“NIS CRUNCH TIME”. This was the inconspicuous title of a July 2021 Express article that points to an issue that is far more important, relevant and impactful than many of us realise. This article echoes a problem that is not at all endemic to Trinidad and Tobago but in fact exists all over the world – that is, the reality of declining contributions and increased pay-outs from public pension programs. The Pension Crisis or Pension Timebomb as it’s also referred to, is ticking away in the UK, Germany, Japan, Canada, the US – all over the developed and industrialized world – and it’s no new phenomenon. I mean, economists, actuaries, financial planners, everyone is speaking about it. Are these social security programs truly ‘secure’? What must each of us do to secure our individual futures?

National Insurance Board (NIB) Actuarial Reviews, which occur at least every 5 years, examine the current state of the NIS (National Insurance System) and make projections for the future along with recommendations to ensure the financial sustainability of the fund. One statistic specific to the Trinbago context that was highlighted in the 10^thActuarial Review (2016) is that the NIB has projected that by 2066, T&T’s 60-plus population will be almost double its current size while the number of people in the 16-59 age group will decrease by at least 25 per cent. This review also estimated that the ratio of contributors to pensioners will decrease from 4.0 to 1.6 over the projection period, meaning that the current problem will only get worse if the necessary adjustments are not implemented.

These demographical changes are primarily driven by two things – a decreased fertility/birth rate (meaning a decreasing relative number of workers and so fewer NIS contributions) along with an increasing proportion of older persons due to increased life expectancy (meaning an increasing relative number of retirees and so more NIS pay-outs). Increased life expectancy (with fixed retirement age) increases the number of retirees at any time, since individuals are retired for a longer fraction of their lives, while decreases in the fertility rate decrease the number of workers.

Some recommendations coming out of these annual reviews include:

• Adopting reforms, either by way of increasing contribution income and/or reducing benefit promises with particular consideration being given to the development of a strategy for gradually increasing the contribution rate over the next three decades whilst favouring the gradual increase of the retirement age.
  In the 10^th Actuarial Review, it was recommended to increase the contribution rate to 16.2% starting in July 2019. With such an increase, the year the projected reserve is depleted moves from 2035–36 to 2042–43 (more on this is below). Further to this recommendation being insufficient to restore financial sustainability over the long term and further contribution increases being necessary, this initial increase to 16.2% was not even implemented.
• NIBTT should continue to increase representations for an increase of the limit presently imposed on overseas investments. This increase would widen the pool of available investment opportunities for the NIB, allowing access to productions in other industries and denominations. Currently, 78% of NIB’s portfolio is invested in TT and 22% in North America.

NIBTT should collaborate with its key stakeholders regarding the establishment of a funding policy that would outline clear objectives to govern the adjustment of parameters. Such a policy would provide a clear framework and procedure for long term management of the fund in a manner that supports its long term viability and decrease the weight of political influences on the management of the fund and payment of benefits.

According to the 10^th Actuarial Report: The Pay-As-You-Go (PAYG) rate is the rate that is necessary to pay all expenditures (benefits and administrative expenditures) in each year. At the beginning of the NIS, this rate was close to zero but has increased with time. The difference between the effective contribution rate and the PAYG rate is used to accumulate a reserve. For the NIS, the difference has been negative over the most recent years, meaning that investment returns are used to pay the expenditure. Projections from this report indicate:

1. In all years (2016 to 2066) annual contributions are no longer sufficient to pay for all annual expenditures. In fact, the PAYG rate exceeds the current legal contribution rate (13.2%).
2. At the beginning of the projection period (2016), investment income must be used to pay for annual expenditures though starting in 2023-2024, total income (contributions, investment income and other income) is no longer sufficient to pay for all annual expenditures and the reserve starts to decrease. While we wait to see how the income and expenditure match up for 2023-2024 and beyond, we have seen that from 2013 to date, investment income was required to cover annual expenditures and the gap between contribution income and benefit expenditure has grown each year.
3. During the year 2035 -2036, the reserve drops to zero.

In their 2020 and 2021 Annual Reports, the NIB also proposed legislative amendments in line with 10th Actuarial Report. They suggested:

• To increase contribution rate to 16.2%
• That the minimum pension should be frozen to give at most 80% of the minimum wage.
• To increase retirement age to 65

To reduce pension by 6 percent for each year’s retirement benefit claim before the age of 65.

However, none of these suggestions have been implemented as these recommendations are left to politicians that occasionally effect changes contrary to the actuarial recommendations. Very often their short -term interests conflict with the recommendations and they do not wish to adversely affect the population i.e. the current voting base.

There are surely consequences to this, some of which we continue to see the effects of. The NIB’s 2020 Annual review states, “Of continuing great concern over the last 6-7 years is the increase in the disparity between Contribution Income and Benefit Expenditure. This growing shortfall has been supplemented by investment income. If the status quo is maintained, it is projected that as early as the next 2-4 years assets will have to be liquidated to ensure that benefits can continue to be paid in full.”

So, what do we do? And I’m not asking generally – I don’t mean ‘we’ the government. What do you and I do to secure our own futures?

There really is only one option – many means of getting there I suppose – but still one option. And that is – PREPARE for your own retirement by saving and investing. We all want a reward for our labours, to guarantee we can finance the lifestyles we wish for when we retire. Sure, millennials like me speak about being ‘rich in experiences’ now! YOLO we say…you only live once… but what good is that ‘YOLO’ if when you’re most vulnerable you’re unable to care for yourself?