Income inequality refers to the uneven distribution of income throughout a population.

It is regarded as “the income gap” and speaks to the unequal distribution of wealth. Speaking at a summit in 2021 on the topic “A New Global Tax Agenda” Alicia Barcenia, executive secretary of the Economic Commission for Latin America and the Caribbean, said “the fight against income inequality requires more progressive taxation that helps with income redistribution”. She proposed property and wealth taxes to reduce income inequality, aid the distribution of wealth and provide additional revenue.

Proponents of progressive taxation believe that this form of taxation can be used for poverty alleviation programmes.

Retirement income inequality refers to the uneven income distribution in retirement.

Saving for retirement continue to be an uphill struggle for many, and the situation has worsened since the advent of COVID-19. How can government, employees, unions, and employers in the private sector help to prevent a worsening crisis?

The income of low income and middle income families continue to weaken due to several factors. Prior to the pandemic, retirement income inequality has been a challenge for many years. Job losses due to the pandemic have erased the savings of some employees. Those who are no longer able to contribute to a pension plan are losing time and money. It has become increasingly difficult for many families to save and this has severe implications for retirement planning. Also, increasing health cost, the caregiving of older dependent family members such as parents and grandparents, educational costs and the general rise in price of goods and services, increased debts have resulted in reduced disposable income. Low wages, an unstable job market and the continuous high rate of inflation have also impacted planning for retirement for low and middle income earners.

Continuous income inequality is expected to persist in retirement, more so because the monthly pay cheques will become a memory. The retirement income for the wealthy is, at the same time, likely to increase in retirement while the income of low income earners is projected to decrease. If the wage gap between the wealthy and the poor continue to increase, then it means that even with social security benefits, the income gap between the wealthy and the poor will worsen in old age. Increasing, minimum wage periodically may help the poor during their working life to deal with the risks of inflation and low income earners who contribute to a pension plan would need to live below their means in order to have any saving for retirement. Studies show that in 1996, 20 per cent of the wealthiest Jamaicans own over 43 per cent of the wealth. Having closely analysed the Jamaican scenario, I believe the gap in the retirement income inequality can be reduced if compulsory retirement saving is implemented and employers encouraged to facilitate salary deductions for personal pension or approved retirement plans for their employees in the formal sector. The growing income gap has resulted in more seniors extending their working years.

In regards to the informal sector, there are domestic helpers in Jamaica who have personal pension plans and who consistently save for their retirement. Some of them are assisted by their employers who ensure that pension funds are remitted.

The number of domestic helpers who have a pension plan may be low, but it shows what is possible if implemented on a national scale. The poor needs to save more, and policies need to be implemented to assist in this endeavour, as the poor is at risk of suffering in retirement with little or no income.

While, some pre-retirees are worried about their retirement income and may have to make significant reduction in spending in retirement, human resource personnel and employers need to re-look their assessment of retirement planning, as often times retirement experts are not consulted until the employees are five years or less from retirement.

The best thing is to start retirement planning early. Employees need to be encouraged to save for retirement from the very first pay cheque received. Small amounts add up and make a significant difference when invested over the long term. Compound interest and time will grow funds exponentially. Investing to supplement formal pension plans is a path to financial freedom, wealth creation and peace of mind in retirement.

Grace G McLean is a financial advisor at BPM Financial Limited. Contact her gmclean@bpmfinancial, and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email her at livingaboveself@gmail.com