Pension bogey on government’s back

On its present course, old age pension, NIS and the civil service pension, will rise from 3.5 percent of gross domestic product (GDP) in 2002 to 4.5 percent of GDP in 2020. Minister in the Ministry of Finance, Conrad Enill said this picture worsens considerably, as by the year 2050, given current demographic trends, expenditure on the public sector pensions will be in the order of ten percent of GDP, when it is expected that there will be fewer contributors than pensioners. He said Government’s focus on pension reform is not new, nor is it unique to TT. He noted that policy makers around the world are struggling to adapt their pension systems to the reality of aging populations, globalisation and tightening budgets. “We recognise that we must act now if we are to pre-empt the disruptive fiscal implications that will surely come our way if we do not do so.” “Today that crisis looms ever clearer as improvements in medicine and technology allow people to live longer, healthier lives. This when coupled with decreasing fertility rates and the attendant declining labour forces worldwide; the increasing trend towards early retirement and early exit from pension systems have rendered traditional pay-as-you-go systems almost obsolete.” He said Government’s challenge is to place the public pension system on a sound financial footing, while at the same time achieving the core social objective of ensuring that the minimum benefits to be received by a pensioner will be at least $1,000 per month.

Enill said Government began work on pension reform, in January 2002, when  they approached the International Monetary Fund (IMF) for technical assistance in evaluating the public sector pension system. A report was submitted in April 2002 and Government circulated the draft report in total to key stakeholders, including the NIB and the representative trade unions. The general consensus on the report was that it was short on detail and did not provide adequate technical support for the assertions and recommendations made. He said the report was a good starting point and has sufficiently emphasised the urgent need to address the issues in a broad-based consensual manner. Enill noted that at the end of 2000, the latest period for which published figures are available from the Supervisor of Insurance, there were 208 registered occupational pension plans of which, 88 were self-administered while the other 120 were insured. The total fund under management from these private occupational pension plans was $11.9 billion with the self-administered plans accounting for over 80 percent of the funds under management. Funds administered under the national insurance system represents an additional $9 billion. Pension funds, therefore, with assets under management of $20 billion are a major component of TT’s financial system.