Pension-reform delays costing Government $2b per month
A TEAM of senior actuaries representing the Caribbean Actuarial Association (CAA) yesterday urged the Government to implement new public-sector pension reforms as early as possible.
"Each month that we delay this process, it costs us $2 billion. In other words, the option to delay is not in favour of the Government. Time is not on our side," Ravi Rambarran, chairman of the Caribbean Actuarial Association's Public Sector Reform Committee, told members of the Joint Select Committee on Public Sector Pension Reform.
The CAA was the final group making its presentation to the committee.
Deliberations are expected to come to an end next Wednesday and the committee will then prepare a report for submission to the House of Representatives. A debate by parliamentarians on the report will follow.
Giving more details on the cost to the administration as a result of delayed implementation, the senior actuary said: "The legacy liability is about $250 billion as at last year. At a borrowing cost of 10 per cent that is about $25 billion per year. That means each month that we delay this process, it costs us $2 billion."
Explaining what legacy liability meant, Rambarran pointed out that it related to accrued liability for service already provided.
The CAA chair on public-sector pension reforms said the legacy liability was about 20 per cent of GDP (gross domestic product). However, he stressed that if the Government implemented the group's recommendations, the legacy liability would fall to 15 per cent of GDP, which represented a one-time saving.
He indicated that the one-time saving of five per cent of GDP would translate to about $60 billion.
"Given that our real GDP grew by one per cent (last fiscal year), this is a real saving," Rambarran added.
The CAA team indicated that its proposals, if accepted by Government, would also result in savings of 0.3 per cent of GDP, which amounted to about $4 billion per annum. "In the context of real savings of 0.3 per cent, this is a significant recurring number," Rambarran added.
He said another proposal, which included the immediate deferral of the normal retirement age from 60 to 65 years, would create fiscal breathing space. He argued that it would defer close to $45 billion worth of cash payment over the next five years.