Home' Trinidad and Tobago Guardian : June 1st 2017 Contents BG14 | FINANCE
BUSINESS GUARDIAN guardian.co.tt JUNE 1 • 2017
T&T's looming pension crisis
No megatrend will define the
next 40 years more than the
global pension crisis.
This is according to au-
thor Richard Marin in his
book Global Pension Crisis:
Unfunded Liabilities and How We Can Fill the
Juxtapose this statement against the recent
headlines regarding the state of National Insur-
ance fund and what needs to be done to pre-
serve the fund. Then recognise this is a serious
issue that is guaranteed to affect every citizen
in this country in the coming years.
The crisis is global but T&T is just as, if not
more vulnerable due to our dependence on a
depleting hydrocarbon resource.
Marin speaking at the Financial Analyst
Seminar in July 2014 suggested that the pen-
sion 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 decades.
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 funda-
mental and basic human services to the elderly
will mean having to sacrifice growth for the
This discussion is defining from a political
context as well since two competing elements
in a democracy seek to find space for their eco-
nomic well being that is likely to come at the
expense of the other.
As the saying goes, demographics is des-
tiny, and so to understand the issue you have
to understand the demographic trends, both
globally and in T&T.
Globally, up until the turn of the last cen-
tury, we were accustomed to what is called a
demographic pyramid where there is a larger
population 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 say 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 predominantly 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.
This economic reality along with other life-
style choices has seen birth rates per woman
in much of the developed world fall below 2.1
children. This is considered the replacement
rate necessary to maintain the current popu-
lation level. For reference the fertility rate in
T&T is 1.7 children per woman.
The other dimension is that as access and
the quality of healthcare increases, people are
living longer thus increasing the amount of
people at the top of 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 a sky-
scraper with a tapered top. In countries like
Japan adult diapers outsell children diapers.
The demographics of Germany is only slightly
better than Japan and other European nations
like France and Italy are poorly positioned as
No longer will there be a big base of young-
er age groups to support the non-working or
retirees at the top. Worse still our current eco-
nomic woes coupled with a zero growth and
interest rate environment of the past eight years
have negatively impacted the retirement nest
egg of those heading into retirement.
Further, we are faced a growing pool of un-
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
Now add to this the growing pool of unem-
ployed or under employed youths. If T&T were
to continue on its anaemic growth path this
situation becomes more pronounced. Lack
of employment opportunities means that it
takes longer to acquire some of the aspirational
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 estimates
that by the year 2050 the gap in retirement
funding globally will be US$100 trillion. That
funding will either have to come from already
over indebted countries or through higher tax-
es. Either that or benefits will have to be cut
and people will have to delay retirement and
Planning for those issues have 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 opportunities are still there for entrants
while seniors stay on the job.
To emphasise 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 population.
In 1962 our age dependency ratio was 87 per
cent, which reflected an almost one to one re-
lationship between a working age person and
a dependent person. Back then the larger pool
of "dependants" 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 in-
flation began to take root people progressively
had less children to the point where the ratio of
persons under 15 to working aged individuals 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 7.0 per
cent. Today it stands at 13 per cent. As less
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 Speak-
er, 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.
"The 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-
vidual responsibility. Such a fundamental shift
in responsibility will require an aggressive
programme of information dissemination to
educate the public at large on the benefits of
individuals taking increasing responsibility
for their own welfare during their retirement
Thirteen years later, where is the culture
The population is none the wiser and those
that are aware lack viable investment oppor-
tunities. Worse still the labour movement in
this country who should be at the forefront of
this issue seem more interested in politics and
infighting as opposed to bringing this funda-
mental issue to the fore.
Ian Narine is an investment advisor registered
with the SEC and can be contacted at ian.
Links Archive May 31st 2017 June 2nd 2017 Navigation Previous Page Next Page