Some­times there is a need to stay on a par­tic­u­lar top­ic to em­pha­sise its im­por­tance. Last week I dealt with the is­sue of re­tire­ment and whether it is even prac­ti­cal in this day and age to con­sid­er re­tire­ment in the tra­di­tion­al sense as some­thing to as­pire to­wards. The fo­cus of last week was on you and the things you should con­sid­er when as­sess­ing your re­tire­ment needs and op­tions. To­day we are go­ing to look at this top­ic in a broad­er sense and the head­winds to your re­tire­ment life. You will need to adapt to this re­al­i­ty.

“No mega­trend will de­fine the next 40 years more than the glob­al pen­sion cri­sis”. These words were writ­ten by Richard Marin in his 2013 book, Glob­al Pen­sion Cri­sis: Un­fund­ed Li­a­bil­i­ties and How We Can Fill the Gap. It un­der­scores a mas­sive prob­lem that will touch every cit­i­zen of Trinidad and To­ba­go in the com­ing years.

While this storm gath­ers mo­men­tum world­wide, we in Trinidad and To­ba­go face a unique vul­ner­a­bil­i­ty due to our re­liance on a dwin­dling hy­dro­car­bon re­source. The is­sue of di­ver­si­fi­ca­tion of the econ­o­my is some­thing that cit­i­zen don’t re­al­ly hold their politi­cians ac­count­able for. Ex­cept that it is our dwin­dling hy­dro­car­bon re­sources that have giv­en rise to the lev­els of trans­fers and sub­si­dies that we cur­rent­ly en­joy.

These ben­e­fits are out of ne­ces­si­ty, be­ing re­moved or re­duced one by one and what has to re­place is our own, in­di­vid­ual, in­come-earn­ing abil­i­ty, so that we can pay for the things that we want in or­der to have the stan­dard of liv­ing that we are ac­cus­tomed to. The on­ly way this hap­pens is through a di­ver­si­fied econ­o­my com­pris­ing of high-pay­ing jobs and so while we re­late this to the realm of eco­nom­ic “ole talk” and po­lit­i­cal ban­ter, it is go­ing to have a sig­nif­i­cant ef­fect on your life go­ing for­ward. As the old peo­ple say, “who doh hear will even­tu­al­ly feel”. The time to act is long past the due date.

Speak­ing at the Fi­nan­cial An­a­lyst Sem­i­nar in Ju­ly 2014, Marin framed the forth­com­ing pen­sion cri­sis as a “species-defin­ing” event. As he ex­plained, our hu­man iden­ti­ty is shaped by how we sup­port our young and care for our el­der­ly. The bal­anc­ing act be­tween these po­lar age groups will be­come a fierce com­pe­ti­tion over the next few decades. That was nine years ago. Since then, the fall­out from COVID-19 and high in­fla­tion has brought this “species-defin­ing” event ever clos­er to your doorstep.

The task at hand? Nav­i­gat­ing be­tween cater­ing to the grand­par­ents of to­mor­row (that’s us, over 40s) and fos­ter­ing op­por­tu­ni­ties for fu­ture gen­er­a­tions (our chil­dren’s chil­dren) to ride the wave of growth that we have en­joyed. As pen­sion deficits swell, this turns in­to a fi­nan­cial tug-of-war: en­sur­ing es­sen­tial ser­vices for our se­niors could mean cur­tail­ing op­por­tu­ni­ties for our youth.

This de­bate is po­lit­i­cal dy­na­mite, too. It brings in­to sharp fo­cus the de­mo­c­ra­t­ic dilem­ma of dif­fer­ent so­cial groups vy­ing for their slice of the eco­nom­ic pie, po­ten­tial­ly at the cost of the oth­er. We ex­pe­ri­enced a mi­cro­cosm of this dur­ing the COVID-19 pan­dem­ic. A virus that dis­pro­por­tion­ate­ly im­pact­ed the el­der­ly re­sult­ed in en­forced mass lock­downs, chil­dren be­ing de­nied in-per­son school­ing, and young adults be­ing pre­vent­ed from work­ing and earn­ing a liv­ing. Ap­pre­ci­ate that this is­sue con­cerns every­one, not just some­one think­ing of their re­tire­ment.

The pyra­mid para­dox

The old say­ing goes, “de­mo­graph­ics is des­tiny,” and un­der­stand­ing this is key to grasp­ing the enor­mi­ty of the prob­lem, both glob­al­ly and here in Trinidad and To­ba­go.

His­tor­i­cal­ly, so­ci­ety was struc­tured as a de­mo­graph­ic pyra­mid. Pic­ture a wide base of younger peo­ple, nar­row­ing as you climb to­wards an apex of old­er folks. For cen­turies, chil­dren were the go-to pen­sion plan. Not on­ly that, but up un­til a hun­dred years ago, they al­so formed a work­force, con­tribut­ing eco­nom­i­cal­ly to their fam­i­lies. It made sense to have lots of chil­dren: they could as­sist with chores in an agrar­i­an so­ci­ety, while the el­der sib­lings could al­so care for the younger ones.

Plus, with the mor­tal­i­ty rates of the time, fam­i­lies need­ed to have around five chil­dren to en­sure they had enough sur­viv­ing off­spring to care for them in old age.

To­day, the ta­bles have turned. Rather than be­ing a “ben­e­fit”, chil­dren now rep­re­sent a “cost” to their par­ents. For the first 18 years of a child’s life, they con­tribute lit­tle eco­nom­i­cal­ly to their fam­i­ly, but costs can be around $300,000 (say $1,500 per month) to $1,000,000 over that pe­ri­od.

This eco­nom­ic shift has had so­ci­etal reper­cus­sions. Al­ter­na­tive lifestyles, which by­pass tra­di­tion­al fam­i­ly struc­tures, have gained pop­u­lar­i­ty. The so­cial and even­tu­al­ly eco­nom­ic im­pact?

Low­er birth rates. In much of the de­vel­oped world, the birth rate has fall­en be­low the “re­place­ment rate” of 2.1 chil­dren per woman, the rate nec­es­sary to main­tain the cur­rent pop­u­la­tion lev­el. For ref­er­ence, the fer­til­i­ty rate in Trinidad and To­ba­go as of the 2010 pop­u­la­tion cen­sus is 1.7 chil­dren per woman. It may even be low­er now.

Con­cur­rent­ly, ad­vance­ments in health­care have ex­tend­ed lifes­pans, in­flat­ing the old­er pop­u­la­tion at the top of the pyra­mid. This de­mo­graph­ic shake-up is hav­ing pal­pa­ble ef­fects. The pyra­mid is shift­ing to­wards a more sky­scraper-like shape, with a small­er base and a wider top. In just a few decades, we’ll see a de­mo­graph­ic struc­ture that re­sem­bles a sky­scraper with a ta­pered top. In many West­ern coun­tries, this trend is well-ad­vanced.

The shift means few­er young peo­ple are avail­able to sup­port the non-work­ing or re­tired peo­ple at the top of the pyra­mid. Worse still, the eco­nom­ic events of the past decade have chipped away at the re­tire­ment sav­ings of those near­ing re­tire­ment, while al­so swelling the ranks of un­em­ployed youth. This is a tick­ing de­mo­graph­ic bomb.

Evolv­ing trends

Con­sid­er this: the tra­di­tion­al fam­i­ly unit – a hus­band, wife, and five or more chil­dren – is shrink­ing to fam­i­lies with two chil­dren or few­er. Some peo­ple are opt­ing to have chil­dren lat­er in life, or not at all. Those with­out chil­dren are like­ly spend­ing the ma­jor­i­ty of their dis­pos­able in­come on cur­rent con­sump­tion, rather than sav­ing for re­tire­ment.

Pic­ture a sig­nif­i­cant pool of un­em­ployed or un­der­em­ployed youths, a sit­u­a­tion made worse by ex­tend­ed school clo­sures dur­ing COVID-19. If T&T’s eco­nom­ic growth con­tin­ues at its cur­rent slug­gish pace, this is­sue will on­ly wors­en. Scarce job op­por­tu­ni­ties mean it takes longer for young peo­ple to ac­quire life’s es­sen­tials, like a home or car. Con­se­quent­ly, re­tire­ment sav­ings be­come an af­ter­thought.

Marin’s book fore­casts a jaw-drop­ping US$100 tril­lion short­fall in glob­al re­tire­ment fund­ing by 2050. To fill this gap, mon­ey will have to be sourced from heav­i­ly-in­debt­ed na­tions, or through sky­rock­et­ing tax­es. The oth­er op­tion? Painful cuts to ben­e­fits, lead­ing peo­ple to post­pone their re­tire­ment and work longer.

For­ward plan­ning is cru­cial. It’s un­fair to spring on some­one five years away from re­tire­ment that they’ll need to work an­oth­er five to eight years. Plus, job op­por­tu­ni­ties must be avail­able for new work­force en­trants even as se­niors re­main on the job.

To un­der­score this point, let’s con­sid­er T&T’s age de­pen­den­cy ra­tio up to the last cen­sus. This mea­sures the ra­tio of peo­ple re­liant on the work­ing-age pop­u­la­tion for sup­port—a cru­cial met­ric for our pay-as-you-go tax­a­tion sys­tem. In 1962, our age de­pen­den­cy ra­tio stood at 87 per cent, al­most a one-to-one re­la­tion­ship be­tween work­ing-age peo­ple and de­pen­dents.

At that time, the larg­er pool of “de­pen­dents” were chil­dren, ac­count­ing for 80 per cent of the ra­tio.

Fast for­ward to the most re­cent da­ta: as T&T has grown more af­flu­ent and the bite of in­fla­tion has deep­ened, fam­i­lies are hav­ing few­er chil­dren, dri­ving the un­der-15 ra­tio down to around 30 per cent. In con­trast, the ra­tio of over-65s to the work­ing-age pop­u­la­tion has near­ly dou­bled from 7 per cent in 1962 to 13 per cent.

We’re be­gin­ning to see the ef­fects of these de­mo­graph­ic shifts. The over­all age de­pen­den­cy ra­tio hit its low­est point in 2009, at 38 per cent.

Around eight years ago I had da­ta that es­ti­mat­ed it at 43 per cent, large­ly due to an in­crease in the over-65 pop­u­la­tion. It is like­ly to be high­er to­day.

We have been aware of this loom­ing cri­sis for a long time, but our ac­tions have been sad­ly in­ad­e­quate. How long have we been aware? Let me take you back to for­mer Prime Min­is­ter Patrick Man­ning in a 2004 bud­get speech: “...But per­haps, of greater con­cern Mr. Speak­er, is the ur­gent need for in­di­vid­u­als to en­sure they are in re­ceipt of an ap­pro­pri­ate lev­el of in­come in re­tire­ment, there­by re­duc­ing the risk of pover­ty in their re­tire­ment years...”

Fast for­ward al­most two decades, and we’re still de­bat­ing the mer­its of a much-need­ed di­ver­si­fi­ca­tion pro­gramme, while cit­i­zens lack vi­able in­vest­ment op­por­tu­ni­ties. We still do not have a han­dle on ad­just­ing the re­tire­ment age and our na­tion­al pen­sion sys­tem is sig­nif­i­cant­ly chal­lenged. It seems like we are wait­ing for the tsuna­mi wave to come ashore.

Ian Nar­ine is a fi­nan­cial con­sul­tant

who is hop­ing that this top­ic will gain trac­tion so that it will not be re­tired

af­ter this col­umn. Please send your com­ments to ian@ian­nar­ine.com