gy pro­duc­tion and weak­er tax­a­tion rev­enue mean that cit­i­zens must ad­just to pay­ing more for some ser­vices.

The pop­u­la­tion has shared in the oil wealth through many gen­er­ous sub­si­dies which are no longer af­ford­able. Five ex­am­ples are pay­ing more elec­tric­i­ty, high­er wa­ter rates, in­creas­ing the re­tire­ment age, re­mov­ing petrol sub­si­dies com­plete­ly, and im­ple­ment­ing prop­er­ty tax.

Each de­ci­sion im­pacts vot­ers’ dis­pos­able in­come. Un­for­tu­nate­ly, de­lay­ing these de­ci­sions has in­creased the po­ten­tial neg­a­tive im­pact. But if these ad­just­ments are not made there can be lit­tle or no im­prove­ment in ser­vice de­liv­ery and a strong risk that the rel­e­vant in­sti­tu­tions will fail. The sur­vival, not sus­tain­abil­i­ty, of the Na­tion­al In­sur­ance scheme is one such de­ci­sion.

Cur­rent­ly, the NIS fund is $29.9 bil­lion with 455,000 con­trib­u­tors. It is a pay-as-you-go scheme, mean­ing that cur­rent con­trib­u­tors pay the re­tire­ment ben­e­fit of those who have re­tired. When cur­rent con­trib­u­tors re­tire, they will need new con­trib­u­tors to pay their re­tire­ment ben­e­fits. But there are prob­lems with this arrange­ment which do not flow from the ef­fi­cien­cy of the fund or em­ploy­er delin­quen­cy, the first things that peo­ple in­tu­itive­ly sug­gest. There are two rea­sons, a de­mo­graph­ic prob­lem and un­sus­tain­able min­i­mum pen­sions.

The de­mo­graph­ic prob­lem is that the coun­try is age­ing. The pop­u­la­tion has plateaued and is now en­ter­ing its de­cline phase. Why? The birth rate has de­clined be­low sus­tain­abil­i­ty over the last 25 years. To main­tain a pop­u­la­tion at the same lev­el, every fe­male needs to pro­duce a min­i­mum of 2 chil­dren. That rate has been de­clin­ing and is now less than 1 child per fe­male. The de­cline in fer­til­i­ty/re­pro­duc­tion rates can­not be cor­rect­ed by fis­cal pol­i­cy. In any event that cor­rec­tion will take a gen­er­a­tion (20-25 years) by which time the fund will be ful­ly de­plet­ed.

The sec­ond is that suc­ces­sive gov­ern­ments (both PNM and UNC) have in­creased the min­i­mum NIS pen­sion by amounts be­yond the fund’s sus­tain­abil­i­ty. Un­less the re­tire­ment age and the con­tri­bu­tion rates are in­creased, the fund will be ful­ly de­plet­ed by 2036, in 12 years. All re­tirees mak­ing the re­quired 750 con­tri­bu­tions are en­ti­tled to a min­i­mum pen­sion of $3,000. The min­i­mum pen­sion has been in­creased from $1,000 in 2004 to $2,000 in 2008 to $3,000 in 2012, which were greater than the in­crease in the con­tri­bu­tions rate.

Cur­rent­ly, the con­tri­bu­tion rate is ap­prox­i­mate­ly 13 per cent whilst the pay­out is 18 per cent. Be­cause of this mis­match, the fund is now achiev­ing cash deficits. Con­tri­bu­tions plus re­alised in­vest­ment in­come gen­er­at­ed $5.79 bil­lion in FY2022 whilst ben­e­fit and ad­min­is­tra­tion ex­pen­di­ture was $5.95 bil­lion re­sult­ing in a loss of $166 mil­lion. This cash loss will ac­cel­er­ate as the num­ber of re­tirees in­creas­es and whilst the num­ber of con­trib­u­tors de­clines.

Tran­si­tion­al pro­vi­sions will be re­quired to phase a change in re­tire­ment age. Those wish­ing to re­tire at 60 will be up­set as they will re­ceive a low­er pen­sion than those who re­tire at 65. The key point is that peo­ple are liv­ing longer re­quir­ing a pen­sion pay­ment for a longer pe­ri­od. Uni­ver­sal so­cial se­cu­ri­ty sys­tems were in­tro­duced in the UK in 1948 and 1935 in the US. At that time, re­tire­ment at age 60 meant that a re­tiree would not live much longer than 65. To­day, a per­son born in 2010 could ex­pect to live to age 80 (UK De­cen­ni­al Life Sta­tis­tics, ONS). There­fore fi­nanc­ing a longer re­tire­ment re­quires a longer con­trib­u­to­ry pe­ri­od at high­er rates.

The Tenth Ac­tu­ar­i­al re­view made sev­en prac­ti­cal rec­om­men­da­tions. Those rec­om­men­da­tions are the min­i­mum changes re­quired to keep the fund in a sus­tain­able po­si­tion. But these de­ci­sions must be made prompt­ly as twelve years is not long in de­mo­graph­ic terms.

Cit­i­zens, not the Gov­ern­ment, must fi­nance this gap. The Gov­ern­ment al­so must ad­dress how pen­sions to gov­ern­ment re­tirees will be paid. Pub­lic ser­vants’ pen­sions are cal­cu­lat­ed on the most gen­er­ous ba­sis, but these pay­ments are non-con­trib­u­to­ry and are un­fund­ed. The pre­sump­tion is that T&T’s tax­able ca­pac­i­ty will be suf­fi­cient to meet all gov­ern­ment’s pen­sion oblig­a­tions.

In 2009, the es­ti­mat­ed un­fund­ed li­a­bil­i­ty (mean­ing there is no fund to pay this) was $35 bil­lion which is big­ger than the NIB fund to­day. My rough, con­ser­v­a­tive, cal­cu­la­tion puts that un­fund­ed li­a­bil­i­ty at ap­prox­i­mate­ly $100 bil­lion in 2023, three times the size of the NIB fund to­day.

As the pop­u­la­tion de­clines so will its tax­able ca­pac­i­ty and with it, the Gov­ern­ment’s ca­pac­i­ty to pay pub­lic ser­vice pen­sions and main­tain the al­ready weak lev­el of pub­lic ser­vices. That is one more dif­fi­cult pub­lic pol­i­cy de­ci­sion to add to the grow­ing list.