HARMONISATION OF PENSION SYSTEMS INSYSTEMS IN 

TRINIDAD AND TOBAGO

Pension Core Course

Washington D.C., 18 November 2011Washington D.C., 18 November 20111

AcknowledgementAcknowledgement

The following persons contributed to the development of the following proposal for Pension Reform in Trinidad and Tobago:

– Mr. Dharendra Wardhana (Indonesia)

– Ms. Sophie Hallal (Lebanon)Ms. Sophie Hallal (Lebanon) 

– Mr. Haleem Kashkol (Iraq)

M Mi h ll D h Ki (T i id d d T b )– Mrs. Michelle Durham‐Kissoon (Trinidad and Tobago)

– Mr. David Kaplan (USA)

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Presentation Outline1. Country at a Glance

2. Economic Overview2. Economic Overview

3. Demographic Overview

4 Existing Pension System Design4. Existing Pension System Design

5. Public Sector Pensions

6 Civil Service Pension Design6. Civil Service Pension Design

7. Performance Indicators

8 R f N d /Ch ll8. Reform Needs/Challenges

9. Enabling Conditions

10. Pension Reform Objectives

11. Reform Options

12. Consensus Building 3

1. Country at a Glance

• Area: 5 131 km2 • Energy Sector: 43 5%• Area: 5,131 km2

• Two main islands

• Republic (democratic)

• Energy Sector: 43.5%

• Non Energy Sector: 55.5%

– Agriculture: 0 6%Republic (democratic)

• GDP: $21.195 billion (2010)

• GDP per capita: $16,167 (2010)

Agriculture: 0.6%

– Manufacturing: 9%

– Services: 45.9% (Financial & Real p p $ , ( ) (Estate: 14.7%) 4

2008 2009 2010p 2011 (prov) 2012e

2. Economic Overview2008 2009 2010p 2011 (prov) 2012e

Percent changeChanges in real GDP 2.7  (3.3) 0.0  (1.4) 1.8 Changes in nominal  gGDP 28.0  (29.1) 6.9  8.2  6.4 

in percent of labourUnemployment rate 4.6  5.3  5.9 

Inflation Rate (Headline) 12.0  7.0  10.6  6.8 Food Price inflation 25.9  12.7  22.1 Core Inflation 6.2  4.1  4.3 

in percent of Fiscal Year GDPOverall Fiscal Balance 8.7  (10.6) (5.5) (4.2) (8.9)Central Government 8.0  (5.6) (1.0) (3.3) (4.89)Rest of Public Sector 0.7  (5.0) (4.4) (0.9)

Net Public Sector Debt 24.9  34.1  39.2  38.4  44.9 Percent changePercent change

Basic Prime Rate 12.3  12.1  9.5 Ordinary Savings Rate 1.9  1.3  0.4 Deposits 6‐12 months 4.1  3.3  1.6 

Months of Imports 11.2  11.9  13.1 ‐ ‐5

3. Demographic Overview2008 2009 2010 2011

Total Population 1,308,587 1,310,106 1,317,714 1,325,402

Total  Male 656,257 657,018 660,822 664,677

Total  Female 652,230 653,088 656,892 660,725

Under 15 ys (%) 25.3 25.3 25.3 25.3

Over 60 yrs (%) 10 10 10 10

Dependency Ratio (%) 48 47 47 na

Participation Rate 63.5 62.7 62.1 na

Births per 1000 persons 14.12 15.25 15.40 15.21

Deaths per 1000 persons 7.70 7.68 7.68 7.06

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4. Existing Pension System DesignZero Pillar First Pillar Second Pillar Third Pillar

P S i Ci i N i l Ci il S i S S i PlProgrammes Senior Citizens Pension

National InsurancePension

Civil ServicePensions

StatutoryAuthorities, State Enterprises and

Savings Plans and Annuities

Enterprises and Private Sector Occupational Plans

Managed by Ministry of the People and 

National Insurance

Ministry of Finance

Trustees (supervised by 

Based on the planp

SocialDevelopment

Board of Trinidad & Tobago

( p yCBTT)

p

Financed by National Budget

Contributions & Reserves

National Budget

Contributions into the Fund

Contributions into the Plan

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4. Existing Pension System Design (cont’d)Zero Pillar First Pillar Second Pillar Third Pillar

Programmes Senior Citizens National Civil Service Statutory Savings PlansProgrammes Senior Citizens Pension

National InsurancePension

Civil ServicePensions

StatutoryAuthorities, State Enterprises 

Savings Plans and Annuities

pand Private Sector Occupational Plans

Retirement  65 and older Between 60  Varies  Generally 60 Based on Age and 65 between 45 & 

60plans

Benefit $3,000 per  $2,500 per  Defined  Mostly  Mostly month, with no income (means tested)

month, once 750 weekly  payments made

Benefit, pegged to final salary

Defined Benefit

Defined Benefit

made8

5. Public Sector Pensions

Expenditure on Public Sector Pensions over Fiscal Year 2010 – 2012 (P DB S h )(Pay‐as‐you‐go DB Scheme)

2010 2011 2012

P bli S t P i (US$ M ) 0 289 0 328 0 370Public Sector Pensions (US$ Mn) 0.289 0.328 0.370

Senior Citizens Pensions (US$ Mn) 0.282 0.431 0.403

Total Expenditure (US$ Mn) 0.571 0.759 0.773

Total Expenditure as a % of GDP 2.8 3.7 3.5

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6 Civil Service Pension Design6. Civil Service Pension Design (Detailed)

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Description of Existing Pension System

Group Descriptionp p

Public ServantsTeachers

Vesting period of 5 yrs;Pension deferred to age 55;Retirement from age 50;Retirement from age 50;Compulsory  ‐ age 60;Can retire on medical grounds;Calculation – 2% final salary for every year workedy y yMinimum pension ‐ $of 3,000;Maximum – 2/3 of final pensionable salaryPension payable only for life/no survivor benefit;p y yPension fixed – no inflation protection.

Police OfficersFire Officers

Vesting period of 5 yrs;Pension deferred to age 55;Fire Officers Pension deferred to age 55;Retirement from age 50;Compulsory  ‐ age 55 & 60;Can retire on medical grounds;g ;Calculation– 2.5% of final salary for every year workedMinimum pension ‐ $3,000;Maximum – 85% of final pensionable salary

11Pension payable only for life/no survivor benefit;Pension fixed – no inflation protection.

Description of Existing Pension System

Group Description

Defence Force No Vesting period;Pension deferred to age 55;Retirement after 20 yrs service;yCompulsory  ‐ age 45 & 55;Can retire on medical grounds;Calculation – 2.5% of final salary for every year workedMinimum pension ‐ $3,000;Maximum – 2/3 of final pensionable salaryPension payable only for life/no survivor benefit;Pension fixed – no inflation protection.

Prison Officers Vesting period of 5 yrs;Pension deferred to age 55;Retirement from age 50;Compulsory  ‐ age 55 & 60;Can retire on medical grounds;Calculation – 2.5% of final salary for every year workedMinimum pension ‐ $3,000;Maximum – 85% of final pensionable salary

/12

Pension payable only for life/no survivor benefit;Pension fixed – no inflation protection.

Description of Existing Pension System

Group Description

Diplomatic Services

Vesting period of 5 yrs;Pension payable from age 55;Compulsory ‐ nil;Compulsory   nil;Can retire on medical grounds;Calculation – 3% of final salary for every year worked + 10% gratuity;Minimum pension ‐ $3,000;p $ , ;Maximum – 2/3 of final pensionable salarySurvivor Pension paid;Pension fixed – no inflation protection.

Legislators Vesting period of 5 yrs;Pension payable from age 55;No Compulsory retirement ageNo Compulsory  retirement age;Can retire on medical grounds;Calculation – a % of final salary;No Minimum pension;No Minimum pension;Maximum – 2/3 of final pensionable salarySurvivor Pension paid;Pension fixed – no inflation protection

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Pension fixed  no inflation protection.

Description of Existing Pension System

Group Description

Members of Industrial Court

Vesting period of 5 yrs;Pension deferred to age 55;Retirement from age 50;g ;Compulsory  ‐ age 60;Can retire on medical grounds;Replacement rate – 2% of final salary for every year workedMinimum pension ‐ $3,000;Maximum – 2/3 of final pensionable salaryPension payable only for life/no survivor benefit;Pension fixed – no inflation protection.

Higher Judiciary Vesting period of 5 yrs;Pension deferred to age 55;Retirement from age 50;Compulsory  ‐ age 55 & 60;Can retire on medical grounds;Replacement rate – 2.5% of final salary for every year workedMinimum pension ‐ $3,000;Maximum – 2/3 of final pensionable salary

14Pension payable only for life/no survivor benefit;Pension fixed – no inflation protection.

7. Performance IndicatorsIndicators

Coverage a. 85% of workers/81% of labour force for persons 18 and 64;for persons 18 and 64;

b. 100% for persons 65 and over.

Architecture of system a. Multi‐pillar;b Public Sector governed by anb. Public Sector governed by an 

estimated 32 pieces of legislation

Replacement rates Varied

Old age poverty To be determined

Incomes of older people Data to be obtained

L t fi i l j ti T b d t i dLong term financial projections To be determined

Retirement incentives and behaviour a. Young retirement age; andb. Minimum pension of 

TT$3,000/US$466.56 per month encourage applications for early retirement

Structure of the retirement income package

Varied15

8. Reform Needs/ChallengesZero Pillar First Pillar Second Pillar Third Pillar

Programmes Senior  National  Civil Service  Statutory Savings Plan gCitizens Pension

Insurance Pension

Pensiony

Authorities, State Enterprises 

gand Annuities

and Private Sector Occupational Plans

Reform  Generous – Approx  Estimated 32 pieces of  Tighter Needs or Challenges

Cost 3.7%of GDP in 2011 FY

90,000 “informal” workers, not 

legislation dealing with Ministries, Statutory Authorities and State 

regulation and closer supervision 

covered Enterprises

Gaming (Loopholes) Non contributoryy

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8. Reform Needs/Challenges (cont’d)Zero Pillar First Pillar Second Pillar Third Pillar

Programmes Senior Ci i

National I

Civil Service P i

StatutoryA h i i

Savings Plan dCitizens 

PensionInsurance Pension

Pension Authorities, State Enterprises and Private

and Annuities

and Private Sector Occupational PlansPlans

Reform Needs or

Average wait time is 1 year

Confidence shaken with fallof major financial companyNeeds or 

Challengesis 1 year of major financial company

Processedmanually with nonmanually with non technical staff

No pension forNo pension for Daily paid workers 17

8. Reform Needs/Challenges (cont’d)Zero Pillar First Pillar Second Pillar Third Pillar

Programmes Senior National Civil Service Statutory Savings PlanProgrammes Senior Citizens Pension

National Insurance Pension

Civil Service Pension

StatutoryAuthorities, State Enterprises, 

Savings Plan and Annuities

p ,and Private Sector Occupational Plans

Reform  Low financial literacy with non‐technical Needs or Challenges

ygrades officials

Industrial unease among publicIndustrial unease among public sector workers

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9 Enabling Conditions9. Enabling Conditions

ili fi i l h i b ia. Resilient financial system. The system is being improved through the strengthening of the I d C dit U i t d thInsurance and Credit Union sectors and the Securities industries, as well as the drafting of Anti money laundering regulationsAnti‐money laundering regulations;

b. Capital market is well developed;c. All workers are required to register with the 

NIBTT and are assigned a unique identifier;d. IDB is financing a Reform Programme for the 

consolidation of social assistance programmes;p g19

9 Enabling Conditions (cont’d)9. Enabling Conditions (cont d)

e. Existence of a Sovereign Wealth Fund with a net asset value of approx US$4 billion as at ppSeptember 30, 2011.

f Poverty headcount and poverty gap is notf. Poverty headcount and poverty gap is not significant (4.2% of population at PPP $1.25 a 

)day)

g. Debt ratio is still manageable (below 50%).g. Debt ratio is still manageable (below 50%).

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10. Pension Reform Objectivesj

Long Term

Medium Term

• Development of Old Age Income Strategy

• Harmonization• Portability

Strategy

Short Term

• Cost Reduction• Cost Reduction• Improvements in Processing

• Calm Industrial21

• Calm Industrial Unease

11 Reform Options11. Reform Options

First Pillar option –most suitable at this point in time because it will remain a publicbecause it will remain a public scheme yet allow for the widening of contributory systemg y y

Second and Third Pillar optionsSecond and Third Pillar options – unsuitable at this stage because of recent failure of major financial conglomerate –confidence level is low

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11. Reform Options (cont’d)•Increase the Retirement Age to 65 for all classes of the Civil Service (new entrants) except Diplomats and Legislators and for members of those classes who have worked less than 10 years;

p

classes who have worked less than 10 years;•Opportunity for Civil Servants who have worked for 10 years or more, to increase their retirement age to 65;

• Fix the age for qualification for NIS benefits at 65• Increase vesting period to 10 years;

Parametric Reforms •Increase vesting period to 10 years;

• Indexation of retirement income to inflation and GDP growth

•Restructure the National Insurance Board of Trinidad & Tobago (NIBTT) to EVENTUALLY th i f th i il iEVENTUALLY manage the pensions for the civil service

•Partially funded Defined Benefit Contributory system for public workers, less than 10 years, 2.5% employee/3% employer ‐ Grandfathering;

•Workers 10 years and over have option to transfer to Contributory system; and

Systemic R f and

• Introduce same system for daily‐paidsReforms

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11. Reform Options (cont’d)Parametric Reforms

Capacity Development:

‐ Database h hcreation through 

IT System establishment

Training and‐ Training and Education 

A i l d Civil Service Pension Reforms

Actuarial and Pension Policy 

Analysis

Improvement onImprovement on Physical 

Infrastructure  Systemic Reforms

24

Does it Fit?Does it Fit?

Y• Yes• Government’s current policy agenda is focused on consolidation of all Social Safety Neton consolidation of all Social Safety Net Programmes including reduction of gaming the systemsystem.

25

12 Consensus Building12. Consensus Buildingevel Establishment 

evel Establishment  ion Separate  ion Nationwide 

High‐Le of Ministerial 

Steering Committee Lo

wer‐Le

of Technical Committee including PR  D

isseminat discussions with the stakeholder  

ommun

icat public 

consultationsg

Specialist(s)

D

groups such as Trade Unions Pu

blic Co

26

Comments and Questions are Welcome :)Thank Yo‐ Thank You ‐

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