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Pension reform inevitable – let’s get on with it

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The critical need for pension reform is a point which has been made at every Budget debate since 2011, and when the 2018 Estimates are laid in a few weeks time, the topic will again come up for discussion.

Hopefully, this time, additional measures will be announced to correct a situation which Prime Minister Dr Ralph Gonsalves, at a press conference this week, again described as unsustainable.

Over the last four years or so, the Government has pushed ahead with certain aspects of pension reform, including increasing the rate of NIS contributions from eight to 10 per cent in 2014, and beginning in 2016, gradually increasing the NIS retirement age from 60 to 65. By the end of this year, the NIS retirement age will have increased to 65 years.

Those aspects of reform were relatively easy pills for the public to swallow, but the aspect of pension reform, which successive governments have been avoiding, is how to deal with the very generous public service pension entitlements. At present, some public servants may retire with full benefits as early as 55, and when they get to age 60, and their public service and NIS pensions are combined, they will receive as much as 127 per cent of the salary they were receiving at the time of retirement.

During the 2017 Budget debate, the Prime Minister, then Minister of Finance, said that the rate of growth in government pensions has consistently outpaced the rate of growth in total expenditure and he pledged that he would not leave that unsustainable situation for the next generation of leaders.

Given that the Prime Minister has begun the process of transitioning the political and administrative/technical leadership of Government to the younger generation, it would be reasonable to conclude that he will use the occasion of the 2018 Budget to announce plans to substantially move forward with the more politically dangerous areas of pension reform, including the merging of the NIS and public service pensions.

In 2011, Dr Gonsalves said among the strategies for possible reform were (1) a gradual increase in the contribution rate for the long-term benefit branch of the NIS; (ii) a gradual increase in the retirement age to 65 years; (iii) aligning the NIS and public service system retirement ages and (iv) a possible merge of the public service pension system with the NIS.

The first two of these strategies have been implemented, but the latter two, which directly impact public servants, are still reportedly under “discussion”. There is bound to be resistance to pension reform in these categories, as those about to retire will argue that they should be entitled to the same privileges as their predecessors. But public servants must not short sighted and should always keep the big picture and the future of their children in mind.

Additionally, in a politically-charged atmosphere, such as that which exists in our country, it is understandable why the Government would be reluctant to press ahead with the changes. But the fact is, we cannot escape the inevitable. The more we procrastinate, the more difficult it will be to find a solution, and the more detrimental the effect on the national economy.

Move forward we must, in the best interest of our nation.

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