In Jamaica, the normal retirement age for public sector workers is 65. However, in other parts of the world, the retirement age is rising. This is not surprising as the cost of living and life expectancy are increasing globally.

A 2024 report from the International Development Bank (IDB) revealed interesting findings and recommendations regarding the protection and growth of social security funds in Caribbean countries to meet the needs of the current and future generations.

According to the IDB, pension systems in the Caribbean are expected to be depleted of funds within 14 years if urgent steps are not taken to provide long-term viability of their social security systems. The IDB report examined the economic performance of Jamaica, the Bahamas, Barbados, Guyana, Trinidad & Tobago, and Suriname.

The IADB recommends that countries get rid of management inefficiencies, employ better investment policies, adjust the retirement age, and implement strategies that create robust safeguards which ensure that the needs of an aging population are realised.

The subject of pension reform is an important dialogue for all stakeholders at this time. I don’t believe many people are aware of the looming old-age pension crisis if prompt attention is not given to address pension reforms.

Jamaica has implemented pension reform, but more needs to be done as the country contends with an aging population and a low fertility rate. This means the country is at risk of future fiscal deficits, as people are living longer and birth rates are reduced.

A reduced birth rate means a reduced workforce, which leads to reduced contributions to social security or pension funds. If the pension age is further extended, more funds would be available for social security as people work longer.

Fiscal deficits occur when the Government’s spending is more than its revenues. In 2018 Barbados raised its retirement age from 65 to 67, and by 2034 it is expected to increase further to age 68. This is a proactive and strategic approach to pension reform.

The IADB highlighted the added challenge of migration and the fact that some of the countries mentioned above are facing fiscal deficits. Pension is a liability for governments and can worsen a country’s budget deficit. The IDB made some policy recommendations to reverse or prevent national insurance schemes from running out of money.

With regards to administrative inefficiencies, referred to earlier, the IDB urges room for improvement in managing administrative costs. IDB recommends an alignment of contributions and benefits and refers to Barbados as an example with its strategy of increasing the retirement age above age 65.

IDB identified investment portfolios as useful in providing income for retirees. “Foreign-owned” assets were recommended as a divestment strategy to grow pension income and reduce risks. The IDB report indicated that the capacity of national insurance schemes can be improved by utilising digital resources, monitoring and managing shifts in demography and financial burdens. In noting the demographic shifts in the Caribbean, the IDB report concluded that the implementation of strategic reforms will enhance the pension systems and secure a “dignified retirement” for the elderly.

Let’s look at what’s happening in two major countries that are making major changes to secure social security benefits for their elderly citizens. Temenos UK reported that the United Kingdom’s Government has proposed a retirement age of 68 or older. Currently, the retirement age is 66. There are several reasons for the changes being considered. Firstly, people are living longer, which means pensions will be paid over more years than in the past, since more retirees are living beyond age 80. With a shrinking workforce, fewer workers are making national insurance contributions from which the State pension is paid.

There is also a “public pressure budget” as the Department for Work and Pensions (DWP) is a significant part of the Government’s expenses. The UK Government seeks to align the number of years worked with the number of years to be spent in retirement, while encouraging the UK workforce to remain employed for much longer.

According to a report from the US-based law firm JCIP, the retirement age of 67 is likely to be changed to age 68, 69, or even 70. Based on a publication by the Social Security Trustees, the fund could be depleted by 2034 if no action is taken. The reasons are similar to those of the UK. The life expectancy of Americans has increased. This means social security benefits are extended for a longer time. Secondly, there is a strain on social security. With fewer workers, there is reduced pension available for retirees, and this puts greater financial pressure on the government. Finally, there is a longer stay on the job, which leads to more funds available for social security benefits. Other recommendations are being considered that could prevent the retirement age from being changed or work in tandem with the proposed age change.

Whether locally or globally, pension reforms are inevitable, and everyone should stay alert, particularly the younger generation who are likely to be impacted the most.

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

Grace G McLean