Urgent pension reform will have to take place in Barbados and other Caribbean states as they continue to witness an aging population and dwindling contributions.
The reminder has come from Moisés Schwartz, Manager of Institutions for Development Sector at the Inter-American Development Bank (IDB), who warned of the inevitable pressure that would be placed on state-operated pension schemes in the Caribbean as a result of changing demographics.
He was speaking during the 2021 Caribbean Economic Forum series on Thursday night, under the topic: Resilient Institutions and Why They Matter To Me.
“In the Caribbean, adults aged 65 and older would constitute 20 per cent of the population of Caribbean countries by 2050 or earlier as opposed to the 19 per cent we observe today. So population aging will certainly put pension schemes in the Caribbean under increased pressure in the coming years,” he warned.
Stating that most regional countries generally maintained a pay-as-you-go pension system where individuals would help fund their own retirement plans, he said such a system was only sustainable with a high percentage of people working.
Schwartz cautioned that while the issues surrounding pension reform were “difficult” and might not be of immediate urgency to some countries, “ in the coming years governments will need to address this problem and prepare themselves”.
He explained that some countries around the globe are already anticipating such a challenge and have been making necessary changes including increasing workers’ and employers’ contributions, adjusting pension benefits for civil servants, increasing retirement age or complemented existing pension schemes with other modalities.
“So there are many reforms that need to be placed in basically every single Caribbean country in order for the government to face this pension down the road. So the medium-term – 10 or 15 years from now – there is going to be a lot of pressure on fiscal accounts in order to face these pension payments,” said Schwartz who added, “So it is about time that policymakers start making some provisions on anticipating this difficult element.”
Barbados is considered one of the Caribbean islands with a rapidly aging population and a dwindling workforce.
Recently, the International Monetary Fund (IMF) hinted at the need for pension reform, with pundits predicting that Government could further increase the retirement age and pay out lower benefits for non-contributory pension.
An IDB study late last year had revealed that in 2019, Barbados had the highest level of public pension spending among Caribbean countries, reaching some 7.7 per cent of gross domestic product (GDP).
The Mia Mottley administration has yet to outline any possible pension reforms.
Effective January 2018, pensionable age was set at 67, up from 66 and a half years old. However, individuals may retire on a National Insurance Scheme pension from the ages of 60 to 70. Individuals opting for early retirement will receive a reduced pension.
Former Governor of the Bank of Jamaica Brian Wynter said in the case of Jamaica, pension reform had started with civil servants, pointing out that the government there had started a “shift towards making it a funded arrangement that calls for contribution from the public sector workers”.
However, he said very few private sector employees have a pension scheme in place, pointing out that discussions have started and legislation would be introduced to ensure that such pensions were “easier to have” and to “convince” individuals it was needed no matter their monthly earnings. (MM)