Pension crisis looms

Barbadians and other Caribbean nationals could face having to pay higher pension contributions and receive reduced pension if drastic reforms are not urgently implemented to the region’s national security schemes to solve the issue of an ageing population and lower birth rates.

This was one of the observations coming out of the Caribbean Economic Forum on Thursday evening, hosted by the Central Bank of Barbados on the topic “Solving the Ageing Population Crisis in the Caribbean”.

Derek Osborne, Partner and Senior Actuary at LifeWorks in the Bahamas, said while some countries such as Barbados and St Lucia have already taken steps to reform their pension schemes, the region was already generally facing a pension scheme crisis.

“The crisis is here. It is here for two reasons – because we have already had circumstances where pensions have been paid late and in the next 15 to 20 years each of our social security funds in the Caribbean is likely to be depleted if nothing is done dramatically to save them from depletion soon,” he warned.

“The consequences could be dire, it could include higher contribution rates for employers and workers; it could include smaller pension for those already in payment, smaller promises to those not yet in payment and thirdly, governments’ subventions directly into these national insurance funds which essentially means higher taxes for workers and contributors and employers . . . because governments will have to inject money into these funds if they don’t want to explicitly charge the higher contribution rate from the social security perspective,” said Osborne.

He said the result of late or no pension could lead to pensioners resorting to stealing, as was the case last October when a pensioner stole from a supermarket in Antigua due to what he said was late payment of his pension.

“That could be the consequence of the ultimate disaster of our pension system where in this case they still have money, but cash flow was the problem. There are many other schemes that are going to probably face similar situations, as I said, 10 to 15 years from now either through cash flow challenges or no money at all unless drastic changes happen. And so it is going to be a real situation for elderly people to face down the road,” he warned.

He said notwithstanding changes in some jurisdictions, there were others who have not made any changes at all in decades, and others who were being too slow to take the necessary reform measures.

“From a pension perspective it has to be a combination of a smaller pension and starts later. That is a given, and especially starts later for those who are still working,” he recommended.

Professor Emeritus Kark Theodore, Senior Consultant Advisor at the Centre for Health Economics at the UWI Trinidad, said that more people were leaving the labour force than the number of people entering “because the birth rates are just too low”.

He described the situation as “a potential crisis”, explaining that a labour force and savings were critical to the economy and any economy with a falling labour force is an economy that is facing “serious troubles”.

Theodore said there were also implications for the health system given that more people over the age of 60 years tend to be those needing more health services that are often more expensive.

“So that, as that cohort of the population increases what tends to happen is that the health expenditures in all our countries tend to rise at a really rapid rate and as health expenditures rise it becomes more difficult to provide health services for everybody. So that is another threat – the threat to the health system,” he explained.

Noting that the issue of an aging population was long in coming in the region, he agreed that leaders have been slow in taking the necessary measures and that wider economic challenges should also be addressed.

“We are at a stage where we have choices to make,” said Theodore.

The panelists agreed there was need for more research on the Caribbean population to help with the decision-making process, and for a more collaborative effort while learning from best practices in other regions.

Diane Quarless, Director at the Economic Commission for Latin America and the Caribbean (ECLAC), took a slightly different view, describing the situation as “an important emerging development challenge” facing the region, but one which was not yet at crisis level.

In fact, she said this issue of aging, along with other developmental challenges such as women empowerment, youth unemployment, non-communicable diseases and climate change, should be addressed in an “integrated fashion” in order to make the best outcome for the ageing.

“It is only a crisis if we do nothing about it,” she said, while pointing out many countries have already started to take steps to correct the situation through various policies and laws.

However, pointing to the high unemployment among the youth, she said “if we don’t address the issue of unemployment and skills development among youth you will not have the cohort that supports the working population. They are the working population of the future. They are the ones who we are going to be depending on to support the increased number of pensioners.”

marlonmadden@barbadostoday.bb