The biggest pension policy challenge faced by most countries in Latin America and the Caribbean today is low coverage of formal pension systems, both in terms of the number of workers participating in pension schemes and the proportion of the elderly receiving some kind of pension income. Efforts to close the coverage gap, for example through non-contributory pensions, are therefore not surprisingly at the heart of the regional pension policy debate. However, these policies might pose significant fiscal challenges in the coming decades as the population ages.

According to data from the Inter-American Development Bank (IDB), pension coverage in the region has increased in recent decades but varies dramatically from country to country. On average, 69 per cent of people over 65 receive a pension, a major increase from 20 years ago when the percentage was 46 per cent. Only 42 per cent of workers in the region — and less than 30 per cent of the working-age population — contribute to pensions, so strategies to achieve high coverage have relied on expanding non-contributory benefits. Though their coverage has expanded, most pension systems provide meagre benefits.

According to the IDB, on average, pensions are 42 per cent of the value of wages, with large variation across countries. The highest values are in El Salvador, Paraguay, Colombia, Uruguay, and Brazil, where pensions represent more than 50 per cent of average wages.

By 2019, a few countries in the region had reached almost universal pension coverage. In Bolivia, Suriname, Brazil, Guyana, Chile, and Uruguay, more than 85 per cent of older people were receiving a pension. At the other end of the spectrum, pension coverage was under 20 per cent in Guatemala, El Salvador, and Honduras.

In the Caribbean, countries have implemented improvements to supervision at both the strategic and operational level, increasing retirement income security for vulnerable people in old age.

The pension sectors of most Caribbean countries have experienced consistent growth, also boosting the countries’ economies. And there has been a rise in people being registered for pension plans, increasing the number of prospective retirees who will be financially independent and cared for in old age. In Jamaica, the Financial Services Commission (FSC) reported that the total value of assets in the pension industry amounted to $705.58 billion as at June 30, 2022.

Rising rates of chronic health conditions, frailty, and loss of functional ability are all characteristics of aging societies, and health-care systems need to adapt to them. The region has made major progress towards this change in approach, albeit to varying degrees in different countries. However, there is still much to be done.

Protecting the vulnerable

Internationally, state and local pension plans have taken a beating from a bear market, geopolitical conflict and record inflation in 2022. State and local pension plans have reached historic levels of investments in equity and real estate, doubling down on what has become a high-risk, high-reward dilemma for trustees. This paid off in 2021 but has caused a lot of pain this year.

More than ever, there needs to be some sort of safety net created for vulnerable retirees.

Why? Just take a look at the population demographics of the Caribbean and Latin America, and you will see the need to be more proactive when it comes to retirement plan sustainability and accountability.

While it took 67 years for people over 65 to go from representing 10 per cent to 20 per cent of the total population of France, the same transition is expected to happen in less than half this time (32 years) in the average Latin American and Caribbean country. The transition will be even faster in some countries.

By 2085, Latin America and the Caribbean will be the first region where one in three people will be over age 65. Latin America and the Caribbean will have fewer economic resources than high-income countries to address this population aging process. Population aging will strain social protection systems that underpin older people’s quality of life and will impose policy trade-offs. Population aging reduces pension systems’ financial sustainability: years of retirement increase and the ratio between the contributory base and pensioners shrinks.

It also exerts pressure on health-care systems, as older people have higher per capita health-care expenditure. Furthermore, the trend increases the demand for long-term care services, as older individuals are more likely to lose functional ability and need help performing activities of daily living. Such challenges are even more worrying in Latin America and the Caribbean, where informal employment is widespread and social insurance and public services are scarce, fragmented and, in some cases, underfunded.

Older people’s quality of life is determined by a combination of healthy life expectancy and income security. Jamaica and the wider region need to ensure that social protection policies cater to the overall well-being of older people, meaning a combination of pensions, health care, and long-term care policies that meet the actual need of the times. Pensions reduce poverty among older people. Health care improves their health status and lowers the risk of poverty due to catastrophic medical expenses. Long-term care enhances the well-being of those who are care-dependent and their family caregivers.

The IDB notes that people in Latin America and the Caribbean who reach their 65th birthday can expect to live another 18.7 years, on average, while their health-adjusted life expectancy is 13.9 years, up from 13 in 2000. On average, in countries in Latin America and the Caribbean, 14.4 per cent of people over age 65 live in a situation of care dependence and need help performing at least one basic activity of daily living. In absolute numbers, this means almost eight million older people in the region require long-term care services. The need demonstrates both the critical need for sound pension plans and broader social and/or fiscal protections.

Making an impact

As part of our growing mandate to help protect vulnerable, at-risk members of the population, VM Pensions Management Limited has, for instance, partnered with the Jamaica Manufacturers and Exporters Association (JMEA) to provide special pension solutions to JMEA member companies and their employees.

The offer includes an approved retirement scheme portfolio — the Jamaica Manufacturers and Exporters Retirement Account (JMEARA), specifically tailored for JMEA members.

This portfolio comprises a balanced allocation of Jamaican and US dollar-denoted equities and fixed income securities, as well as real estate.

The partnership also seeks to address the critical needs of member companies and their employees relating to capital, loans, investments, insurance, and savings, through a bundled offer from across the VM Group. A similar partnership was established with the Transport Operators Development Sustainable Services (TODSS) and by extension the wider transport sector. These partnerships, coupled with our consistent and focused work in other areas, will surely make a significant impact on the local environment. This is a positive move to provide the fulsome support that is needed.

I urge all stakeholders, including political representatives, employers and pension fund managers to ensure that we work purposefully to ensure that we create the best possible environment for our elders and their families to thrive and enjoy their lives at all stages.

Employers, VM Pensions is ready to take that leap step with you in getting your team educated on retirement planning and signing up on a retirement plan. Once started, no matter how small it is, it can grow into a bountiful crop ready to be reaped in your golden years of life.

VM Pensions fully supports the Pension Industry Association of Jamaica (PIAJ) proposal of mandatory enrolment in an Approved Retirement Scheme for all employed persons. This will help to transform lives and is the kind of focused, national collaborative effort that is needed as we work together to create a better tomorrow.

*Source: Data for this article taken from the Inter-American Development Bank’s publication Aging in Latin America and the Caribbean — Social protection and quality of life of older persons. Data also retrieved from the website of the Financial Services Commission Jamaica website.

Conroy Rose is CEO of VM Pensions Management Limited. His technical expertise spans over 15 years and includes customer service, investment analysis, Portfolio Planning and business plan development and execution