Home' Trinidad and Tobago Guardian : September 29th 2016 Contents SEPTEMBER 29 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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Eight years ago, in delivering the 2009 budget
presentation, the former Minister of Finance
Karen Tesheira said: "The Government s liability
in respect of the current pension arrangements
had previously been determined to be between
$21 billion and $30 billion as at January 1, 2007.
"We believe therefore that it has become necessary to address
this situation expeditiously in a manner that is both beneficial
"We plan to complete our consultations before the end of
the first quarter of fiscal 2009 with a view to implementation
Consider the importance of those sentences.
Eight years ago, on September 22, 2008, the minister of
finance told Parliament in the budget speech that the gov-
ernment s pension liability to its monthly paid officers---which
includes public servants, teachers and judges---could be as
high as $30 billion.
Obviously aware of the urgency of treating with the matter
of pension liabilities that were then and are now clearly unsus-
tainable at $30 billion, Mrs Tesheira proposed to complete the
consultations with T&T s public sector trade unions by the
end of December 2008 and implement the proposed changes
within one year.
It is bad enough that Mrs Tesheira did not get around to
completing the consultations, but it is worse that successive
ministers of finance---and that would be Dookeran, Howai and
Imbert---have refused to address the issue of the steady increase
in public sector pension liabilities.
What was a headache of as much as $30 billion in 2008
could be a much larger timebomb waiting to disrupt T&T s
fiscal arrangements, which are expected to be much less
favourable in the 2017 fiscal year than they were in 2008.
There are several things to note about T&T s pension arrange-
ments for public sector monthly paid employees:
• Those workers are paid according to a defined benefit
pension system, to which they are not required to contribute;
• Public sector pensions, like debt service payments, are a
charge on T&T s consolidated fund, which means those pay-
ments are guaranteed;
• According to a 2011 World Bank study, public servants
and teachers receive two per cent of their final salary for every
year worked, capped at 66.6 per cent of their final pensionable
salary, with a compulsory retirement at 60.
• Police, fire, prisons and defence force officers receive 2.5
per cent of their final salary for every year worked, capped
at either 66.6 per cent or 85 per cent of final pensionable
• Public sector pensions are payable for life, with no survivor
benefit and no inflation protection;
Now, the fact that public employees are paid a non-con-
tributory pension by the government, based on a percentage
of their final salary means that every time their salaries increase,
their pensions increase and the charge on the consolidated
fund becomes more onerous.
In the period since Mrs Tesheira reported on the government s
pension liability of up to $30 billion as at January 1, 2007,
public employees received a salary increase in 2015, that in
most cases was for the period January 1, 2011 to December
Circular #3 signed by formed Minister of Finance Larry
Howai on April 15, 2015, discloses that the cost of living
allowance (COLA), that public employees are entitled to, was
consolidated with their basic adjusted salaries and increased
every year of the three-year collective agreement period.
This means, according to the circular, that a public servant
at grade 61 would have earned $12,177 a month in 2010, but
as a result of the 14 per cent wage increase and the consolidated
of COLA, that employee would have received $14,685 a month
That s a 20.6 per cent increase in the public employees
compensation, between 2010 and 2015.
These increases are important because a public employee
who retired in 2010 with a final salary of $12,177 after 33.3
years of service would be entitled to a pension of $8,109 for
the rest of her life.
But if that public employee had gone on retirement in the
latter half of 2015---after the signing of the collective agree-
ment---with a final salary of $14,685 after 33.3 years of service,
she would be entitled to a pension of $9,780 for life.
This pension entitlement in 2015, to which she never con-
tributed a cent, would 20.6 per cent higher than the pension
entitlement of some who retired in 2010.
There is no doubt that the decision by the previous People s
Partnership administration to grant a 14 per cent wage hike
to all public employees has added significantly to the line item
for pensions and gratuities for the 2016 fiscal year.
In the budget document accompanying the 2016 budget on
recurrent expenditure, the government proposed to spend
$3.11 billion, an increase of 37.3 per cent over the $2.26 billion
spent in 2014. Of the $3.11 billion to be spent on pensions
and gratuities in 2016, $1.99 billion was set aside for public
officers alone---a 39 per cent increase over the sum of $1.47
billion allocated for 2014.
And there is no doubt that the actual amount paid in pensions
and gratuities in 2016 was much higher than $3.11 billion as
the allocated only accounts for assisted secondary school
teachers and there is no line item for the regional health author-
Monies spent on pensions and gratuities in 2016 were esti-
mated to account for about 4.94 per cent of the government s
total recurrent expenditure in the 2016 fiscal year, which was
an increase from 3.7 per cent in 2014.
While Mrs Tesheira made some useful
positive proposals for change eight
years ago---such as facilitating pension
portability and allowing pension ben-
efits to vest after two years rather
than five---I believe the purpose of
the pension reform proposal in 2008 was to make the gov-
ernment s pension liability less onerous.
She put forward three proposals to achieve this aim:
1. The benefits under the pension arrangement would be
determined based on the average of earnings over a three-
year period rather than the final year s earnings;
2. The factor used to calculate the amount of the lump sum
that retirees receive if they choose to commute 25 per cent
of their pension would be determined on actuarially appropriate
factors rather than a fixed factor;
3. Government considered the introduction of employee
contributions for members of the public service at four per
cent on average.
She also proposed that the government would increase the
salary of public service employees by the amount of any new
or increased contribution requirements, which one assumes
would be four per cent.
In effect, it seems to me, the former minister of finance
wanted to end the entitlement of public employees to a defined
benefit pension arrangement and introduce a defined contri-
bution pension for public employees.
The question is whether defined benefit pensions for public
employees is a sustainable concept for the government when
the private sector in T&T long ago made the switch to defined
Why is the implementation of crucial reforms almost impos-
sible to achieve in this country?
Last week, in this space and under the headline "Will Mr
Imbert tax T&T s casinos?" the issue of the failure of three
governments and five ministers of finance since 2007 to regulate
and tax casinos was raised.
Given the length of time that this issue of taxing casinos
has remained unresolved---and the fact that at least three min-
isters of finance have made announcements in budget speeches
about the need to tax casinos---it could be that T&T has a
systemic problem that is preventing the government from
addressing difficult and complex issues such as raising revenue
from casinos and shifting away from the financially burdensome
Will T&T's ticking pension
timebomb explode in 2017?
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