Noble: Trying a thing like a Trini; the problem with our pension plan

There is a quintessential Trini way to do business: we have enough of a façade to look professional, but we do things by vaps while the professionals stew silently. This tendency puts us into a weird space where the principals can vehemently protest that they follow the ‘science’. 

Meanwhile, the professionals can only mutter sotto voce while the principals take breathtaking, reality-defying positions. This scenario sums up the unfolding mess of the National Insurance Scheme (NIS). 

Photo: Prime Minister Dr Keith Rowley (left) and Minister of Finance Colm Imbert.
(via Trinidad Express)

Nobody spends time thinking about pension plans until it matters. Pensions are designed to help us live well by smoothing out our lifetime earnings. Attention-grabbing headlines and the vigorous defence of Minister of Finance Colm Imbert now capture our imaginations.  

Will the National Insurance Board (NIBTT) need to sell assets to pay pensioners their benefits? Being divided by partisanship, allegations implying impropriety are flung carelessly—but we fail to discuss the substantive issues. 

The management of funds is crucial to financial sustainability. We lurched from the swashbuckling days of Calder Hart (exemplified by a 2009 injection of US$99 million into Clico Investment Bank) into a bidding war between our two major political parties. 

In 2010, Mr Patrick Manning called an early election which ushered in the most radical change in our public (non-NIBTT) pension plans. In May, he raised the Old Age pension to $2,500, surpassing the level of the minimum NIBTT pension, which required 750 weekly contributions but only paying $2,000 monthly. 

The UNC won the election with a promise to take it to $3,000, which they did in September. The non-contributory Old Age, taxpayer-supported pension grew by 40% in real terms in less than a year, compared to a 13% growth between 2004-09.

Photo: Putting away a little something…

This single action continues to undermine the NIS system, removing the incentive to save through the NIS. The NIS then followed suit by changing their benefit to $3,000 (up 50%) in 2012, an increase unsupported by the then most recent Actuarial Review recommendations. 

These actions reflected a people drunk on the fumes of an energy boom and ignorant of the 2008 financial crisis, which slashed investment returns. We believed that the unique ‘demographic dividend’ (more working-age people than those retired) would last forever. 

But the Actuaries had warned us in the 8th Review (2010). They said: ‘Contribution income and benefit expenditures have closely matched projections over the period from 1 July 2005 to 30 June 2010. The TT$3.3 billion shortfall in accumulated assets at the end of 2009-2010 is essentially due to unfavourable deviations regarding investment returns… The ratio of contributors to pensioners will decrease…

‘Financial projections reveal that system’s expenditure will exceed contribution income from 2012-13… the contribution rate should be increased from 2013 (to meet) the cost of the system over the period 2013-2017… There is a need to plan for long-term contribution rate increases.’ 

Photo: Counting pennies…

Nobody stole the money; the politicians focused exclusively on the short-term while ignoring the overall pension system’s long-term costs and viability. The NIBTT needs enabling legislation to act. This open pipe flushes at least $1 billion annually in subsidised payments, robbing the investment funds of possibly $7 billion since that period.  

A Trinidadian who has never worked a day can get more pension than those who have faithfully contributed over a lifetime. This unharmonised structural mess remains unacknowledged. 

Trinidad and Tobago has the most generous non-contributory plan in the Latin American region, paying a higher pension than our minimum wage (World Bank Publications, 2014). Of the over 65 years age cohort, 80% are beneficiaries, and some can combine their NIS benefit. 

Is the ‘means test’ to qualify for the Senior Citizen Pension really working? 

From the NIS’ inception, there was an intent to incorporate self-employed persons. Since 2014, a committee reviewed the NIBTT’s recommendations for introducing ‘Self-Employed Persons’ coverage. The Cabinet agreed in July 2015, but no further steps have been taken.

Photo: Minister of Finance Colm Imbert.
(Copyright Office of the Parliament 2021)

This group, including those with short-term contracts, accounts for approximately a fifth of the labour force, particularly the under-45s.

Few now hire permanent staff, robbing the NIS of potential contributors. These young people may have cash today but have a high risk of becoming poor because of the lack of a safe, cost-effective savings plan. Using their money to deal with other life risks robs them of any incentive to join an illiquid retirement system. 

How does spending more money on our retirees than on education increase the country’s ability to generate wealth? How do we weigh the gains of one generation against the losses of the other? Will we harmonise our pension system? 

We need to adhere to sound actuarial advice rather than our populist tendencies. Will our politicians lay aside partisan instincts to do what is required to enhance our economy’s capacity?

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About Noble Philip

Noble Philip
Noble Philip, a retired business executive, is trying to interpret Jesus’ relationships with the poor and rich among us. A Seeker, not a Saint.

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