Is there a right age to retire?

The recent furor caused by the proposal to change the retirement age in our country from 60 to 65 is understandable, as it may appear draconian and unfair, particularly for those on the cusp of retirement. When we look at some of the underlying factors however, the move is in fact long overdue and not as unreasonable as it may seem.

50 years ago life expectancy in Trinidad and Tobago (T&T) was 63 for males and 67 for females. Today, those figures have climbed to 71 and 76 years respectively. So if people are living longer, how can they be expected to live on the SAME pool of savings now stretched over a longer lifespan? The money will simply run out.

All citizens who make weekly contributions to the country’s National Insurance Fund (the NIS Fund) during their working career are eligible for NIS pension and other benefits out of that Fund. For the most part, and through no fault of their own, retired citizens were not required to make contributions to the NIS Fund over their working careers at the level now required to support the current pension payout of $3000/month in retirement, therefore creating a funding shortfall.

Please bear in mind as well that the purchasing power of the contributions made by these retirees during their working years has dwindled over time due the effects of inflation.
The last few actuarial reports on the NIS Fund show that it is the members of our working class in their latter 30’s and 50’s who are predominantly contributing to the Fund and therefore sustaining the ongoing payment of NIS pension to retirees. When compared against population projections in the next 30 years however (see diagram below), our 60 year olds will be the largest age group in the country, with a dwindling working class to support NIS contributions. This ageing population trend is something to be concerned about.

It is only logical then that the shrinking working class who contribute to the NIS Fund in T&T will have to work for more years to build BOTH their pension bank, AND to support the NIS benefits due to our retired citizens (our parents and grandparents). Moving the country’s retirement age to 65 is a necessary reality to support this.

The Facts

By law, in T&T, we are already allowed to contribute to our National Insurance up to age 65, even though the official retirement age in our public sector is 60. However, under a contract of employment, the private sector is able to determine the retirement age of their employees. In fact, there are many companies in T&T right now where the contractual age of retirement is 65. The employees of these companies therefore only start drawing their company pension, as well as their NIS benefits, from age 65. As the largest employer in the country by far, the public sector needs to move with the times by updating their official retirement age to also be 65.
In many developed countries, the pension legislation provides for regular review of the national pension age, which is conducted at least every 5 years.
- In Britain, the current pensionable age is 66, but for persons born between 1961 and 1977, that age will change to 67 by the time those persons reach the age to retire.
- In the USA, the current pensionable age is 66 years and 10 months, which means that in a few years, that age will also move to 67.
- In Barbados, there isn’t even a legal age of retirement. Talk about progressive! It has however become practice by employers there, to use age 67 as the retirement age.

As it is understandable that persons who have made their plans and have been looking forward to retiring at 60 will undoubtedly be disappointed by an increased retirement age, it would perhaps be wise to implement this change in T&T on a staggered basis, similar to what is done in the US and Britain. This has also been the recommendation from the most recent Actuarial Report of the NIB fund ie to phase in the increase in the current age of eligibility for the National Insurance pension to age 65, over a 10 year period starting in 2025. This is important, as it provides affected citizens with time to reflect and adjust their retirement goals if needed. Furthermore, persons would still be able to take early retirement and access the NIB pension at age 60, though it would be at a reduced pension and not the full amount as if they waited to retire at the new proposed age of 65.

Conclusion

Given the projected continuing increase in life expectancy rates, it would then follow naturally that contribution amounts and/or working years will have to be subsequently increased for our children and grandchildren in order to sustain OUR retirement payouts. This supports the progressive move, 50 years after it was first set, to start increasing the country’s retirement age in keeping with current and forecasted trends of persons living longer, while the purchasing power of a dollar saved today contracts over time.