Home' Trinidad and Tobago Guardian : June 25th 2015 Contents BG14 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JUNE 2015 • WEEK FOUR
No mega trend will
define the next 40
years more than the
global pension crisis.
This is according to
author Richard Marin
in his book Global
Unfunded Liabilities and How We Can Fill
the Gap. This is a serious issue that is guar-
anteed to affect every citizen in this country
in the coming years.
The crisis is global but Trinidad and Tobago
is just as, if not more, vulnerable due to our
dependence on a depleting hydrocarbon
Marin speaking at the Financial Analyst
Seminar in July 2014 suggested that the pension
crisis that is to come would be species defining.
This is because as human beings we are defined
in terms of how we provide for our young and
how we care for our old. It is the competing
needs of these two demographic extremes that
will become ever more visible over the coming
Finding the balance between feeding the
grandparents of tomorrow (all of us over 40)
or giving tomorrow s children (our children s
children) the opportunity to participate in the
growth trend that previous generations have
enjoyed is the challenge that lies ahead.
As pension deficits increase, the battle
becomes a financial one where the provision
of fundamental and basic human services to
the elderly will mean having to sacrifice growth
for the younger generations.
This discussion is defining from a political
context as well since two competing elements
in a democracy seek to find space for their
economic well being that is likely to come at
the expense of the other.
As the saying goes, demographics is destiny,
and so to understand the issue you have to
understand the demographic trends, both glob-
ally and in Trinidad and Tobago.
Globally up until the turn of the last century
we were accustomed to what is called a demo-
graphic pyramid where there is a larger pop-
ulation of younger persons at the base that
grows smaller as the population ages with the
smallest demographic being the oldest persons
at the top of the pyramid.
For the better part of history, children were
the best pension plans. Beyond that, they were
up to about 100 years ago also a viable source
of labour and so provided an economic return
to the family unit. In those circumstances it
made sense to have more children as first of
all they can assist with chores in a predom-
inantly agrarian society with an additional
buffer that the elder ones can also assist in
caring for the younger. Secondly because of
mortality rates at the time, statistically you
were required to have around five children in
order to "guarantee" having enough children
alive to take care of you as you age.
In today s society, rather than being a "ben-
efit" the reality is that children represent a
"cost" to the parents. For the better part of
18 years a child will contribute very little in
economic terms to the family unit but will
cost the unit on average anywhere from
$600,000 to $3,000,000 over that period.
If you ever wondered why alternative
lifestyles have become so "popular" in modern
media space the answer is rooted in economics.
The income that would have gone into the
family unit and used for raising a child is being
redirected by the promotion and marketing
of other lifestyle choices. The result is that
birth rates per woman in much of the devel-
oped world have fallen below 2.1 children. This
is considered the replacement rate necessary
to maintain the current population level. For
reference, the fertility rate in Trinidad and
Tobago is 1.7 children per woman.
The other dimension is that as access to
and the quality of healthcare increases, people
are living longer thus increasing the number
of people at the top of the traditional pyramid.
The impact of this shift is already clear. The
pyramid is now reflecting a smaller base and
a wider peak. Over the next few decades it
will no longer be a pyramid but rather more
resemble a skyscraper with a tapered top. In
countries like Japan adult diapers outsell chil-
drens diapers. The demographics of Germany
is only slightly better than Japan and other
European nations like France and Italy are
poorly positioned as well.
No longer will there be a big base of younger
age groups to support the non-working or
retired persons at the top. Worse still, the eco-
nomic crisis and recession of the past eight
years have negatively impacted the retirement
nest egg of those heading into retirement and
have also created a growing pool of unemployed
youths. This is especially the case in Europe.
Picture the trends where in the current mid-
dle-aged demographic, the traditional unit of
a husband, wife and five or more children is
being diluted into families with two children
or less, people having children later in life and
some none at all. Consider those without chil-
dren spending the majority of their disposable
income not on saving for retirement but on
Consider as well a significant pool of unem-
ployed or under-employed youths. If T&T
were to continue on its anemic growth path
this situation would become more pronounced.
Lack of employment opportunities means that
it takes longer to acquire some of the aspi-
rational items of life such as a home or a car.
Saving and investing, especially for retirement,
becomes a very remote concept.
I am sure you are able to appreciate the
scale of the problem. Marin in his book esti-
mates that by the year 2050 the gap in retire-
ment funding globally will be US$100 trillion.
That funding will either have to come from
already over indebted countries or through
higher taxes. Either that or benefits will have
to be cut and people will have to delay retire-
ment and work longer.
Planning for those issues has to take place
now. You cannot wait until someone is five
years from retirement to tell them they have
to work another five to eight years. In addition
the workforce has to be oriented so that oppor-
tunities are still there for entrants while seniors
stay on the job.
To emphasize the point about planning con-
sider the age dependency ratio for T&T. This
is the ratio of people who are dependent on
the working age population for support. Under
a pay-as-you-go taxation system this is a very
relevant metric as it shows the relationship
between persons under the age of 15 and over
the age of 65 versus the working age popu-
In 1962, our age-dependency ratio was 87
per cent, which reflected an almost one to
one relationship between a working age person
and a dependent person. Back then the larger
pool of "dependents" came from children, as
the ratio of children under 15 to the working
age population was 80 per cent.
As the country got more affluent and as
inflation began to take root people progressively
had fewer children to the point where the ratio
of persons under 15 to working aged persons
is now around 30 per cent. This is a 50 per
cent move in 52 years.
In 1962, the ratio between the population
over 65 to those of working age was 7 per
cent. Today it stands at 13 per cent. As fewer
children are born and people live longer the
relationship will become increasingly skewed
towards a larger,older demographic. The overall
aged dependence ratio bottomed out in 2009
at 38 per cent. Today the estimated ratio is
43 per cent, with the increase due to an increase
in the over 65 population.
We are aware of the problem although we
have contrived to do very little about it. In
2004 former Prime Minister Patrick Manning
stated in the budget:
"...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.
T "he responsibility on the State to provide
for one s welfare in retirement must be reduced
and eventually removed. It is imperative that
there be a shift in the culture to one of indi-
"Such a fundamental shift in responsibility
will require an aggressive programme of infor-
mation dissemination to educate the public
at large on the benefits of individuals taking
increasing responsibility for their own welfare
during their retirement years."
Ten years later where is the culture shift?
We are still debating the merits of a much-
needed divestment programme, and citizens
lack of viable investment opportunities. Worse
still the labour movement in this country,
which should be at the forefront of this issue,
seems more interested in politics and infighting
as opposed to bringing this fundamental issue
to the fore.
Ian Narine is a broker registered
with the SEC and can be contacted
T&T's looming pension crisis
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