Raphael John Lall

Uni­ver­si­ty of the West In­dies (UWI) fi­nan­cial man­age­ment lec­tur­er, Vaalmik­ki Ar­joon, says rais­ing the re­tire­ment age will bring pos­i­tive ben­e­fits to the do­mes­tic econ­o­my, but be­lieves that this is not the right time to in­crease Na­tion­al In­sur­ance Sys­tem (NIS) con­tri­bu­tions.

“In­creas­ing the re­tire­ment age is cer­tain­ly a pro­gres­sive step – it doesn’t just help to re­ju­ve­nate the na­tion­al in­sur­ance fund, but it al­so brings sev­er­al pos­i­tive im­pli­ca­tions for the over­all econ­o­my. In­flows to the fund come from em­ploy­er and em­ploy­ee con­tri­bu­tions and re­turns on in­vest­ments.

“For some time now, the ben­e­fits paid out have in­creased, giv­en that more per­sons are liv­ing longer, but the in­flows to the fund are not grow­ing quick­ly enough to ad­e­quate­ly cov­er these ben­e­fit pay-outs.”

He said apart from a short­fall in con­tri­bu­tions, the in­vest­ment in­come from bond re­turns was low for sev­er­al years, giv­en that bond yields were quite mea­gre on the in­ter­na­tion­al mar­ket. There­fore, in­creas­ing the re­tire­ment age will pro­vide more years of in­flows to the fund via con­tri­bu­tions, and the risk of not be­ing able to pay ben­e­fits ad­e­quate­ly is sub­stan­tial­ly re­duced.

Ar­joon al­so said that giv­en the hike in US Trea­sury re­turns, the in­vest­ment man­agers are like­ly to take ad­van­tage of this and use part of the in­vest­ment in­come to pur­chase some of these se­cu­ri­ties to se­cure high­er in­vest­ment in­come for the fund.

He ad­vised that in­creas­ing the re­tire­ment age should be done in a phased man­ner, where­in the first year, it is in­creased from age 60 to 61, then in the sec­ond year from 61 to 62, un­til the fifth year when it is in­creased from 64 to 65.

He added that al­ter­na­tive­ly, this can be done every two years, so the age is in­creased to 65 over a ten-year pe­ri­od. Fur­ther, in the first year alone, those per­sons who are 59 years old should be giv­en the op­tion of re­tir­ing at 60 or work­ing till age 61.

From a pro­duc­tive stand­point, he said that rais­ing the re­tire­ment age will be good for the econ­o­my.

“An in­creased re­tire­ment age will ben­e­fit the econ­o­my from a pro­duc­tiv­i­ty stand­point—the labour force is in­creased, while those per­sons who con­tin­ue to work post age 60 will like­ly be more ex­pe­ri­enced with a high­er skill set on the job, which can boost pro­duc­tiv­i­ty lev­els.

“Fur­ther, firms can tem­porar­i­ly save on costs to train new work­ers, as their ex­pe­ri­enced staff will be em­ployed for a longer pe­ri­od and there­fore their po­si­tions will not be va­cant, re­quir­ing the com­pa­ny to hire new staff. One draw­back how­ev­er, is that by in­creas­ing the labour force in this man­ner, it in­creas­es the com­pet­i­tive­ness of the labour mar­ket and this could make it more prob­lem­at­ic for new grad­u­ates to ac­cess jobs, as there are few­er va­can­cies in the work­place since per­sons are work­ing for a longer pe­ri­od.”

Speak­ing on March 27, at a news con­fer­ence on the con­clud­ing state­ment from an In­ter­na­tion­al Mon­e­tary Fund (IMF) team on the T&T econ­o­my, Fi­nance Min­is­ter, Colm Im­bert said, “This re­quires some for­ward think­ing and to think out­side the box and the ma­jor­i­ty of the stake­hold­ers are of the view that we should in­crease the re­tire­ment age. But it is not some­thing we will jump in­to willy-nil­ly. But I’ll tell you some­thing, if it hap­pens and it is hap­pen­ing across the re­gion, then there will be more con­tri­bu­tions go­ing in­to the Na­tion­al In­sur­ance Fund and the in­tegri­ty of the Fund will be strength­ened.”

While he is in favour of rais­ing the re­tire­ment age, Ar­joon does not sup­port in­creas­ing Na­tion­al In­sur­ance con­tri­bu­tions.

“In­creas­ing the NIS con­tri­bu­tions by both em­ploy­ers and em­ploy­ees ought to be avoid­ed at this stage, es­pe­cial­ly giv­en the fi­nan­cial stress that much of the pri­vate sec­tor en­dured due to the pan­dem­ic. This will in­crease their busi­ness costs fur­ther which will be prob­lem­at­ic es­pe­cial­ly since costs have al­ready risen due to high­er prices of raw ma­te­ri­als and goods for re­sale from for­eign sup­pli­ers, fu­el and trans­port costs, rent and de­mur­rage charges at the port among a host of oth­er costs en­dured.

“In­fla­tion lev­els, es­pe­cial­ly food in­fla­tion, are al­ready chal­leng­ing, and high­er NIS pay­ments will com­pound this, while al­so low­er­ing the dis­pos­able in­come avail­able to meet these high­er costs of liv­ing,” he told the Busi­ness Guardian.

In a state­ment last week, UNC MP Rudy In­dars­ingh claimed al­though Fi­nance Min­is­ter Colm Im­bert de­nied want­i­ng to in­crease NIS con­tri­bu­tions it is clear that the Gov­ern­ment wants to “le­git­imise its po­si­tion as an IMF rec­om­men­da­tion.”

In­dars­ingh al­so said af­ter hold­ing stake­hold­er meet­ings with unions, the Gov­ern­ment was un­able to achieve con­sen­sus on in­creas­ing the re­tire­ment age.

Speak­ing at the news con­fer­ence last month, Im­bert said: “They (IMF) told us to take a look at in­creas­ing the con­tri­bu­tion rate and that we have al­ways said is a last re­sort. We are look­ing at it now to see if it makes sense. But we are al­so look­ing at in­creas­ing the re­tire­ment age to 65 years. So the IMF is say­ing, look, we need to have a tran­si­tion away from en­er­gy in due course.”

Im­bert al­so said the ma­jor­i­ty of stake­hold­ers are of the view that the re­tire­ment age should be in­creased how­ev­er it is not some­thing the Gov­ern­ment will “jump in­to.” He added that if it hap­pens more con­tri­bu­tions will go in­to the NIS fund.

Im­bert ad­dressed the 20 points made by the IMF fol­low­ing its Ar­ti­cle IV Con­sul­ta­tion mis­sion in T&T this year. Among the IMF points looked at by Im­bert, was the sug­ges­tion that long-term fi­nan­cial risks re­lat­ed to T&T’s pen­sion sys­tem need to be ad­dressed.

In 2022, Im­bert said that in­creas­ing con­tri­bu­tions is a last re­sort in deal­ing with the short­falls in the Na­tion­al In­sur­ance Board.